Chit Chat Stocks - Dave Inc. Is Up 500% In One Year: But Is The Stock Actually Still Cheap Today? (Ticker: DAVE)

Episode Date: August 13, 2025

On this episode of Chit Chat Stocks, Brett and Ryan speak with Andrew Marshall from Capital Mindset about Dave Inc. (Ticker: DAVE). They discuss: (03:48) The History of Dave: From SPAC to Recovery (08:56) Understanding the Business Model: Micro Lending Explained (16:15) Competition and Market Positioning: Who Does Dave Compete With? (16:54) Operational Structure: Partner Banks and Expenses (22:08) Future Outlook: Pricing Models and Growth Potential (26:17) Assessing Risks and Opportunities for Dave (30:15) Market Potential and Growth Projections (34:36) Management Integrity and Company Culture (37:10) Navigating Bankruptcy Risks and Financial Health (39:50) Capital Allocation Strategies (42:36) Valuation Insights and Market Misunderstandings Capital Mindset: https://www.youtube.com/@CapitalMindset ***************************************************** JOIN OUR NEWSLETTER AND FREE CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Chit Chat Stocks. On this show, hosts Ryan Henderson and Brett Schaefer analyze businesses and riff on the world of investing. As a quick reminder, Chit Chat Stocks is a CCM Media Group podcast. Anything discussed on Chit Chat Stocks by Ryan, Brett, or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Welcome into Chit Chat Stocks, a podcast where we help you find your next great investment. Today, we have Andrew Marshall on from Capital Mindset, a recurring guest on the show to discuss Dave. Now, Dave is not a person. Dave is a company. The ticker, I believe, is also D-A-V-E for anyone that has any interest. The name has nothing to do with what the company's business

model is. So for anyone that has never heard of this company, Andrew, what is Dave? Yeah. So what I'm going to do is I'm going to give you the 30 second pitch on Dave, and then we're going to dive into it. Dave is highly misunderstood. It's looked at as a neobank. I would more say it's a micro lender. They've grown EBITDA in the past year by 250% roughly. My projection is that 2025 is going to be, I think it's still about 120% higher than 2024's EBITDA. And it's currently valued on my estimates at about 11 to 12 times 25 EBITDA. And this is with, it's a very asset-like company. So the EBITDA to cashflow conversion, it's like 80 to 90%. I think the only things are like taxes. There's a tiny bit of depreciation and then a tiny bit

of interest. And it is the leader in the space that it's in. So that's like the quick pitch and we'll dive into it. Dave does primarily micro-lending. The industry term is earned Wage Access, EWA. Think about it like a payday loan. It's like a payday loan replacement is how I put it. So let's say you're working at Wendy's and you need a hundred dollars because you get paid on Friday, but it's Wednesday and you're out of money and you need grass and you need groceries. So you just need 100 bucks. You can go to a payday lender who's going to charge you 800% APR. You're going to pay that out, probably end up paying $500 to borrow that $100. You can go to Dave, who charges you a flat 5% fee.

So you're paying $5 to access 100 versus paying, you know, 600 to access $100. In my video that I did that we put on Capital Mindset, one of the things I did was I heard a pitch on Opturn and looked at it. And Opturn was showing how of the average payday lender, and this is the average loan across the industry, it's about $2,000 in interest costs for people to access $1,500. And Opturn was very happy because they're only $500, which is good. If you do that across Dave, you're looking at somewhere between $45 and $75 to access that $1,500. So that's the really short version of this company. And we'll dive into the history. I don't know if you want me to go into the history of it right now and how

we got to where we're at today. Yeah. Why don't we, before going into their business model, talk through the history. I'm seeing the stock chart. I think it collapsed over 90, maybe 95% when going public and has had almost that Carvana shape and totally recovered. So take us through the history of how that got started and that probably will give listeners some good context. So I want to say, and I kind of mentioned this, I don't blame anyone for missing this stock

because on the face of it, it is everything wrong that like a fundamental investor would want in the stock. It was a SPAC. It was a SPAC that immediately went down 90%. It is now rallied in the last year. um and it's like dave just kind of sounds like a meme like it and then you look at it and you go oh they're a company that loans to the lowest quality consumer in the u.s this sounds like a

