Dave & MoneyLion Q1: Some Progress, But Valuations Continue To Slide

SoLo Funds Celebrates Consent Order Hat Trick With Deceptive Press Release, Tweets; Revolut Headaches Multiply

May 21, 2023

Hey all, Jason here.

After nearly a month in the United States, I finally arrived back home in the Netherlands early yesterday morning. Many thanks to everyone who made the trip extremely successful and productive, including the teams at Empire Fintech (especially Jon Zanoff), Cable, Unit21, and Barclays Rise.

For anyone I didn’t get the chance to meet with, feel free to drop me a line, and we can find time for a “Zoom coffee.”

For those of you looking for even more fintech content, my friend and podcasting partner Alex Johnson of Fintech Takes has assembled the ultimate list of fintech resources — you can check that out here.

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Dave & MoneyLion Q1 Earnings: Some Progress, But Valuations Continue To Slide

We’ve covered Dave and MoneyLion, two publicly traded US neobanks, in depth previously, including a recent deep dive comparison on their 2022 10-Ks.

While both companies have made some progress on key metrics, their valuations continue to decline.

Dave’s market capitalization now stands at a paltry $54 million, down another 25% since the end of the first quarter.

MoneyLion’s overall share price performance is even worse — since the end of Q1, it has seen its valuation plunge about 42%, from $150 million to just about $87 million.

At the same time, the market’s overall performance has been fairly steady:

Dave & MoneyLion vs. S&P 500 YTD performance; data and image from YCharts

Dave: Narrowing Losses, Stable Liquidity Position

In good news, Dave did grow its Q1’23 revenue about 38% vs. Q1’22 to nearly $59 million; however, sequentially, revenue dropped about 1% vs. Q4’22.

Total operating expenses were also up about 9.5% year over year to about $71.4 million. Provisions for loan losses declined slightly year over year, while employee compensation and benefits jumped from $17.8 million to $24.4 million.

The upshot is a significantly narrowing loss. Dave posted a net loss of about $14 million on a GAAP basis in Q1’23 vs. a $21.5 million loss in Q4’22 and a $32.8 million loss in Q1’22.

Dave reported adding 587,000 new members for a total of 8.7 million members; however, just 2 million, or 23%, were active in a given month.

That equates to just over $27 ARPU on annualized basis, based on Q1’23 revenue — a slight improvement over the $25 ARPU Dave posted for 2022.

On an average per monthly transacting member basis, ARPU was an annualized $124 in Q1’23, down slightly from the quarter prior, due to seasonally reduced demand for cash advances.

Despite its shrinking valuation, Dave still holds $196 million in cash, cash equivalents, securities, short-term investments, and restricted cash.

That’s actually up $3 million vs. the company’s liquidity position at the end of Q4’22, meaning Dave does have breathing room to continue trying to find a path to profitability.

MoneyLion: Improving Revenue, Losses Flat

MoneyLion’s picture on the revenue side roughly mirrors Dave’s: up meaningfully year over year and down slightly quarter over quarter. MoneyLion’s total net revenue was up about 34% year over year, but down about 1% quarter over quarter, to $93.7 million.

This seasonality is driven by the tax calendar: as lower-income consumers receive their tax refunds, which tend to be their biggest “paycheck” of the year, they are less likely to use short term credit products, like the cash advances Dave and MoneyLion offer.

On the expense side, MoneyLion is slightly better than flat year over year. Provisions for loan losses and marketing expenses were down; direct costs and employee compensation and benefits were up. Operating expenses totaled about $97 million for Q1’23, down slightly from just over $100 million the year prior.

Data from MoneyLion quarterly filings; Q4’22 net loss includes non-cash goodwill impairment loss

This allowed MoneyLion to post an adjusted EBITDA of $7.3 million; the adjusted metric adds back income and expenses related to interest on corporate debt, income tax, depreciation and amortization, value of warrants, stock-based compensation, and one-time expenses.

On a GAAP basis, MoneyLion posted a $9.2 million loss, only slightly improved from the nearly $10 million loss the year prior.

MoneyLion reported 7.8 million total “customers,” a 102% growth year over year, though this includes users monetized through affiliate commissions from 3rd party partners. It reported total “products,” including 3rd party products, of 14.7 million, up 63% year over year.

Based on the 7.8 million customer number, MoneyLion generated on average $48 per user on an annualized basis, down slightly from $52 in 2022.

SoLo Funds Celebrates Consent Order Hat Trick With Deceptive Press Release, Tweets

For the second week in a row, peer-to-peer payday lending platform SoLo Funds announced a consent order — this time, in its long-running dispute with Connecticut.

