Shares of Green Dot (NYSE: GDOT), maker of prepaid debit cards under the GO2bank brand name, among other financial products, were tanking Friday after the company's third-quarter earnings report failed to live up to expectations.
As of 2:20 p.m. ET, the stock was down by about 37%.
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Green Dot's profits disappeared
Green Dot reported that revenue increased 3% in the quarter to $353 million, which beat the analysts' consensus expectation of $335 million.
While gross dollar volume (the dollars loaded onto its account products) rose, the company saw weakness in a number of key metrics, including purchase volume, which was down 17% to $5.36 billion. The number of active accounts also fell from 4.33 million in the year-ago quarter to 3.67 million, reflecting weakness in both its consumer services and B2B services segments.
As a result, its profit margins fell sharply. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell from $45.5 million in the prior-year period to $23.7 million in the latest quarter, and adjusted earnings per share tumbled from $0.44 to $0.14, missing analysts' consensus estimate of $0.21.
"Despite continued headwinds, we are encouraged by the progress we made completing our processor conversions and the opportunity to refocus our resources and efforts on growth-oriented initiatives," said CEO George Gresham.
Few signs of a recovery
While the company may be making operational progress, its guidance indicated that management expects it to continue struggling on the bottom line. Green Dot lowered its full-year adjusted EPS guidance from the previous range of $1.80 to $1.90 to a range of $1.62 to $1.69 -- a decline of 36% at the midpoint.
Businesses that cater to low-to-medium-income customers have generally been reporting weak results as those consumers have been particularly challenged by high interest rates and inflation. That climate is expected to persist for at least the next few quarters, meaning investors should anticipate that Green Dot will continue to struggle.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Green Dot. The Motley Fool has a disclosure policy.
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