disaster like i'm out this is a bubble i don't want to touch it so oh and there's a lot of short reports in a doj lawsuit against it so like that also you know just makes it smell bad So basically what happened was Dave was founded in 2017. Jason Wilk still runs the company. And they SPACed or de-SPACed like 21, 22, immediately dropped. And in complete fairness, at the time of that de-SPACing, they were unprofitable, losing a lot of money. they had a decent amount of leverage. And I think the sell-off to where it was was completely justified. There was questions if this company would actually go bankrupt,

you know, actually be able to stay afloat. And what they did was effectively in 23, 24, just kind of leaned out the company. They were able to most importantly bring down the delinquencies or the write-offs because that was the issue

was their write-offs were at like almost 10%. And they brought them down to today to about one, one and a half percent. So they did that. And basically this industry, once you get to that escape velocity where you hit profitability and you're underwriting well, then you're off to the races and you become a money printing machine. So that's what you see at 24 into 25, what's happened. And I'll talk a little bit about the model because that has changed recently. And that was the source of their lawsuit. Because what happened was in the old model, it was technically free to get money. So you could come to them and say, I'm going to get money for free.

If you did that, though, it would take two days to get the money. And so you could pay like $6 or something like that to get the money instantly. And then they had this tip feature. And in the DOJ lawsuit, it was actually originally brought to them by the FTC. And then the FTC referred to the DOJ, but in that lawsuit, they said that they used, I think they call them dark patterns where it's just like, they try to trick people or get people to give to, to tip. Some people thought it was mandatory. It was actually optional, you know, whatever. So that was the old model.

Actually in 25, they changed the model. There'll just be a flat 5% fee with a cap of $15 and a floor of $5. So much more straightforward model and actually much more profitable. It's about Q1, their average revenue per loan was $11.40. Under this new model, it's going to be $13 going forward through Q2 and beyond. So that's the quick history. One funny thing about this company, I'll tell you. I laugh because the CEO, the founder, had just about all his net worth in this company.

and he when they de-spec was i think close to a billionaire and then when it sold off and fell down i think his net worth in the company or his value in the company went to like 10 million dollars and now it's back up to like you know now he's worth a few hundred million just kind of a funny like path for him throughout this uh he said that he wasn't stressed at all through it i mean i would have been but seeing my net worth good on that much but uh so that's that's the the history of the company uh and i will say within the lawsuit there's a couple other things that they name they talk about um people like with the tips they said we're going to give a portion of this to charity and some people were under the impression that they were going to give more of it to charity

than they did so that's in the lawsuit and then people say there's deceptive ads and the advertising said uh get up to 500 instantly with dave and there's like there's some regulatory rule that you have to put like an asterisk that says there's a fee to access this instantly which they didn't do and so since they didn't do that they're getting so i think it's all going to be just a bunch of fines but that's that's where we're at okay so i think that's a good snapshot of how we've gotten here and brett's already mentioned it in terms of where the stock was andrew just alluded to the outrageous net worth roller coaster that the ceo founder probably went through but when i think about this okay payday lenders you're getting a five percent rate just a

5% flat fee charge, you're lending to probably the poorest of consumers, the people that really need these instant cash advances. How did they get the delinquency rates down? It sounds like an industry that's ripe for absurdly high delinquency rates. Yeah. So a couple of things. First of all, the way that they underwrite is they use the Plaid API and that will then log into an individual's bank account. I'm sure you're all familiar with Plaid. If not, Plaid is a technology that you as a consumer, basically you put in your username and password that allows Dave or whoever to access your bank account, access your records, everything like that. So they will do that and they have an algorithm, you know, people say AI, whatever you want to call it, some kind of model that looks at your transactions and will underwrite you based off that. Now, the really important thing about this, because some people will say like, oh, yeah, AI underwriting, whatever. That to me, their underwriting is somewhat irrelevant.

