Jason Wilk the CEO of Dave, a digital banking service recalls the lowest point of his short career as the head of a publicly traded firm.
In June 2023, the shares of his firm had fallen below $5 each. Wilk, desperate to keep Dave afloat at the Los Angeles micro-cap stock conference, pitched $5,000 stakes of his company to investors.
Wilk said, “I won’t lie. This was probably the most difficult time of my entire life.” “It was a struggle to go from a $5 billion business to $50 million within a year.”
In the months following, Dave became profitable and consistently exceeded Wall Street analysts’ expectations for revenue. Wilk’s Company is now the top 2024 gainer among U.S. Financial Stocks, with a 934% increase year-to-date through Thursday.
Devin Ryan, an analyst at JMP Securities, says that the fintech company, which makes its money by giving small loans to Americans who are cash-strapped, is a symbol of a larger change, still in its beginning stages.
In 2022, investors abandoned high-flying Fintech companies as an influx of unprofitable companies like Dave became public through special purpose acquisition companies. The market environment changed suddenly. From rewarding growth at all costs to a deep skepticism about how money-losing companies would manage rising interest rates while the Federal Reserve battled against inflation.
Investors have rushed into all financial firms, including alternative asset management companies like KKR, as the Fed has eased rates, and credit card companies such as American Express.
The top performers among financial stocks this year with market caps of at least $100 billion and $200 billion, respectively.
Big investment banks including Goldman Sachs, the top gainer among the six largest U.S. banks, have also surged this year on hope for a rebound in Wall Street deals activity.
But it’s fintech firms like Dave and Robinhood, the commission-free trading app, that are the most promising heading into next year, Ryan said.
The six largest U.S. Banks, are also up this year, in the hope of a recovery in Wall Street deal activity.
Fintech companies like Robinhood and Dave are the ones that have been able to make it work.
Ryan says that the best app for trading without commissions is the one to use in the coming year.
Robinhood’s shares, which have risen 190% in value this year, are the best performers among financial companies with a minimum market capitalization of $10 billion.
Ryan stated that both Dave and Robinhood had gone from losing money into being extremely profitable companies. They’ve got their house in shape by increasing their revenue at an accelerated rate and managing their expenses at the same.
Ryan believes that the valuations of investment banks and alternative asset managers are approaching “stretched levels.” However, he added that fintechs have a way to go; they are still early in their journey.
The financial sector had already started to benefit from the Fed’s easing cycle before Donald Trump’s election last month. This increased interest in the industry. Investors anticipate Trump to ease regulations and allow more innovation through government appointments, including former PayPal employees.
David Sacks, a Silicon Valley investor and executive, has been appointed AI and crypto czar.
These expectations have helped to boost the shares of established players such as JPMorgan, Chase, and Citigroup.
But they have had an even greater impact on potential disruptors such as Dave, who could gain more from a loosened regulatory environment.
Gas & Groceries
Dave has created a niche for Americans who are not served by traditional banks. He offers fee-free savings and checking accounts.
According to Wilk, it makes most of its money by giving out small loans worth around $180 to users to “pay for groceries and gas” until they get their next paycheck. Dave earns an average of $9 per loan.
He said that customers are better off by avoiding expensive credit forms from other institutions. This includes the $35 overdraft fee charged by banks. Dave, a company that is not a traditional bank but works with one, doesn’t charge interest or late fees on cash advances.
Wilk added that the company offers a debit card, and that interchange fees on transactions by Dave customers would represent an increasing portion of its revenue.
Wilk says that the fintech company faces less skepticism than it did mid-2023. According to Factset, seven of its analysts rate it as a “buy.”
He said, “Our business has improved so much since we went public. But it is still 60% cheaper than the IPO.” “Hopefully, we can claw back.”
