Dave Inc. (NASDAQ:DAVE) 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 declined 25% year-to-date. Momentum for the fintech company seems to have faded sooner than expected. Now the question investors are asking is whether this steep decline is irreversible. If so, then when?
Let’s first take a closer look at Dave’s business model, then dive into the financials to get a better idea for the long-term case behind the stock.
Dave Inc: ‘Banking for Humans’
“Banking for humans” is Dave Inc’s motto. Essentially, Dave wants to disrupt the banking industry by allowing its users to get paid up to two days early (that’s good for building your credit history). It also wants to enable its users to get up to a $250 cash advance without paying a fee. Finally, Dave aims to help its users avoid overdraft fees and find jobs, both of which could have a strong social impact.
While all of this supports a positive ethos in the minds of its customers, things take a slightly different tone when you look at the deeper intricacies of its business and financials.
In fact, it’s difficult to find much about the financials at this point and that’s part of the problem I have with DAVE stock. Among the most interesting tidbits you can extrapolate from the Investor Presentation are a reported CAGR of 165% in revenue for the period ranging from 2018 to 2020, 30% year-over-year growth from Q3 2020 to Q3 2021 and that it reached 1.6 million new members in 2021.
There’s no mention of profit margins, and we must wait for next quarter’s earnings to get a more detailed view of the financials. Still, for the fiscal year 2020, Dave showed an increase of nearly 60% in revenue, but that was alongside a net loss and a negative EBIT.
Bottom Line on DAVE Stock
Dave Inc should strive to report positive financial results soon to prove that it also has a good relationship with money. Growth and scale of revenue are a great start, but investors need more than that before they have true confidence in DAVE stock. Investors want profits and an attractive valuation.
What investors do not need are just fancy marketing presentations (which is mostly what Dave Inc has at this point). These are only good to impress, not to create value for the shareholders. If Dave wants to reshape the financial system it should innovate, create new products and show that a neobank or an online bank can be profitable because the only ways to contact it now are either via chat or by calling.
Is this a revolution, an evolution or a clever way to bring down costs? Time will tell. For now, DAVE stock is just another example of a SPAC that should be given some time to evaluate its success before diving in. Do not get carried away yet by the penny stock price.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.