Fintechs are 2024’s biggest gainers among financials

Jason Wilk’s Fintech Firm Dave Surges 934% as Investors Flock Back to Financial Stocks

Jason Wilk, the CEO of digital banking service Dave, remembers the absolute low point in his brief career as head of a publicly-traded firm. It was June 2023, and shares of his company had recently dipped below $5 apiece. Desperate to keep Dave afloat, Wilk found himself at a Los Angeles conference for micro-cap stocks, where he pitched investors on tiny $5,000 stakes in his firm.

"I’m not going to lie, this was probably the hardest time of my life," Wilk told CNBC. "To go from being a $5 billion company to $50 million in 12 months, it was so freaking hard."

But in the months that followed, Dave turned profitable and consistently topped Wall Street analyst expectations for revenue and profit. Now, Wilk’s company is the top gainer for 2024 among U.S. financial stocks, with a 934% year-to-date surge through Thursday.

A Shift in the Market

The fintech firm, which makes money by extending small loans to cash-strapped Americans, is emblematic of a larger shift that’s still in its early stages, according to JMP Securities analyst Devin Ryan.

Investors had dumped high-flying fintech companies in 2022 as a wave of unprofitable firms like Dave went public via special purpose acquisition companies. The environment turned suddenly, from rewarding growth at any cost to deep skepticism of how money-losing firms would navigate rising interest rates as the Federal Reserve battled inflation.

Now, with the Fed easing rates, investors have rushed back into financial firms of all sizes, including alternative asset managers like KKR and credit card companies like American Express, the top performers among financial stocks this year with market caps of at least $100 billion and $200 billion, respectively.

Fintechs Lead the Charge

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. Robinhood, whose shares have surged 190% this year, is the top gainer among financial firms with a market cap of at least $10 billion.

"Both Dave and Robinhood went from losing money to being incredibly profitable firms," Ryan said. "They’ve gotten their house in order by growing their revenues at an accelerating rate while managing expenses at the same time."

Gas & Groceries

Dave has built a niche among Americans underserved by traditional banks by offering fee-free checking and savings accounts. It makes money mostly by extending small loans of around $180 each to help users "pay for gas and groceries" until their next paycheck, according to Wilk; Dave makes roughly $9 per loan on average.

Customers come out ahead by avoiding more expensive forms of credit from other institutions, including $35 overdraft fees charged by banks, he said. Dave, which is not a bank, but partners with one, does not charge late fees or interest on cash advances.

Conclusion

While the fintech firm faces far less skepticism now than it did in mid-2023— of the seven analysts who track it, all rate the stock a "buy," according to Factset — Wilk said the company still has more to prove.

"Our business is so much better now than we went public, but it’s still priced 60% below the IPO price," he said. "Hopefully we can claw our way back."

FAQs

Q: What is Dave’s business model?
A: Dave makes money by extending small loans to cash-strapped Americans, with an average loan size of around $180.

Q: How does Dave make money?
A: Dave makes roughly $9 per loan on average, and also generates revenue from interchange fees on debit card transactions.

Q: Why is Dave’s stock surging?
A: Dave’s stock is surging due to its profitable business model, growing revenues, and increased investor confidence in the fintech sector.

Q: What is the outlook for fintech firms like Dave?
A: JMP Securities analyst Devin Ryan believes that fintech firms like Dave and Robinhood are the most promising heading into next year, with a long way to run and still relatively low valuations.