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Green Dot Corporation (NYSE:GDOT) Shares Surge After Wal-Mart Stores, Inc. (NYSE:WMT) Extension

Green Dot Corporation GDOT

Green Dot Corporation (NYSE:GDOT) shares jumped 37 percent during the Tuesday trading session after it was reported the prepaid card behemoth renewed a partnership with Wal-Mart Stores, Inc. (NYSE:WMT)

Green Dot Corporation GDOT


Green Dot Retains Wal-Mart

The relationship between Green Dot and Wal-Mart will persist. Three months after speculation of the partnership ending, Green Dot announced in a press release that it has reached a five-year agreement with Wal-Mart. As part of the new terms, Green Dot and Green Dot Bank will stay on as program manager and issue the Wal-Mart MoneyCard prepaid reloadable debit card products, but Wal-Mart will receive a share of six percent more in revenues.

The new terms will replace the current agreement and has an effective start date of May 1, 2015. This new agreement will run through May 1, 2020.  It remains unclear as to what concessions Green Dot had to make, except possibly for a reduced share of revenues.

We are so very proud to serve Walmart and the many millions of Americans who rely on Walmart for low prices on the products and services they want and need,” said Steve Streit, Founder, Chairman and CEO of Green Dot Corporation, in a statement.

Green Dot separately announced it approved a share buyback program worth up to $150 million. It is still subjected to regulatory approval.

Both companies have been working together on the retail giant’s MoneyCard program since it was established in 2007.

The market was concerned Green Dot would lose Wal-Mart, which is why the company’s shares have shed 25 percent so far this year. There were rumors that American Express (NYSE:AXP), which recently lost Costco (NASDAQ:COST) as a client, would serve as Green Dot’s replacement.

In 2013, the company confirmed that Wal-Mart represented two-thirds of its total operating revenues and four-fifths of its total units sold.

Wal-Mart has come under intense scrutiny since the global retail brand was accused of misusing charitable funds to cease local opposition to its expansion plans. It was also alleged of hoarding $76 billion in overseas revenues to evade income taxes.

Market’s Reaction to Deal

Wal-Mart shares have fallen half a percent to $72.43 in the Tuesday trading session. Green Dot shares have soared 37 percent to $21. This helps Green Dot rebound from its significant fourth quarter loss, which battered the stock.

JPMorgan’s Tien-tsin Huang says Green Dot still remains neutral because of concerns the bank has regarding its growth outlook.

We remain Neutral the shares, because our concerns have been less about the renewal risk, but rather the growth prospects of the portfolio since it has been shrinking for several quarters now,” wrote Huang in a note. “But, with the renewal behind the company on good terms, we are optimistic that it can now refocus its energy on returning to growth.”

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