I'm sure it's good. the important thing is that that Plaid API allows them to do a pull from your bank account. So when you take a loan from Dave, you as the consumer agree, I'm going to let you pull money from my account the day that it's due. And they pull it at midnight that day. So it's like, so in a way, the way that I like to put it is they actually, for these consumers, kind of sit in front of the credit stack over a credit card over most of their other payments, because all of those payments, I, as the consumer, have to go manually make a payment online. So if I pay my credit card, most people, they go online to pay it. Your mortgage, car loan, same thing. Dave is one of

the few loans where they actually go and pull the money. And I will say, I also follow the communities that try to get out of paying these. There's like subreddits and stuff where people try to figure got ways to, they all say that they're just trying to delay it and they'll pay it back later. But they're all trying to get out of paying it. And Dave is notoriously the hardest one to get out of your agreement, your ACH authorization. Effectively, the only way people say that you will get out of paying Dave on these sites where they're trying to get out of paying them is to close your bank account and start a new one. And so that's why they're able to get these write-offs down to this very low level. And the other thing is, these are such short-term loans,

right? And they're small dollar amounts. It'd be one thing if I'm writing you a $4,000 loan, it'd be harder to get that over time. When I'm writing you a $100, $200, $300 loan, you generally i can pull that and get most of it or all of it uh that day that i'm trying to pull it even if you have a small bank account i was gonna say what are the what's like the average terms here like duration is it usually paid back within okay eight days wow yeah quick so that's actually the economics of the business that are really powerful because you're charging five percent to a customer and i say this because people say well the apr whatever at some point for the consumer, it's just a fee. If I go and pull money from an ATM because I have to and I'm

being charged $2 because it's not my network, I'm not like APRing that out to say, wow, if you look at this on this $40 withdrawal, I paid a 700% APR. I'm just going to say, oh, I paid a $2 fee. Same thing in my view for Dave. On the consumer end, it's just a fee. But on Dave, every eight days, you're taking a 5% fee and then getting to get that money back and then put it back into another loan and have that compound continuously. So the effective interest rate that Dave is receiving is somewhere close to 500% with a 1% write-off, or I'd say 1% to 2%. I think last quarter it was 1.5% write-off, which is insane economics. I mean, any lender would be happy with that. Okay. So who does Dave compete with then? Who are the alternatives here

if people are looking for these quick cash advances? Why are people, I believe, increasingly turning to Dave? So there's a few. One is payday lenders, which I think they're a superior alternative to. There's other earned wage access companies. There's EarnIn, there's Bridget, There's Chime has an offering. And there's a few other small Alberts, one Money Lion. The primary issue, I think, is that Dave is the one that does it the best profitably. And so when you're profitable, one, you're able to loan out more or you're able to take on more customers. But two, like, I guess the economics just work.

I know, I mean, if you guys have covered Chime, they're not really profitable yet. And the other thing is that, so for Dave, for example, they're fully focused on the earned wage access portion, the lending. Chime and a lot of these other companies, they're focused on being the primary banking relationship with them. So the customer acquisition cost for Dave last quarter was $18. For Chime and them, it's well over $100. and so because what they're targeting, it's pretty easy to find people to bring into your platform when they're literally like Googling, I need money now. Uh, but that's who they're competing with. But Dave is the, they were the first mover and they are the largest player in the space.

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Stocks. And all in all, Interactive Brokers was the clear choice. Head on over to IBKR.com. Restrictions apply. Interactive Brokers is a member of SIPC. Do they do anything besides, I don't want to call it payday lending. Do they do anything besides these cash advance loans? Do they have banking? Do they have everything? They have a small banking product. They have a debit card. They have a small banking product. So like last quarter, they had $109 million of revenue. I want to say $98 million was the cash advance and $10 million was debit card interchange fees and the banking relationship. So they do have a small banking product. They aren't really pushing it that heavy or advertising for it, but it is there. gotcha now let's talk about the rest of their business model some expenses that may pop up you mentioned the 1.5 percent delinquencies obviously that factors in but what are the partner banks that they work with or maybe it's just one and what are their other expenses because

should we think about it like a general bank how do they go from all right we're earning all these fees from these high turnover loans how do we get from there to net income yeah so i mean they have relatively low amount of fees so they have one partner bank well they're actually transitioning because their previous partner bank was evolution which if you there was they were the youtube bank that's like got all these problems um i remember they're anyways they're a problematic bank so transition to Coastal Community Bank, which I'm not going to pitch it here, also a really good investment.

