Dave Inc.: Excellent Growth But Valuation Concerns

Summary

• Dave Inc. shows strong growth with 11.6M members until Q3 2024, a 41% YoY revenue increase, and impressive customer acquisition strategies, but faces high valuation concerns.
• Dave’s innovative AI-powered underwriting model has reduced delinquency rates, enhancing profitability and customer retention.
• Despite robust financial performance, Dave’s stock appears overvalued with a 408.8% price increase in the past year and high EV/EBITDA multiples compared to peers.
• Regulatory scrutiny and potential legal issues pose significant risks, leading to a HOLD rating despite strong operational metrics.

Introduction

Dave Inc. (NASDAQ:DAVE) is a US-based fintech company that offers banking services through its mobile platform for people needing access to quick loans. The loans themselves are interest free, but the company primarily makes money through membership fees, cash advance fees for its ExtraCash product, interchange fees and an initiative called Side Hustle by which Dave allows users to earn money through side hustles with Dave’s partner network. Dave has portrayed itself to be a relatable customer friendly brand by differentiating itself from traditional banks by not charging annual, maintenance or hefty overdraft fees. This is a boon to the financially vulnerable households who have low savings and need access to affordable, short-term liquidity.

Dave has a market cap of 1.48 billion and is currently trading at $115.65. My view is that there are several factors that suggest that investors should exercise caution before buying the stock, despite Dave’s growth story and customer friendly approach. I rate the stock a HOLD because of the following reasons: Market challenges, regulatory risks, valuation concerns and stock price volatility.

Market challenges

Dave operates in a highly competitive market with the likes of Earnin, MoneyLion, Brigit, Chime, and other players.

The payday loans market size has grown from $35.4 billion in 2024 to $37.51 billion in 2025 at a compound annual growth rate (CAGR) of 5.8%, with North America being the largest region in the payday loans market.

Dave estimates that the Total Addressable market that it competes in, the market of financially vulnerable households that have low savings and need access to short-term liquidity, is 180M customers. However, as per this data, that this article by the Guardian references, only approximately twelve million Americans take payday loans every year. This information suggests that Dave may already be nearing a saturation point in its core customer base.

Given this constraint, Dave’s future growth will depend on expanding its market share within this user base or diversifying into adjacent financial products.

Overview of customers and customer acquisition

So far, Dave has impressive customer growth. It has been acquiring new members at a rapid pace. In Q3 2024, Dave acquired 854K new members, a 4% increase from the prior year. Overall, 11.6 million members have used at least one of Dave’s products until Q3 2024, up 17% from the previous year, attributed to its engagement and monetization strategies and expansion of its product portfolio including Dave Card.

Dave is also keeping its customer acquisition costs low at $15, a 14% year-over-year decrease and a 10% year-over-year decrease in marketing spend.

Dave saw a 14% increase year over year in the Average Revenue per Monthly Transacting Member, primarily driven by the improvements in ExtraCash engagement and monetization, as well as increase in Dave Card spend.

Additionally, Dave has implemented AI and ML measures to improve its risk management. It implemented a new AI-powered underwriting model, which has significantly reduced delinquency rates from 2.6% in Q3, 2023 to 1.78% in Q3, 2024.

Revenue, Costs and Profitability

Dave’s financial performance over the years has also been quite impressive. In Q3 of 2024, Dave reported revenue of $93 million, a 41% growth year over year, with a 58% profit margin. This growth can be attributed to the rapid customer acquisition growth in Dave Card members as well as higher ExtraCash approval limits. Additionally, Dave implemented new retention initiatives, which saw the increase in transacting members. Further, Dave maintains a strong cash position of $76.7 million as of Q3, 2024.

Dave has partnered with the Evolve Bank & Trust, which is a member of the FDIC, to power its ExtraCash product. Additionally, the company is also exploring other banking partnerships to provide the best banking products and services to its members.

