Lesson Learned From Green Dot (GDOT, WMT, AXP)
When Green Dot Corporation (NYSE:GDOT) reported disappointing revenue projections back in late July of last year, the stock took a 60% hit, I thought the move was errant. When Wal-Mart Stores, Inc. (NYSE:WMT) sorta stabbed Green Dot Corporation in the back by teaming up with American Express Company (NYSE:AXP) to offer a new kind of prepaid credit card/virtual bank account and GDOT shares tanked 20%, I thought that was a mistake too. That's not to say the Wal-Mart/American Express deal was going to be a non-event for Green Dot any less than the lowered guidance from July was. But, in both cases, I opined that traders were acting on superficial impulse rather than thinking with their heads.
It was a minority opinion; most folks disagreed with my "here's a buying opportunity" stance. Fair enough. As it turns out, however, I was right.
Since my July comments, GDOT has snapped back 34%. Since my October comments, the stock's rallied 37%. What gives? Wasn't the deal between American Express and Wal-Mart supposed to drive the nail into the coffin of an already-struggling Green Dot? That was the assumption anyway. But, as it turns out....
- Reality #1: The market over-reacted. We see it happen from time to time, but sometimes, traders take the ball and run with it. That doesn't make them right.
- Reality #2: While the WMT and AXP partnership really is a threat to GDOT, it's not like the retailer and the credit card company actually did anything that Green Dot Corp. couldn't copy and offer on its own, and put itself right back in contention with the so-called BlueBird service Wal-Mart and American Express created between them.
Fast forward to today. Know why GDOT shares are up more than 4%? Because it's launching a mobile bank account service. Though the company hasn't said the new service is a way to combat BlueBird, it doesn't take a genius to figure out the prompt.
Critics will rightfully point out that Wal-Mart is a marketing powerhouse, and American Express is a very established card name. What the critics are overlooking is that AXP is also a bit of a fish out of water. It was built from the ground up as a true credit service provider catering to an affluent customer base. Bluebird is something totally different. And, as it turns out, not everybody is as enamored with Wal-Mart's service and branded 'stuff' as the company would like to believe. See, outside of Wal-Mart's stores, BlueBird is no more potent than any other name in the business. Indeed, Green Dot may have relied heavily on Wal-Mart as a sales venue, but it's got more than a few other retailers to work with. BlueBird doesn't (at least not yet). Now that GDOT is also a virtual bank account though, consumers are back to where they were.... unsure that any of these cards are better than another.
The moral of the story, however, is bigger than any of that. The moral of the story is that the market over-reacts, and when it does, money can be made.
Oh, and just for the record, GDOT shares have pushed their way above a major resistance line at $13.47, which had capped two rally efforts since August. Now that it's out of jail, the bulls may be gunning to close that big gap left behind from the July plunge.
Bryan Murphy is a paid contributor of the SmallCap Network. Bryan Murphy's personal holdings should be disclosed above. You can also view SmallCap Network's complete disclaimer and disclosure.
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| Date: | May 26, 2013 | |
| Price: | Free | |
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