Jason Wilk
Source: Jason Wilk
Jason Wilk, the CEO of the digital banking service Daafremembers the absolute low point in his short career as head of a listed company.
It was June 2023 and his company’s shares had recently fallen below $5 each. Desperate to keep Dave afloat, Wilk found himself in a Los Angeles conference for micro-cap stocks, where he pitched investors on small $5,000 shares of his company.
“I’m not going to lie, this was probably the hardest time of my life,” Wilk told CNBC. “To go from a $5 billion company to $50 million in 12 months was so incredibly difficult.”
But in the months that followed, Dave became profitable and consistently exceeded Wall Street analyst expectations in revenue and profit. Now Wilk’s company is the biggest gainer among U.S. financial stocks for 2024, up 934% year to date through Thursday.
The fintech company, which makes money by making small loans to cash-strapped Americans, is emblematic of a larger shift that is still in its early stages, said JMP Securities analyst Devin Ryan.
Investors had dumped high-flying fintech companies in 2022 as a wave of unprofitable companies like Dave went public through special purpose acquisition companies. The environment suddenly shifted from rewarding growth at any cost to deep skepticism about how money-losing companies would deal with rising interest rates as the Federal Reserve fought inflation.
As the Fed has eased interest rates, investors have flocked to financial companies of all sizes, including alternative asset managers KKR and credit card companies such as American Expressthe best performing financial stocks this year, with market capitalizations of at least $100 billion and $200 billion respectively.
Major investment banks, including Goldman Sachsthe biggest gainer among the six largest U.S. banks, have also risen this year on hopes of a recovery in Wall Street deals.
Dave, a fintech company that is acquiring major banks such as JPMorgan Chase, is a standout stock this year.
But it’s fintech companies like Dave and… Robinhoodthe commission-free trading app, which are the most promising direction next year, Ryan said.
Robinhood, whose shares are up 190% this year, is the biggest gainer among financial companies with a market capitalization of at least $10 billion.
“Both Dave and Robinhood went from losing money to incredibly profitable businesses,” Ryan said. “They have put their house in order by growing their revenues at an increasingly rapid pace while keeping expenses under control.”
While Ryan sees valuations for investment banks and alternative asset managers as at a “stretched” level, he says “fintechs still have a long way to go; they are just at the beginning of their journey.”
The financial sector in general had already started to benefit from the Fed’s easing cycle as Donald Trump’s election victory last month increased interest in the sector. Investors expect Trump to ease regulations and enable more innovation with administration appointments, including formerPayPal director and Silicon Valley investor David Sacks as AI and crypto czar.
These expectations have boosted the shares of established players such as the US JPMorgan Chase And Citi Groupbut have had a greater impact on potential disruptors like Dave, who could benefit even more from a more accommodating regulatory environment.
Gasoline and groceries
Dave has built a niche among Americans not served by traditional banks by offering free checking and savings accounts.
It mainly makes money by making small loans of about $180 each to help users “pay for gas and groceries” until their next paycheck, Wilk said; Dave averages about $9 per loan.
Customers come out ahead by avoiding more expensive forms of credit from other institutions, including the $35 overdraft fees charged by banks, he said. Dave, that’s not a bank, but partners with one, charges no late fees or interest on cash advances.
The company also offers a debit card, and interchange fees on transactions by Dave customers will account for an increasing share of revenue, Wilk said.
While the fintech company faces far less skepticism now than it did in mid-2023 — of the seven analysts tracking it, all rate the stock as a “buy” according to Factset — Wilk said the company still has more to prove.
“Our company is doing so much better now than when we went public, but the price is still 60% below the IPO price,” he said. “Hopefully we can find our way back.”