Dave Inc. (NASDAQ:DAVID) completed its merger with VPC Impact Acquisition Holdings III, a publicly traded Special Purpose Acquisition Company (SPAC), on January 4, 2022. DAVE stock has since fallen 25% year-to-date. The fintech momentum seems to have faded sooner than expected. Now, the question investors are asking is whether this sharp decline is irreversible. If yes, then when?
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Let’s first take a closer look at Dave’s business model, then dive into the financials to get a better idea of the long-term argument behind the stock.
Dave Inc: “The bank for humans”
“Banking for humans” is the motto of Dave Inc. Essentially, Dave wants to disrupt the banking industry by allowing its users to get paid up to two days early (it’s good for building your credit history). It also wants to allow its users to get up to $250 cash advance without paying any fees. Finally, Dave aims to help its users avoid overdraft fees and find jobs, two elements that can have a strong social impact.
While this all supports a positive philosophy in the minds of its clients, things take on a slightly different tone when you examine the deeper intricacies of its business and finances.
In fact, it’s hard to know more about finance at this point and that’s part of the problem I have with DAVE stocks. Among the most interesting information, you can extrapolate from the Investor Presentation are a reported CAGR of 165% in revenue for the period from 2018 to 2020, a 30% year-over-year growth from Q3 2020 to Q3 2021 and that it reached 1.6 million new members in 2021.
There is no mention of profit margins, and we have to wait for next quarter results to get a more detailed view of financials. Still, for fiscal 2020, Dave saw an almost 60% increase in revenue, but that came with a net loss and negative EBIT.
Conclusion on DAVE shares
Dave Inc should strive to release positive financial results quickly to prove that it has a good relationship with money as well. The growth and breadth of earnings is a good start, but investors need more than that before they have any real confidence in DAVE shares. Investors want profits and an attractive valuation.
What investors don’t need are just fancy marketing pitches (which is mostly what Dave Inc has at this point). These are only good for impressing, not creating shareholder value. If Dave wants to reshape the financial system he must innovate, create new products and show that a neobank or an online bank can be profitable because the only means of contacting it now are either by chat or by phone.
Is it a revolution, an evolution or a clever way to reduce costs? Time will tell us. For now, the DAVE stock is just another example of SPAC that should have time to assess its success before diving in. Don’t get carried away by the penny stock price just yet.
As of the date of publication, Stavros Georgiadis, CFA had (neither directly nor indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
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