If you guys might know, I think they're close to where some of you guys are located. They are, I believe, yeah. They also, Coastal Community also is the primary relationship with the Robinhood Gold Card. Fun fact. Disclosure, I'm long Coastal as well. So

that's also an interesting investment case there, but we're not going to get into it. Um, but so, uh, that's their primary relationship. They pay a small fee because, so the way these FinTechs work is they don't have a banking charter, right? So they have to partner with a bank who does. And so, so for them in Robinhood with this coastal community bank, as an example, how

it effectively works is a coastal community bank is the actual, um, bank that originates the loan. And then Dave has an agreement with them where they buy all economic interests in the loan. I think it's same day. I think they just, I mean, I don't know the exact, like, timing and everything, but they will buy, in fact, essentially immediately. They buy all the economic interests of the loan from Coastal Community Bank, and they pay, like, a small, tiny fractional fee, you know, for the origination to Coastal. So that's a fee for them. Really, their primary fees are that.

Um, they will have, there is some noise about the open banking laws and that could be an issue with them going forward. It's not currently, um, fees that they're paying, but right now, I mean, they're 80% gross margins. So there aren't a lot of fees that they're paying. And then they have about 40, I'm modeling 45% by the end of the year, EBITDA margins. Uh, so most of the costs after that are just like salary, you know, your generic, your general costs that go with running this business. But the number one cost is going to be their charge-offs or their write-offs. And after that, some small fees paid to banking partners. I'll just talk on the open banking stuff really quick. Dodd-Frank, Section 1033,

in that back in, I think it was 2010, basically the CFPB under Biden, which is the Consumer for Financial Protection, the Consumer Financial Protection Bureau, they put a law into place saying that a bank cannot charge people to access your data as a consumer. So basically, they're saying JP Morgan, Bank of America, U.S. Bank can't charge Plaid, who then would charge Dave, to access your data as a consumer because it's your bank account. The Trump admin is trying to remove that law so that JP Morgan and Bank of America, U.S. Bank, et cetera, can charge fintechs for accessing this data. My personal opinion is that's fair because JP Morgan and these other banks, there's a lot of costs that go into setting up the infrastructure,

the customer service, getting the bank set up, all of that. I think where the confusion comes is from my perspective this is going to be like a i'd say two to five percent of revenues for dave whereas i'm seeing people who talk about it saying this is going to destroy like kill this industry which i completely disagree with based off the fee structure that i've seen yeah i imagine with 80 gross margins there's some room for them to take that fee hit And what we haven't talked about yet is I said this, it's technically 77% gross margin last quarter. They were charging the $11.40 per loan last quarter. Starting in Q2, they had that price change because the new model only went into effect across the board in March.

It's on average 15% more per loan that they're generating. so that's effectively going to drop to the bottom line or at least increase gross margins so that'll help you eat all that up um i mean to me that's one of the really attractive things too is it's like no one's pricing in the fact that they're about to have a 15 price increase that the consumer has not pushed back against at all do you think that the new pricing model will impact growth or customer attraction um i i don't know how to i'm not trying to sound rude i don't think this customer base is that price uh sensitive i think they're how do i get my money now sensitive and so they're more worried about today they're like because in i'm not trying to sound mean like

if you were thinking through this on a pricing standpoint you wouldn't do this in the first place you would just not take out a loan right yeah yeah their payday the payday lenders offer the rates they do for a reason and this isn't someone that can wait for a week they need to pay whatever bill or get food now uh however sad that situation is uh what let me try to phrase this question it's i guess from one of the twitter questions that we got which thank you for all the listeners doing that do they have any competitive advantage here i just look at some of the other neobanks you know allies sofi what have you could they just replicate this product overnight or not so i want to say how i found this company because that'll and then i'll

leave into that because the way this came was there's a member in capital mindset who actually works at a competitor of dave and so i and i want to be clear so it's an industry insider not a company insider two very different things just so people are aware so they work at a competitor dave they don't have any inside knowledge into dave but they have insight and understanding of how these companies work no one in this industry is close to dave's uh as good as dave at getting the underwriting and the charge-offs as low as they are. I know most companies are at about 3% to 4% write-off rate right now versus the 1.5% per day, which changes the profitability profile drastically. So it's that. And I think one of the things too with Dave is they are the

first mover. And they're one of the few companies that I've seen that's fully focused, like this is their primary, the earned wage access is the part that they're primarily targeting. When I talked about Chime and these other companies, earned wage access is kind of the, I don't want to say an afterthought, but it's not the primary focus. And so there is a lot more cost to getting someone to be your primary to have them like have their checking account with you, their savings account, their credit card and debit card versus just taking a loan that you can underwrite in three minutes. And so I think that's the advantages that Dave has. I always have a hard time with this industry in general, because A, there have been a lot of companies in the micro lending space

that have not been fraudulent, I guess, but maybe there's been some red flags and the stocks have just cratered because performance has been poor. Is there any risk of Dave experiencing something that happened to Upstart, like coastal community polling funding for projects or reining in credit risk?

