Rapid Recap
In February, Dave’s prospects appeared to be improving rapidly, with the business expected to reach breakeven in Q4 and growing at a rapid pace. However, the blemish in this thesis was its restrictive balance sheet. Despite this, there were ample positives to drive the share price higher than $24 per share.
Author’s Work on DAVE
Since then, the stock has moved up strongly. Despite this solid outperformance versus the S&P 500, investors are not fully pricing in its prospects.
Dave’s Near-Term Prospects
Dave is committed to simplifying money management for ordinary individuals and steering clear of excessive fees. Their suite of offerings includes ExtraCash, which offers interest-free cash advances, a digital checking account called Dave Banking, a budgeting tool, and avenues for earning additional income through surveys and more. Dave prioritizes delivering user-friendly financial solutions without the need for intricate banking arrangements, leveraging data analysis to ensure cost-effective services.
As a neobank, Dave has established itself as a leader in providing innovative financial solutions, particularly catering to the needs of millennials and Gen Z. Its flagship product, ExtraCash, offers instant and interest-free credit for essential expenses like gas and groceries, resonating strongly with its target demographic. This offering not only addresses immediate liquidity needs but also fosters customer loyalty and engagement.
Moreover, Dave’s digital-first banking account complements ExtraCash, providing affordable banking services to a market segment traditionally underserved by incumbent banks. By strategically investing in its digital banking infrastructure, Dave is well positioned to capitalize on synergies between its various products, driving further growth and engagement among its member base.
Furthermore, Dave’s focus on deepening relationships with its members through initiatives like direct deposit and top-of-wallet spending behavior underscores its commitment to long-term value creation. By leveraging ExtraCash to encourage cross-attachment to the Dave Card and driving spending volume, the company aims to strengthen its position as a preferred banking solution for everyday people.
Given this background, let’s now turn to discuss both the blemish with the bull case as well as the core bull case.
Revenue Growth Rates Require Interpretation
DAVE revenue growth rates
Dave’s growth rates have been choppy, with the company delivering over 40% CAGR rates in one quarter, around mid-30s% CAGR in another, and then around the mid-10s% in another. This is not a secular growth business, and it wouldn’t be surprising to see Dave missing analysts’ growth expectations in this upcoming Q1 earnings report.
Nonetheless, this consideration of its erratic growth rates may already be priced in.
DAVE Stock Valuation — 7x EBITDA
Dave has made tremendous progress in stabilizing its balance sheet. Presently, Dave has approximately $75 million of cash and equivalents against $75 million of debt, resulting in a net neutral position. This means that the business holds a net neutral position in terms of its debt and cash.
As a result, investors can appraise Dave on its underlying profitability and not on whether or not this business will survive. This is a game-changer for investors.
As it stands, Dave is guiding for $45 million of EBITDA at the high end of its 2024 target. This leaves Dave priced at 9x EBITDA, a figure that is very attractive, particularly given that there’s considerable growth still left in the business.
However, context is important. Dave ended 2023 at minus $10 million of EBITDA, so a massive amount of improvement can be expected this year from Dave.
Furthermore, if we extrapolate this improvement in profitability out to mid-2025, we can see that Dave is more likely than not able to reach $60 million of EBITDA at some point in the next 12 months. This leaves Dave priced at less than 7x forward EBITDA. A bargain price.
The Bottom Line
In conclusion, Dave is a fintech committed to simplifying money management for everyday individuals. With a strong focus on improving operational efficiency and driving revenue growth, the company has successfully achieved profitability and positioned itself for continued success. Despite potential fluctuations in revenue growth rates, Dave’s stabilization of its balance sheet and guidance for significant EBITDA improvement signal a positive trajectory ahead. Trading at an attractive valuation of under 7x forward EBITDA and with the potential for further profitability enhancement, Dave presents an appealing investment opportunity.