From the data provided above, it appears that Dave is firing on all cylinders and the management intends to improve on the product portfolio, keep costs low, expand member acquisition and increase revenue and profitability. Dave has also been included in the Russell 2000 index, another positive for the company. Additionally, the company has proved that it is able to exceed its financial targets and that it is able to efficiently manage costs.

However, there are significant hurdles that the company has to overcome.

Regulatory risks and compliance issues

Dave faces significant regulatory risks as a result of the FTC complaint filed in Nov 2024 and DOJ complaint filed in Dec 2024 against Dave, alleging false advertising and hidden fees.

The payday lending sector is no stranger to these complaints, as evidenced by this list of FTC complaints against payday lenders, including Brigit, FloatMe, etc. The FTC complaint impacts Dave’s business model more than the company would care to admit. The FTC charges that Dave failed to clearly disclose the Express fee for instant advances, the membership fee and also misled customers into believing that they were donating to charitable causes, while the company kept the tips for themselves. The FTC also alleges that Dave did not accurately represent the cash advances available and advertised the maximum amount of up to $500, but customers rarely received this.

These FTC and DOJ complaints have prompted multiple legal investigations and exposed the company to the risks of a class action lawsuit. This is critical because it creates uncertainty, could create potential financial liabilities and distract management.

Typically, in these scenarios, there is reputational risk as well and customer trust will be eroded as a result. This could directly impact the number of customers on the platform. Additionally, members can become even more averse to any changes in fee structures.

As a result of these complaints, Dave is making some fundamental changes to its business model such as eliminating optional tips and the express fees for its ExtraCash product as indicated in their Q3 2024 earnings call press release in Dec 2024. Although this is positive, I would want to see how this impacts the revenues and profitability.

If you look at the revenue breakdown for Q3 2024, processing fees made up over 63% of the total revenue of 92M. These are fees charged when members request expedited cash, which would be made available in hours instead of waiting 1-3 business days. Next up, Tips made up over 19% of the total revenue. These are discretionary tips left by members who receive ExtraCash. If both these fees are eliminated, 82% of the revenue would be impacted.

Subscription fees made up 6.8% of the total revenue. Transaction-based revenue, which is primarily interchange and ATM revenues from Dave’s checking product, brought in over 9% of the total revenue.

Although the management believes that it can easily modify its business model to accommodate the charges in the FTC complaint, I would wait to see evidence of the changes they are making to their fee structure and the impact on the revenue before adding Dave to my portfolio.

Although the above metrics indicate that the stock is attractive, Dave trades at a premium to its historical valuation and peers, making it less attractive for long-term investors.

Price volatility and Valuation concerns

Dave is a highly volatile stock and is not for anyone that prefers stable investments. Dave traded a 52-week low of $20.5 and a 52-week high of $125 in the past year. The Fwd P/E ratio of 33.42 indicates that the stock is overvalued, suggesting that the market has already priced in the future growth expectation. This increases the risk of a market correction, should Dave fail to meet its growth numbers. Even small changes in market sentiment can result in steep market correction for stocks with high P/E ratios.

Further, the Fwd Price/Sales ratio is 4.31 above the Price/Sales of its peers, 0.74 of LX (LexinFintech Holdings Ltd) and 0.84 of ECPG (Encore Capital Group Inc.) indicating that the stock is overvalued.

In the past year alone, Dave’s stock price has increased 408.8% in comparison with the 21.95% increase in the S&P 500. Furthermore, the Fwd EV/EBITDA of 20.48 in comparison to the EV/EBITDA of 6 EV/EBITDA (fwd) of LX and 10.3 EV/EBITDA (fwd) of ECPG indicates that Dave is overvalued compared to its peers.

Conclusion

In conclusion, Dave is an overvalued stock that has promising growth potential. It has shown excellent revenue growth and cost efficiency capabilities, but regulatory challenges, price volatility and market challenges contribute to its HOLD rating. Investors should assess their position as they get more clarity on the company’s ability to sustain customer growth despite regulatory challenges, in the Q4 earnings call in March.