Confusingly, SoLo celebrated the consent order — which continues to bar it from operating in the state, unless and until it obtains necessary licenses and adapts its business model to comply with Connecticut law and the requirements of the consent order — by releasing a deceptive press release and tweets announcing it now could “continue [its] offering to Connecticut residents.”

The news was even amplified by SoLo investor Serena Williams in a since-deleted tweet.

What Does The Connecticut Order Require?

Connecticut’s original cease and desist order alleged that SoLo Funds:

brokered loans to Connecticut borrowers, without the required license
engaged in activity to assist Connecticut borrowers in obtaining small loans, without the required license
acted as a consumer collection agency in Connecticut, without the required license
and engaged in deceptive practices, including by falsely stating the loans it facilitated had 0% APR, when, in fact, they carried effective APRs as high as 4,280%, in violation of Connecticut law, the federal Consumer Financial Protection Act, and TILA Reg Z

The order requires SoLo Funds to:

refrain from operating in Connecticut until it has obtained any required consumer collection license;
and obtains a small loan license, which limits permissible charges to a 36% APR, calculated consistently with the Military Lending Act (“MAPR”), which would include “tips” and/or “donations” in the finance charge calculation
or implements a business model that complies with a written opinion by the Connecticut Banking Commissioner, so long as such a model only allows borrower “tips” after complete repayment of a loan and prohibits information on borrowers’ past tipping amounts to be shared with lenders or perspective lenders, including through its “SoLo Score”
SoLo must also pay a $100,000 penalty to Connecticut
and reimburse all fees paid by Connecticut borrowers, including “tips,” “donations,” late fees, administration fees, Synapse transaction fees, and recovery fees

A “Marquee Conclusion” And Clear Pathway Forward?

SoLo Funds attempted to preempt the actual contents of the consent order by posting a press release headlined (emphasis added): “SoLo Announces Connecticut State Resolution bringing the Community Finance Platform back to Residents.”

The company’s statement continued, saying that the consent order, which the press release refers to as a “resolution,” “marks a marquee conclusion and provides a clear pathway forward for SoLo to serve Connecticut state residents.”

Yet it doesn’t appear that the consent order does anything of the sort. Instead, the press release appears to be an attempt to reframe the consent order in a positive light.

SoLo Funds even went so far as to attack consumer advocacy group NCLC’s statement on the order.

As of writing, SoLo Funds has not obtained either a small loan license nor a consumer collections license in the state, per NMLS records.

Connecticut’s Director of Government Relations and Consumer Affairs, Matthew Smith, didn’t respond to multiple inquiries asking if SoLo Funds had applied for any such licenses or received permission to operate without them, as required by the order.

Given the requirements of the order, which includes limitations on the effective APR, which must include “tips” and “donations” in its calculation, and when and how SoLo can solicit such charges from borrowers, the company doesn’t appear to have a viable path to re-launching in the state.

Revolut Headaches Multiply Amid License Row

If you’ve lost track of the drama unfolding at UK-based neobank Revolut, you’re probably not alone. The company is facing multiple, intersecting issues that appear set to come to a head in the coming days.

First, Revolut’s accounts for 2021 were delayed multiple times and, ultimately, weren’t filed until several months after the statutory deadline. The cause of the delay seems to have been issues with audit firm BDO’s review of Revolut’s accounts.

BDO issued a “qualified opinion” of those 2021 accounts; while BDO’s audit opinion said the accounts gave a “true and fair view of the state of the group,” it cautioned it was unable to verify the “completeness and occurrence” of some 75% of Revolut’s reported revenue for 2021, totaling £477 million.

On the heels of that audit report, Revolut’s group CFO, appointed just two years ago, resigned for “personal reasons.”

Most recently, the UK’s Prudential Regulation Authority (PRA) warned the Bank of England that it planned to deny Revolut’s long-sought bank license in the country. Presently, the firm operates as an e-money institution in the country, which doesn’t permit Revolut to hold insured customer deposits or lend in the country.

The audit issue isn’t the only factor blocking Revolut’s license application. Its complicated ownership structure — with six different share classes — is also a problem. The PRA has told Revolut it needs to collapse those six classes into one, expand its group-level board, and add more technology expertise.

But simplifying its ownership structure is proving anything but simple.

SoftBank, which led Revolut’s 2021 $800 million Series E, valuing the company at $33 billion, is a key hold out. The investor is reportedly demanding twice the amount of common stock in exchange for giving up certain rights linked to the preferential shares it currently holds.

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