Banking business? Starbucks holds over $1.8 billion in customer deposits

Starbucks (NASDAQ: SBUX) is one of the leading coffee brands in the world, with over 38,000 coffeehouses in 86 countries. However, Starbucks has also built an indirect position in the banking business, currently holding $1.872 billion in customer deposits.

This data is from the company’s earnings report for 2024’s second quarter (Q2), under the “stored value card liability” results.

Earning reports; Liabilities and Shareholders’equity/(deficit). Source: Starbucks

Essentially, when a customer buys a Starbucks Card, the unredeemed amount represents stored value, similar to a bank deposit. The business is responsible for providing future value on redemption, which means that stored value represents a liability on financial reports.

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Starbucks’s $1.87 billion in stored-value cards act as interest-free capital for the company, similar to an interest-free banking loan. Additionally, some funds on gift cards are never used, leading to what is known as “breakage revenue.” According to a Markedium report, this amounted to nearly $196 million for Starbucks in the past fiscal year.

Starbucks would be among the U.S. 10% largest banks

Notably, the same report stated that this customer deposit amount puts Starbucks among the 10% largest banks in the United States by this metric. Nevertheless, Starbucks is not a formal bank and, apparently, does not intend to be.

Over the years, the coffeehouse giant has collaborated with U.S. banks like Square (NYSE: SQ) and JP Morgan (NYSE: JPM) to improve the payment experience while partnering with Barclay in the United Kingdom, and Apple Pay and Visa in other parts of the world.

In 2018, Starbucks announced plans to accept cryptocurrency payments, which rendered another partnership, this time with Bakkt, a custodial crypto wallet provider. As of 2023, customers could use the app to pay for a coffee using Bitcoin (BTC) and other cryptocurrencies.

Starbucks Q2 2024 earnings report

Interestingly, Starbucks reported $8.56 billion in revenue for Q2 2024, a 1.8% decrease from the same period last year. The company’s net income also declined by 15% to $772.4 million, with a profit margin of 9.0%.

Moreover, earnings per share (EPS) dropped to $0.68 from $0.79 in Q2 2023, missing analyst estimates by 16%.

Despite the disappointing results, Starbucks holds over $1.8 billion in customer deposits through its stored value card liability. This amount surpasses the company’s quarterly net income, highlighting the significant role of the Starbucks Card in its business model

Looking forward, Starbucks’ revenue is expected to grow 8.1% annually over the next three years, slightly lower than the 9.8% growth forecast for the US hospitality industry. Following the earnings report, SBUX stock has fallen by 10% month-over-month, reflecting investor concerns over the disappointing financial performance and future growth prospects.