Dave Can Profit From Small-Balance Accounts, Analyst Sees Dave As A Breath Of Fresh Air For Average Banking Consumers

Canaccord Genuity analyst Joseph Vafi initiated coverage on Dave Inc DAVE with a Buy rating and a price forecast of $120.

The analyst said that Dave offers a refreshing alternative for consumers in search of a bank account and cited a 2023 FDIC survey, which revealed about 14-15% of Americans are considered underbanked.

However, being underbanked doesn’t necessarily correlate with low income. In fact, the same survey showed that over 34% of households earning more than $75K were still classified as underbanked, the analyst noted.

According to the analyst, households avoid traditional banks due to high and punitive fees, leading them to rely on non-bank financial services.

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Dave’s target total addressable market includes around 180 million consumers, which it describes as financially vulnerable. This group includes not just lower-income individuals, but also younger adults just beginning their financial journeys.

Dave generates revenue from a wide range of consumer groups in ways that traditional banks cannot, because its business model doesn’t rely on a conventional net interest margin (NIM) approach.

Dave operates as a fully virtual banking platform built on a modern technology stack with a revenue model based on transaction fees rather than NIM. This allows Dave to profit from accounts with low balances while customers only pay for the services they use.

Dave has been able to maintain consistently attractive customer acquisition costs thanks to an improved consumer banking experience, opined the analyst.

The combination of low customer acquisition costs (CAC), along with double-digit growth in both members and ARPU, is driving solid financial metrics.

The analyst notes Dave’s fixed cost structure can support significantly higher revenue, suggesting further margin improvements in the future.

In response to the CFTC’s investigation of Dave’s business practices and the consequent lawsuit, Dave has removed optional tipping and express fees for the Extra Cash product. Meanwhile, the analyst expects these adjustments not to hinder the company’s current growth trajectory.

The analyst notes Dave is tapping into a substantial, largely untapped market of underbanked consumers. The company’s market strategy has evolved, its product offerings have been optimized, and the results are now evident in its P&L performance.

The analyst expects that Dave’s operational leverage could drive EBITDA margins higher, potentially providing a modest uplift to its valuation.

Price Action: DAVE shares are trading higher by 3.35% at $100.19 at the last check Friday.

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