or coast? Like, is there any partner, uh, downsides there potentially? Maybe. Um, so I'm going to be transparent on this. I, I don't see, I mean, personally, I don't think it could have gotten worse than their relationship with evolution, evolution bank. Uh, I want to say it was a Yipit or something like that. There was a, there was a bank that a lot of YouTubers were pushing and then people had, I don't know if you've heard about it. They had like all, they couldn't access their money and all of that. Okay. I don't remember the name of the bank, But really, it was a fintech, and the back end was Evolution. And so that's who Dave's been working with and they're moving off of.

Coastal, it's actually funny. The way I came about them was I was analyzing them to see what's the risk for Dave. So I was looking at them and saying, like, and they're super solid. They're fully focused on this product. I don't think they're going to pull funding. They're actually investing more into the, they call it CCBX, like the fintech portion of their bank that supports these companies. Dave does have a partner company that they have a credit facility through to fund these loans.

But what Dave has actually been doing is taking their free cash flow and using their own balance sheet cash to fund these. So that's actually becoming less and less of a risk. Ultimately with Dave, in my opinion, the biggest risk to them is if you see the loan consumer really struggle or really go into unemployment. If the unemployment goes up a lot, that's probably something that would be very bad for this industry as a whole. That or you have a 2021 happen again where you're competing with the government just handing out money. That's also pretty rough. But I don't see the credit risk. I don't see the kind of issues that you're saying with some of these.

And I'm fully used to industries that have like hair and analyzing it. like ad tech is the same thing that i've done a lot of work in is you have companies that go the cycles kind of boom bust it feels like sometimes um but as it stands i don't see any of those risks for dave not not in the next at least 12 to 18 months yeah i guess the other nice benefit is there's no it's not like you're stuck with these loans for 18 months or something and you can't move off of them or rates spike and you can't do anything about it it's there's very little duration risk i guess maybe it's very unforgiving too with this like i was reading a story someone paid back dave two weeks later and dave banned them from ever

taking a loan from them again just like you pay us two weeks late we're done so they're very good about just saying like if you have a chance of being unprofitable with us we're going to cut you off it makes sense i assume customer retentions probably not well i assume customers don't hope to be using day for a long time is there any do they have to have low acquisition costs because the like there's not a very long lifetime value for these customers yeah i mean the ltv probably isn't as long as if you're a banking relationship and you're the primary bank with them, right? They have a decent amount of churn, but they also have a lot of people that will take out a loan, they'll be gone for a few months, come back and take another one. So Dave has, I think,

12 million accounts open, but right now they only have 2.4 million monthly transacting members. uh that chart has been a steady climb upwards um you know one of the realities with these kind of industries and this kind of consumer base is you they generally get stuck in in this just this reality there's a cycle where you take out the loan and the next week you take out the next one because you aren't managing your cash flow and so you're kind of i don't want to say stuck in a cycle because some people it's truly one-off and then they get out um but there is there is a good bit of returning customers. But to your original question, they do have more churn than a lot of banks do because there's less reason to, like you said, the goal is to get out if you

can. So yeah, the model would not work nearly as well if you're paying $100 per customer to acquire them. Right. Makes sense. And I guess the people will come back if Dave is significantly better than the payday lender that could be shady. There's other major risk with dealing with those type of people to get your loans. And even if they're gone for two years, they come back, they know, okay, Dave worked well. It was easy to use the fee. While if you do the math is a very, very high APR. The fee isn't that bad when I need money quickly. I'm curious, how large is this market and how big do you think Dave's business can be, can get in the next five years? Maybe give some context to the size of the company today. All right, folks, if you are a regular

