Recently, digital banking app provider Dave (DAVE -0.91%) began trading on the Nasdaq after completing its merger with the blank-check company VPC Impact Acquisition Holdings III. Since then, the Mark Cuban-backed stock has been hit hard, down more than 42%. It's certainly not the only company to complete a merger with a special purpose acquisition company (SPAC) and then see shares struggle as investors question long-term financial projections and initial valuations at deal time. Here are three things to know about the latest fintech to go public.
1. David vs. Goliath
The name Dave derives from the biblical story of David beating Goliath in combat. It refers to being an underdog, which is how Dave sees itself compared to the larger traditional banks. The fintech's main strategy is to target customers that the company believes are being taken advantage of by the larger financial institutions. The key area Dave focuses on right now is overdraft fees, claiming that the average American pays $300 to $400 in overdrafts annually. Dave says it has helped Americans save $1 billion in overdraft fees since it launched. It does this with its flagship product, ExtraCash, which offers members up to a $200 cash advance at no interest. Other products the app offers are a personal finance tool called Insights, which lets users track their monthly bills, and Side Hustle, which allows members to apply for various part-time jobs, such as working for Uber, Lyft, and Doordash. Dave also offers a checking account product. Dave currently makes almost all of its money through optional tips and instant transfer fees on ExtraCash, subscription fees for using Insights, and referrals from participating Side Hustle companies.
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2. Chime-like user numbers
The app has amassed more than 11 million users since its launch in 2017. Contrast that with Chime, which is regularly touted as one of the biggest and most impressive fintechs; it launched in 2013 and reportedly has more than 13 million customers, so Dave's growth is pretty impressive. In October, there were reports that Chime was thinking about going public at a $35 billion to $45 billion valuation. The difference is that Chime's users all have deposit accounts through the company, whereas Dave has only signed up about 1.3 million of its users for accounts, though the company seems to be placing more emphasis on getting users enrolled in cash-management accounts now.
3. $4 billion enterprise value
The merger gave Dave a $4 billion enterprise value, which may not seem too crazy when you think about users and what fintechs like Chime and Nu Holdings are fetching. But remember, only 1.3 million of Dave's users are enrolled in a checking account. The $4 billion number values Dave at close to 21 times current revenue and close to 11 times next year's revenue. That's a pretty lofty premium in today's market, where fintechs are getting hammered and the Federal Reserve is thinking about shrinking its balance sheet and essentially removing liquidity from the system.
The $4 billion figure gives Dave a higher revenue multiple than companies like lending platform provider Upstart and the one-stop financial services specialist SoFi, even though both businesses are generating a lot more revenue than Dave. After the big hit to its stock, Dave's market cap has fallen to $1.64 billion. The company has ambitions to build out other banking and cryptocurrency products, but right now its main revenue driver is based on helping people avoid overdraft fees, a punitive practice that seems to be on the decline among traditional banks. For these reasons, the $4 billion enterprise value certainly looks lofty.
