Steel City Capital, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of 8.4% was recorded by the fund for the full year of 2021. This compares to its benchmarks, the S&P 500 and Russell 2000 Index which had 26.9% and 14.5% returns respectively for the same period. During the year, the Partnership’s long book contributed 9.2% to returns. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Steel City Capital, in its Q4 2021 investor letter, mentioned Green Dot Corporation (NYSE: GDOT) and discussed its stance on the firm. Green Dot Corporation is a Pasadena, California-based financial technology and bank holding company with a $1.8 billion market capitalization. GDOT delivered a -7.23% return since the beginning of the year, while its 12-month returns are down by -38.66%. The stock closed at $33.62 per share on February 15, 2022.
Here is what Steel City Capital has to say about Green Dot Corporation in its Q4 2021 investor letter:
“The Partnership recently established new positions in Green Dot (GDOT). As for GDOT, the company is a collection of old-school money access/money movement operations as well as new-school “FinTech” offerings. It is perhaps best known as the banking partner behind Wal-Mart’s prepaid MoneyCard debit card. Pre-paid debt is among the least sexy financial service offerings in the market and I also suspect there’s a degree of snobbery among the investing class that its primary customers sit on a lower socio-economic rung. I think these factors are contributing to today’s opportunity.
One of the emerging trends in the “FinTech” space is integration of banking and payment services by consumer facing companies. The idea is that by integrating these services, companies can collect more data on spending patterns, drive a “stickier” customer relationship/brand loyalty, and ultimately drive more sales. At the same time, such consumer facing companies either can’t, or won’t, build out these platforms on their own. Doing so would require, among other things, 1) a specific degree of technological expertise and 2) ownership and control of a banking institution. The latter of the two factors – owning a banking charter – is a significant deterrent to “going it alone.” Owning a bank requires costly and time consuming compliance (AML/KYC, etc.) and ongoing regulatory scrutiny. Over the years, a long list of household names with financial services ambitions (including Wal-Mart) have either tried and failed, or proactively decided against, owning and operating a bank. This is where someone like GDOT comes in, supplying the technical know-how and offering use of their banking charter without the headaches of actually becoming a regulated bank. In industry parlance, this has come to be known as “Banking-as-a-Service” or BaaS, for short.
GDOT’s relationship with Wal-Mart has shifted more in the direction of BaaS than “just” pre-paid debit with WalMart last year converting all of their existing prepaid accounts to demand deposit accounts intended to function similarly to a traditional banking account. MoneyCard now comes complete with an app and various features like overdraft protection, early payday, and cash back on Wal-Mart purchases. Beyond Wal-Mart, GDOT has expanded its BaaS offerings with other large brands. Another interesting use case is its Partnership with Intuit’s QuickBooks. When you open a new QuickBooks business account, you’re given the option to open a QuickBooks branded business checking account at the same time, which is powered on the back-end by GDOT. There’s a lot of white space out there for GDOT to work with additional consumer facing companies to integrate payments and other banking services into their platforms. I’ll acknowledge that GDOT is far from the only “player” in the arena, but the mere fact that they’ve already bagged a number of large name clients on the BaaS side (Intuit/QuickBooks, Apple/Apple Cash, Uber/Uber Checking) at least suggests their capabilities and offerings have passed an intense amount of scrutiny…” (Click here to see the full text)
Investments, Finance
Our calculations show that Green Dot Corporation (NYSE: GDOT) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. GDOT was in 23 hedge fund portfolios at the end of the third quarter of 2021, compared to 22 funds in the previous quarter. Green Dot Corporation (NYSE: GDOT) delivered a -23.61% return in the past 3 months.
In November 2021, we published an article that includes GDOT in the 15 Stocks to Invest in According to Kenneth Squire’s 13D Management. You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