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be in the show notes so today right now is about a 2.8 billion market cap uh but more importantly on a revenue basis they did run rate revenues last quarter of about 440 million uh they're guiding to, I want to say 470 million of revenue this year, which is one of the biggest sandbags I've ever seen in my life for the record. But this market's pretty large. Dave has their TAM and everyone overstates TAM. They have it as like half of the US, I want to say. They have something like 150 million people. My realistic addressable market for them just in the earned wage access is closer to 60 to 70 million people. Now, the thing that Dave has spoken about, and it's interesting, they've talked about getting into two things at some point, because

right now, this is just a money printing machine. And we've talked about this is actually something of a bear case in the short term, is that they get more aggressive and go into like money-losing ventures for future growth. But from listening to Jason Wilk talk, what they're really interested in is finding ways to give their customers slightly longer duration loans that are a little bit higher ticket price. He's mentioned BNPL before. I was thinking more of a $1,000 loan or a $1,500 loan that kind of closer competes directly with payday lenders because usually they give a little higher ticket size uh in five years so full disclosure i usually underwrite companies like dave like on a 18 month to 24 month time frame is what i'm looking at

and and i think uh it depends on where they go with this product alone i mean you i don't see why they can't get to a billion run rate revenue or billion annual revenue with this product that's kind of my upside on the revenue end which obviously then you're probably got better margins and things like that so so net income will be considerably higher from there though you have a strong base to then build into these other products because then like if they go into bnpl like jason's talked about that's an insanely large market if they go into direct competition with payday lenders that's another uh avenue so personally in five years i can see them you know at something like a 10 billion market cap i don't think that's difficult to see um in fact

you know depending on how excited you are the company right now you could see that in like two years but we're not gonna not gonna dream too large too yet um but that's that's kind of my answer. Okay. Let's, let's talk about management and the Jason Wilk. The, my guess is that there's a lot of management teams in this industry that are maybe not like the ideal operators. Um, and that there's potentially, I don't know, room for let's call it manipulative accounting potentially. And so I guess my question is, what do you think of Jason Wilk? What's the integrity like there? Is there any room or any concern whatsoever in something shady going on at all?

Yeah. My short answer to that is that if there was something shady, it probably would have happened in 22, 23, 24, like when they were close to bankruptcy. Funny little fun fact. they actually had a really nice uh windfall because a lot of their debt back then was ftx and they actually got out with like a 30 they had like a gain on purchasing back the debt of like 30 35 million um but jason from everything i've seen and this is like you could argue it's something that's frustrating about dave it doesn't bother me at all he just seems like a pure operator

Dave never does any investor conferences. They have some sell-side research that does investor conferences, but he doesn't really go out and, I don't want to say shill, that has a negative, but pushes the company onto investors. He's more focused on just building out the product. So if you look at Dave, they don't do press releases. They're not very promotional with their stock. to me, he just seems kind of like a puts his head down and works kind of guy. And that's the

what I've gotten from talking to people who work in the industry. That's kind of the impression of how they are. Nothing has suggested that they are doing anything shady with their accounting. Like I said, I really think that would have come out when you were like really close to bankruptcy before. I don't think there's any reason for that to be happening now. Or if you want to be a little more, I don't want to say pessimistic, but let's say there was shady accounting, they've probably been able to cover that up and fix it by now. But I've never heard any accusation or anything of that on this team. They seem pretty straightforward with how they've been doing all of this. We may have talked about it already, but for the audience, you mentioned the bankruptcy risk in 2022, 2023.

Again, what happened there? And do you think there is a risk of that happening again? Well, if they get back up to the charge off rates that they were at back then, maybe. So this is an industry. It's about getting to scale and getting to that escape velocity where you are profitable. Until you get to that point, you're doing this weird dance of trying to get more people in because you need revenue. also having less data so trying to be able to figure out how do i underwrite this while also losing money so like how do you balance all that and so that's kind of where they were at um back in 22 and 23 was you actually had a couple things too you had at that time the government giving out a lot of money for free and so there wasn't like a lot of demand for

