Fintech banking app Dave wants to clear doubts after 97% shares
Provider of mobile banking apps Dave has enough cash to survive the current downturn for fintech firms and reach profitability in a year, according to CEO Jason Wilk.
The Los Angeles-based company was caught in the waves that rocked the world of money-losing growth companies this year after it went public in January. But Dave isn’t backing down, despite a staggering 97% decline in its stock through Nov. 18, Wilk said. The stock rose 9.6 percent on Monday.
“We’re trying to dispel the myth of, ‘Hey, this company doesn’t have enough money to make it,'” Wilk said. “We think that couldn’t be further from the truth.”
Few companies embody the rise and fall of fintech as much as Dave, one of the better-known members of a new breed of digital banking providers taking on the likes of JPMorgan Chase and Wells Fargo. Founded by Wilk in 2016, the company had celebrity backers and millions of users of its app, which targets a demographic ignored by mainstream banks that relies on subscriptions and tips rather than overdrafts.
Dave’s market capitalization rose to $5.7 billion in February before collapsing as the Federal Reserve began its most aggressive series of rate hikes in decades. The moves forced an abrupt shift in investor preference for profits from the previous growth-at-any-cost mandate, and have rivals, including fintech major Chime, staying private longer to avoid Dave’s fate.
“If you told me that just a few months later, we’d be worth $100 million, I wouldn’t have believed you,” Wilk said. “It’s hard to see your share price representing such a low amount and its distance from what it would be as a private company.”
The shift in fortunes, which hit most of the companies that took the special buyout route to go public recently, has made his job a “pressure cooker,” Wilk said. That’s at least in part because it has cratered the stock compensation of Dave’s about 300 employees, Wilk said.
In response, Wilk has accelerated plans to achieve profitability by lowering customer acquisition costs while providing users with new ways to monetize side games, including paid surveys.
The company said earlier this month that active users in the third quarter rose 18% and loans on its cash advance product rose 25% to $757 million. While revenue rose 41% to $56.8 million, the company’s loss widened to $47.5 million from $7.9 million a year earlier.
Dave’s has $225 million in cash and short-term inventory as of Sept. 30, which Wilk says is enough to fund operations until they generate a profit.
“We expect one more year of combustion and we should be able to break even by the end of next year,” Wilk said.
Still, despite a recent uptick in bankruptcies spurred by signs that inflation is easing, investors don’t yet seem convinced of Dave’s outlook.
“Investors haven’t jumped back into fintech more broadly yet,” Devin Ryan, director of fintech research at JMP Securities, said in an email. “Against a backdrop of higher interest rates where the cost of capital has been substantially raised, we see no reduction in investors challenging companies to operate at cash profitability … or at least demonstrate a clear and credible path towards it.”
Among investors’ concerns is that one of Dave’s main products is short-term loans; these could result in increasing losses if a recession occurs next year, which is the expectation of many forecasters.
“One of the things we have to continue to prove is that these are small loans that people use for gas and groceries, and because of that, our default rates have consistently stayed very low,” he said. Dave can get reimbursed even if users lose their jobs, he said, by tapping the unemployment payments.
Investors and bankers expect a wave of consolidation among fintech startups and smaller public companies to begin next year as companies run out of funding and are forced to sell themselves or shut down. This year, UBS pulled out of its deal to buy Wealthfront and fintech firms including Stripe have laid off hundreds of workers.
“We have to get through this winter and prove that we have enough money to make it and still grow,” Wilk said. “We’re alive and kicking, and we’re still out here doing innovative things.”