Green Dot Corp. (GDOT), the prepaid-card firm that derives most of its revenue from Wal-Mart Stores Inc. (WMT), plunged after the world’s biggest retailer said it would expand sales of a competing product from American Express Co. (AXP)
Green Dot slid 20 percent to close at $10.25 in New York, the most since July 27. Shares of the Monrovia, California-based company have dropped 67 percent this year.
American Express reached a deal to make its Bluebird reloadable prepaid cards available at 4,000 U.S. Wal-Mart locations and online beginning next week, the New York-based lender said today in a statement. The cards will be sold along with those of Green Dot, which derived 64 percent of its revenue through Wal-Mart in the first half of 2012, according to an Aug. 9 regulatory filing. Wal-Mart was among Green Dot’s biggest shareholders as of March 31, with a 6.2 percent stake, data compiled by Bloomberg show.
Wal-Mart’s “equity stake in Green Dot is totally inconsequential relative to the opportunity to expand the product category,” said Andrew Jeffrey, an analyst at SunTrust Robinson Humphrey Inc. “There’s no positive spin that can be put on” when a vendor loses its role as a dominant supplier.
The agreement with American Express represents a “broadening” of Wal-Mart’s card offerings and the company has no plans to discontinue its deal with Green Dot, said Daniel Eckert, the retailer’s vice president of financial services.
“We’re focused on a different customer segment,” Eckert said on a conference call with reporters. The card “can be a substitute or a complement, depending on the customer’s choice, to an everyday checking and debit service,” he said.
Green Dot has “a great partnership” with Wal-Mart and supports the retailer’s efforts to offer customers “alternative financial solutions,” Chief Executive Officer Steve Streit said in a statement.
“We will continue working together to grow our MoneyCard business, which we believe will continue to thrive alongside this new offering,” Streit said.
Consumers can load money onto Bluebird cards at Wal-Mart locations or electronically through bank accounts, and use them as they would a debit card where American Express is accepted, the lender said in the statement. Bentonville, Arkansas-based Wal-Mart began testing the product at some stores last year.
The agreement may help American Express expand beyond its core credit- and charge-card business and drive more spending to its global payments network. Targeting Wal-Mart customers also contrasts with American Express’s historic focus on affluent consumers.
“Now we have the ability to address different segments of not just the U.S. markets, but frankly across the world as well as those who might not be traditionally best served through a charge or credit product,” Dan Schulman, group president of the firm’s enterprise growth business, said on the call.
American Express gained 0.4 percent to close at $58.82 in New York. The shares have climbed 25 percent this year, compared with a 16 percent advance in the Standard & Poor’s 500 Index.
Bluebird’s expanded availability benefits both the lender and the retailer, said James Friedman, an analyst at Susquehanna International Group LLP.
“American Express is largely branchless, and Wal-Mart has fixed facilities with substantial traffic,” he said in an e- mail. “So this is a good use of assets for both sides.”
Susquehanna is a market maker in shares of Green Dot and American Express.
Green Dot rallied 9.6 percent to $24.25 on July 2 after Ramsey El-Assal, a Jefferies Group Inc. analyst, said Wal-Mart was winding down the American Express pilot and that Bluebird sales were “significantly weaker” than Green Dot products.
In a note released today after the call, El-Assal predicted that Bluebird will probably gain share at Wal-Mart, given the card’s “aggressive roll-out schedule,” lower fees and “enhanced” features like online access.
“We believe today’s announcement represents an incremental downside surprise for investors,” even after Green Dot lowered its guidance to account for a potential loss of retail exclusivity, El-Assal wrote.
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