these products um actually i think that had an impact on demand personally and then you had them I want to say the write-offs were close to double digits at that point back in like 22, because they were so focused on trying to grow. And then they had like a worse balance sheet. They had more debt while they're losing money. I don't see that happening now. They are extremely profitable. And this is a business model that doesn't need a lot. It's asset light. You're not going to need to invest into a lot of like physical locations. You know, you've already built up the infrastructure. You have your model that underwrites them. You know, the only incremental costs are going to be some gross margin costs, maybe with Plaid and Coastal as you're taking

on more loans. You might have an uptick in charge-offs, but, you know, I could make the argument that they are now far and away the best, the strongest balance sheet and best collateralized to go through an environment where charge-offs go up. Like if unemployment rises, you're going to see a lot of companies like Earnin or Albert or these other ones go bankrupt, in my opinion, or have liquidity issues before Dave. So if anything, you might actually see consolidation of customers

into them at that point. So I don't see that kind of risk. Yeah, makes sense. what is uh what's the capital allocation i guess philosophy approach like for dave have they been doing any buybacks um i assume they have a lot of cash now to uh do whatever they want with so they've primarily done two things with their cash they did a 50 million buyback authorization in q was it after the q4 earnings so they did a 50 million buyback and then they are taking the cash that they're making. And I mentioned this a little bit earlier, but in fact, so like last

quarter, I think they made $45 million in cash from operations. And so with that, they primarily bought back stock and then took $26 million of that and use that as their own cash to write loans with. So instead of borrowing the cash from their partner at a 8% to 9% APR, they're just using their own cash to do that. So basically, right now, the capital allocation is buying back stock and basically just making them have a better operating leverage and less risk by taking on less debt and funding it themselves. It is an interesting question, though, on a go-forward basis, because if you look at this company, if they're doing $45 million cash from operations last quarter. And I think that's going to be the lowest quarter that they're going to have in terms

of income. There is a question of what do you do with all this money that you're making? And that's going to be interesting as they go forward. Maybe they just do a bunch of capital returns that could start to invest into growing other business lines. But currently, they're just increasing operating leverage and doing stock repurchases. Would you rather have them be aggressive on the buyback or build up a conservative balance sheet? Because I think given the risk you outlined of The industry might go through a down cycle and probably will if unemployment rises at some point. It might not be next year, but it could be five years from now. Would you want them to build up a conservative balance sheet? Or is there any disagreement there for how aggressive they started to start repurchasing shares? I don't have an issue with how they're doing it. I mean, obviously, I think the company is significantly undervalued. So I'm looking at this and saying, do a $200 million authorization, just buy back everything. But I think the way that they're allocating it, it seems primarily strengthening the balance sheet and also buy back stock. And I don't blame management. If I'm Jason and I just went through 22, 23, I'd be like, yeah, we're going to fortify this balance sheet. It's kind of like the, you know, I don't know if you guys heard the Acquired podcast with Jamie Dimon.

I'm all for like building the, as much as you can, the Fortress balance sheet up so that if something happens, you're fine. So I'm totally fine with how they're doing it. I think the kind of the split approach where they're doing some buybacks, some balance sheet fortification is totally fine. Let's talk, let's talk valuation. Why do you think the stock is cheap today? so currently people it's it's valued at like 15 times EBITDA which is based on the sell side estimate which you know companies like this the sell side coverage is usually very light and what sell side did in Dave's case is Dave gave a guy of 155 to 165 million for EBITDA

So what's the sell side estimate? 160. So they just said, okay, here's the guide. So let's back into it. Now, here's the thing. I'm going to read off the last five quarters of EBITDA from Q1 of 24 to Q1 of 25 today. 13.2 million in Q1 of 24. And it was 15.2 million.

Then it was 24.7 million, 33.4 million. And in Q1 of 25, 44.2 million. so this is a company that's clearly growing EBITDA very quickly and their run rate in Q1 is 176 million of EBITDA so the current valuation that you're seeing when you look at it on the screen or you're comparing to other companies is based off 10% lower than the run rate EBITDA that they're currently at and to my earlier point Q2 of 25 will be the first time that they have this pricing increase. So they're going to have a 15% revenue per loan increase, which in my opinion will greatly increase their bottom line profits. So I have them at $220 million of EBITDA for $25,

