Blackhawk Network Gives a Sneak Peak Into Its Inner Workings Ahead of Its IPO

International expansion and broader distribution in the United States are among the major initiatives on tap for gift card and prepaid card seller and program manager Blackhawk Network Holdings Inc. to grow its business, according a filing Blackhawk made this week in preparation for its planned initial public offering.

Some of the international markets Blackhawk is targeting include Brazil, South Korea and China, where the company recently entered into an agreement with China UnionPay, China’s huge bank card association. Blackhawk already has operations in 18 countries and has made inroads into Australia, Canada, the United Kingdom and several countries in the European Union, according to the registration statement Pleasanton, Calif.-based Blackhawk filed with the Securities and Exchange Commission.

Blackhawk, which is 96% owned by supermarket chain Safeway Inc., launched in 2001and has grown to become a major distributor and provider of gift and other prepaid cards. Blackhawk also has its own prepaid card reload network called REloadit.

In addition to international expansion, the company also is looking to expand distribution in the U.S. by persuading more merchants to set up its gift card malls in their stores. Currently, Blackhawk sells prepaid cards through more than 500 merchants, or content providers as it refers to them, using 100,700 active stores that attract more than 160 million consumer visits per week.

Blackhawk’s distribution centers, which are commonly referred to as in-store gift card malls, offer cards across such merchant categories as apparel, entertainment, travel, hotels, restaurants, home improvement, electronics, petroleum, telephone services, professional sports leagues, and department stores.

Blackhawk’s revenues consist mostly of card fees and a cut of interchange it gets from its issuer partners. Through its main issuer, MetaBank, Blackhawk offers a proprietary Visa gift card and the PayPower general-purpose reloadable card. Blackhawk also distributes reloadable cards for the big prepaid card program managers Green Dot Corp. and NetSpend Holdings Inc., the latter of which has a $1.4 billion deal to be acquired by processor Total System Services Inc. (TSYS).

In 2012, Blackhawk’s revenues totaled $959.1 million, up 28% from $751.8 million in 2011. Some $786.6 million of those revenues came from commissions and fees, up 23% from $639.6 million in 2011. Another $103.4 million came from program, interchange, marketing and other fees, an increase of 18% from $87.6 million in 2011, and $69.1 million from product sales, up 181% from $24.6 million in 2011.

The huge jump in product sales was due largely to Blackhawk’s acquisition of Cardpool, an online marketplace where consumers can buy and sell gift cards, in late 2011.  Cardpool generated $36.5 million in product sales in 2012.

Closed-loop prepaid cards offered by retailers, restaurants and other merchants accounted for 70% of Blackhawk’s 2012 revenues. Open-loop cards (those with the Visa, MasterCard, Discover or American Express brands) brought in 14% of revenues.

Blackhawk processed 216 million transactions in 2012 and $8.4 billion in loads onto prepaid cards in 2102, up from 184.2 million transactions representing $6.9 billion in value in 2011. The average value per transaction was $39.19 in 2012, up from $37.53 in 2011.

Looking ahead, Blackhawk sees opportunities to expand its business by integrating prepaid products with mobile applications. The company also expects to grow Cardpool by integrating it with mobile applications and introducing the online marketplace to grocery stores and other distribution channels.

Blackhawk expects the IPO to raise up to $200 million. Safeway will continue to hold a significant portion of Blackhawk’s Class B shares. No date for the IPO has been set.