Dave grows membership base as economic conditions tighten (NASDAQ:DAVE)

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A quick take on Dave

David (NASDAQ: DAVE) recently released its Q1 2022 financial and operating results on May 11, highlighting increased revenue, gross profit and growth in its membership base.

The company offers financing services through its mobile-centric app of the same name.

While demand for Dave’s offerings may indeed increase in the event of an economic downturn or recession, it seems too early to tell to what extent the company will be able to produce better financial results in the short term.

DAVE might be a watchlist stock, but for now I’m on hold.

Introducing David

West Hollywood-based Dave was founded in 2015 to develop a suite of online personal financial management services for its members.

The company is led by Founder and CEO Jason Wilk, who previously founded WriteyBoard, AllScreen and 1DaySports.com.

The company’s main offerings include:

  • Additional cash – cash advance

  • Side Hustle – connections to local and flexible jobs

  • Dave Banking – digital check and demand deposit account

The company was backed by billionaire Mark Cuban and went public in a SPAC merger deal with VPC Impact Acquisition (VPCB) for a net worth of approximately $4 billion. The deal was completed in January 2022.

Dave acquires customers through a variety of online means, including search engine marketing and online partners.

The company recently received $100 million in investment from popular cryptocurrency exchange FTX US, where FTX will serve as the exclusive partner for crypto assets to be introduced on the Dave platform.

Dave’s market and competition

According to a 2020 market research report According to Allied Market Research, the mobile banking market was estimated at $715 million in 2018 and is expected to reach $1.8 billion by 2026.

This represents a projected CAGR (compound annual growth rate) of 12.2% from 2019 to 2026.

The main drivers of this expected growth are the growing adoption of smartphones for banking and financial services and improved innovation by financial service providers.

Also, this report is limited to mobile banking, so markets for loans or cash advances and other services would add to these numbers.

While the North America region accounted for a large market share, the Asia-Pacific region is expected to produce the highest CAGR per region at 16.0% from 2019 to 2026.

Other key market players or competitors include:

  • Carillon
  • Deserve
  • Same
  • B9
  • Bank Varo
  • Sesame Credit
  • SilverLion
  • Constant
  • braving
  • Empower finance

Dave’s recent financial performance

  • Total revenue per quarter has increased moderately over the past three quarters:

Total turnover over 5 quarters

Total turnover over 5 quarters (Looking for Alpha)

  • Gross profit per quarter has increased but recently plateaued:

Gross profit over 5 quarters

Gross profit over 5 quarters (Looking for Alpha)

  • Selling, G&A expenses as a percentage of total revenue per quarter trended upwards, indicating that the business is becoming less efficient at generating revenue over time:

Sales over 5 quarters, G&A % of turnover

Sales over 5 quarters, G&A % of turnover (Looking for Alpha)

  • Operating losses per quarter have worsened significantly over the past three quarters:

Operating result for the 5 quarters

Operating result for the 5 quarters (Looking for Alpha)

  • Earnings per share (diluted) remained mainly negative over the last 5 quarters:

5 quarters of earnings per share

5 quarters of earnings per share (Looking for Alpha)

Over the past 12 months, since its SPAC merger, DAVE’s stock price has fallen 93.9% compared to the US S&P 500 Index decline of around 13.9%, as shown the graph below:

52 week stock prices

52 week stock prices (Looking for Alpha)

Evaluation measures for Dave

Below is a table of relevant capitalization and valuation figures for the company:

Measure

Rising

Enterprise value

$65,030,000

Market capitalization

$209,480,000

Enterprise Value / Sales [TTM]

0.40

Price / Sales [TTM]

0.55

Revenue growth rate [TTM]

24.84%

Operating cash flow [TTM]

-$80,800,000

Earnings per share (fully diluted)

-$0.30

(Source – Alpha Research)

Comment on Dave

In its latest earnings call (Source – Seeking Alpha), covering Q1 2022 results, management highlighted the addition of 340,000 net new members, ending the quarter with 6.4 million members.

Notably, 1.45 million of its members (22.7%) made at least one “funding, spending, ExtraCash or subscription transaction” during the quarter.

Founder and CEO Jason Wilk said he believes the reduction in fiscal stimulus and tighter financial conditions supports the company’s value proposition to users who may need its services more in a more economic environment. hard.

So, the company plans to add features and capabilities to its service offerings, especially ExtraCash, whose management is seeing an increase in user engagement and usage.

In terms of its financial results, revenue and gross profit continued on their moderate growth trajectory, but GAAP operating losses worsened significantly during the quarter and continued their deteriorating trend during of the last three quarters.

The company expensed significantly higher provisions for bad advances in the quarter, in part due to higher transaction volumes.

The company’s margin results decreased by 700 basis points from the fourth quarter of 2021, due to the “timing of higher origination volumes, requiring additional provisions for bad advances rather than changes in our overall credit performance”.

Notably, there was no mention of crypto initiatives in the remarks prepared for the earnings call or in the Q&A section.

On the balance sheet, the company ended the quarter with $302.3 million in cash and marketable securities, giving the company significant capital to push forward with its growth initiatives over the next few years.

Looking ahead, management reiterated its guidance for 2022 in part due to what it believes to be more favorable macro-environmental conditions for user demand for its offerings.

On valuation, the market values ​​the company at an EV/Revenue multiple of just 0.4x despite nearly 25% revenue growth.

The main risk to the company’s outlook is the uncertainty surrounding its unrecoverable early cancellations in the event of an economic downturn.

A potential catalyst on the upside would be a mild economic slowdown which could increase demand for its services.

Another potential upside is the rapid onboarding of crypto offerings from its deal with FTX US combined with a cyclical bull market for crypto possibly in 2023, however, the timing and extent of crypto market demand are to be guessed.

While demand for Dave’s offerings may indeed increase in the event of an economic downturn or recession, it seems too early to tell to what extent the company will be able to produce better financial results in the short term.

DAVE might be a watchlist stock, but for now I’m on hold.

About Lolita Plowman

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