Mobile banking app provider David has enough cash to weather the current downturn for fintech companies and be profitable in a year, according to CEO Jason Wilk.
The Los Angeles-based company was caught up in the waves this year that shook the world of losing money growth companies after its IPO in January. But Dave isn’t capsizing, despite a stunning 97% drop in his shares through Nov. 18, Wilk said.
Shares rose as much as 13% on Monday to close 7.9% higher.
“We’re trying to dispel the myth, ‘Hey, this company doesn’t have enough money to go by,'” Wilk said. “We think that couldn’t be further from the truth.”
Few companies embody the rise and fall of fintech quite like Dave, one of the more prominent members of a new breed of digital banking providers taking on their peers JPMorgan Chase and Wells Fargo. The company, co-founded by Wilk in 2016, had celebrity backers and millions of users for its app, which targets a demographic ignored by mainstream banks and relies on subscriptions and tips rather than overdraft fees.
Dave’s market cap 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 toward profits over the previous growth mandate at all costs, and peers, including larger fintech Chime, are staying private for longer to avoid Dave’s fate.
“If you’d told me just a few months later that we were worth $100 million, I wouldn’t have believed you,” Wilk said. “It’s hard to see that your stock price represents such a low amount and is so far from what it would be as a private company.”
employee comp
The wealth shift that has hit most companies that recently went the special-purpose acquisition vehicle route to public offerings has turned his job into a “pressure cooker,” Wilk said. That’s at least partly because Dave’s stock compensation has skyrocketed about 300 employees, Wilk said.
In response, Wilk has accelerated its plans to increase profitability by reducing customer acquisition costs and offering users new ways to make money from side jobs, including paid surveys.
The company said earlier this month that active users grew 18% in the third quarter and loans for its cash advance product rose 25% to $757 million. While revenue rose 41% to $56.8 million, the company’s losses widened to $47.5 million from $7.9 million a year earlier.
Dave had $225 million in cash and short-term investments as of September 30, which Wilk says is enough to fund operations until it turns a profit.
“We anticipate another burn year and should likely be able to become profitable by the end of next year,” Wilk said.
Investor skepticism
Despite a recent rally in struggling companies, prompted by signs of easing inflation, investors still don’t seem confident in Dave’s prospects.
“Investors haven’t jumped back into fintech more broadly,” said Devin Ryan, director of fintech research at JMP Securities, in an email. “Against a backdrop of higher interest rates, where the cost of capital has increased significantly, we see no let-up in investors challenging companies to operate on cash profits…or at least to demonstrate a clear and credible path to doing so.”
Investor concerns include that one of Dave’s primary products is short-term credit; these could lead to mounting losses if a recession hits next year, which many forecasters expect.
“One of the things we have to keep proving is that these are small loans that people are using for gas and groceries and that’s why our default rates have just stayed consistently very low,” he said. Dave can be repaid even if users lose their jobs, he said, by tapping unemployment benefits.
Investors and bankers expect the next year to see a wave of consolidation among fintech startups and smaller public companies as companies run out of funding and are forced to sell themselves or shut down. This year, UBS pulled out of its deal to acquire Wealthfront, and fintech companies like Stripe laid off hundreds of employees.
“We have to get through this winter and prove that we have enough money to make it and still grow,” said Wilk. “We’re alive and kicking, and we’re still out here doing innovative stuff.”