which obviously that's what, 40% higher than sell-side estimates. And with the cash conversion that they have from their EBITDA, I think this company could easily trade at a 20 times to even, And I mean, I was talking to some people, they think somewhere between 20 to 25 times EBITDA would be a fair valuation for a company with the EBITDA to cash flow conversion that they have. So you're currently, to summarize, they're trading right now at 15 times, and that's forward NTM, I think next 12 months, not just 25 numbers, that people are estimating basically them going to hit, you know, in, well, let me back up. It's really funny looking at

the quarterly estimates by Southside too, because they've had to square this company that's been hyper growth getting to the 160 million in EBITDA. So for Q2 of this year, okay. 108 million in revenue, top line revenue. They've been growing at an average organically of like eight to 10% a quarter and they had this 15 pricing increase so sell side gives them 113 million of revenue for q2 which is like a three percent increase or something and they have ebita going from 44 million in q1 down to 37 million in q2 uh i don't i mean where would that come from where would the decrease in are they just backing in the guy backing in a model into a full year guide that's heavily sandbagged right they just don't want to be off wildly and here's the thing

uh synchrony reported this morning and capital one reported was it yesterday yeah both of them i would say are more like low especially synchrony is lowering consumer focused and their delinquencies are down quarter over quarter uh which is very rare because generally q1 for for for dave and i imagine synchrony is the best quarter because people get tax returns and so usually that's your best quarter for delinquencies and it rises a little bit you know sequentially um so i think people are wildly underestimating the the profitability of this company and i think most people aren't looking that deep into it to be fair i mean there's little sell side coverage so i don't know who you're gonna you know talk to to get this and when you just pull a screener

on it. It's like, yeah, it looks kind of cheap, but why wouldn't I just go with another company that isn't so hairy, doesn't have a lawsuit against it, doesn't have all these problems. And I don't know, it's just, it feels like a stupid, it's like a bank name date. Like it just feels kind of- The name is tough. So let me see if I could sum it up. It's misunderstood business model. The valuation's reasonable today, even if they run into a bit of trouble and there's a chance over the next say three to five years um of course buybacks and share count plays into this but the market cap is under three billion today and it could probably it could go to 10 billion dollars and be a nice multi-bag return within a few years if things go right yeah i fully think

so um you know i've only modeled out 25 and 26 and 26 is kind of like for me it's it's kind of difficult to model these past 12 months because they don't give a lot of guidance. But I have been growing net income by 25% or EBITDA by 25% in 26. So I'm getting them to like 200, I want to say it was 275 million of EBITDA in 26. And I think I put a 23 multiple on that. You're getting somewhere around a 5 billion market cap, 6 billion market cap, I want to say, by end of 26, which I think is fairly reasonable. If, I mean, at the end of the day, if they hit the numbers that I think they're going to hit,

which to me seem a lot more reasonable than what the current guidance is. And I will say they have beaten raised every quarter, I think the last eight or nine quarters. So they have a history of doing this. I don't see why this thing won't be at, I think right now I don't see why I can't try the 323 40 by the end of the year the pitch makes sense uh before we get out of here why don't you

make a pitch for capital mindset i i will say you guys uncover these companies i've never heard of a coastal community coastal financial corporation coast community bank i didn't even know it wasn't right in my backyard and i was looking up some of the numbers while you were talking i was shocked at some of that you guys find either on the long or the short side just some fascinating undiscovered gems and I go, oh, never heard of this. Oh, wait, it's up 10x. So that's my pitch for people to go check it out. But tell the audience where I think you hear more from you and the rest of the guys over at Capital Mindset. Yeah. So Capital Mindset, we're on YouTube is how you can primarily find us. We have a membership. We try to keep it reasonable. I think it's like

$11 a month where we have a Discord community and we have, well, we try to do it weekly, at least, you know, a call where we go through updates on our core holdings or, you know, what's going on in the market. But you can find us at Capital Mindset on YouTube. It's also on Twitter. And yeah, and you'll see myself and often Fabio, who's my co-host and my partner at Capital Mindset. All right, let's hit the disclosure and get out of here. We are not financial advisors. Anything we say on this show is not formal advice or recommendation. Ryan, I or any podcast guests may hold securities discussed in this podcast may have held them in the past and may buy, sell, or hold them in the future. Thank you once again, Andrew,

for joining the show. Thank you for the listeners for tuning in. Hopefully you learned a lot and found another interesting company to research. And we'll see you next time. You