Marqeta's Origin and Growth Journey
Marqeta, Inc. (NASDAQ:MQ) is a global fintech leader that has redefined the modern card issuing landscape. Founded in 2010, the company's mission is to empower the world's innovators with its cutting-edge payment platform, enabling them to create custom and innovative payment experiences. Marqeta has emerged as a trusted partner for some of the most prominent names in the financial services industry, helping them navigate the complexities of the rapidly evolving payments ecosystem.
Marqeta was incorporated in the state of Delaware in 2010 with the goal of modernizing the payment card issuing process to provide more configurability and flexibility for its customers. In its early years, the company focused on building out its core platform and acquiring its first major customers. Marqeta secured partnerships with issuing banks and card networks to enable its modern card issuing capabilities, which became a key differentiator in the market.
One of Marqeta's early milestones was working with the mobile payments company Square (now Block) to power the Cash App debit card program starting in 2016. This partnership established Marqeta as a leader in the emerging fintech space and paved the way for future collaborations with other innovative companies.
As Marqeta scaled its business, it faced some challenges. In 2023, the company identified material weaknesses in its internal controls related to its acquisition of Power Finance Inc. and its information technology general controls. This required additional investment and effort by Marqeta to remediate the issues and strengthen its control environment.
Despite these challenges, Marqeta continued to innovate and grow its customer base. The company expanded into new verticals beyond fintech, such as expense management and buy-now-pay-later, to diversify its business. Marqeta also invested in expanding its program management capabilities to better support its customers in launching and scaling their payment programs.
Marqeta's Financial Performance and Metrics
Marqeta's financial performance has been impressive, with the company demonstrating a strong commitment to growth and operational efficiency. In the company's most recent fiscal year (2023), Marqeta reported total revenue of $676.17 million, representing a year-over-year increase of 16.5%. Despite the challenging macroeconomic environment, the company has continued to deliver solid financial results, showcasing the resilience of its business model.
One of Marqeta's key financial metrics is Total Processing Volume (TPV), which represents the total dollar amount of payments processed through its platform. In the latest quarter (Q2 2024), Marqeta's TPV reached $71 billion, a 32% year-over-year increase, underscoring the strong demand for its services.
Marqeta's gross profit margin has also been a standout, with the company reporting a gross profit of $329.51 million in the most recent fiscal year, translating to a gross margin of 48.7%. This robust profitability profile demonstrates Marqeta's ability to generate value for its customers while maintaining a disciplined approach to its operations.
Financials
The company's financial strength is further highlighted by its healthy balance sheet, with $1.20 billion in cash, cash equivalents, and short-term investments as of June 30, 2024. This strong liquidity position provides Marqeta with the financial flexibility to continue investing in innovation, expanding its customer base, and pursuing strategic initiatives to drive long-term growth.
For the most recent fiscal year (2023), Marqeta reported: - Revenue: $676.17 million - Net income: -$222.96 million - Operating Cash Flow (OCF): $21.10 million - Free Cash Flow (FCF): $8.45 million
In the most recent quarter (Q2 2024), Marqeta reported: - Revenue: $125.27 million - Net income: $119.11 million - Operating Cash Flow (OCF): $26.13 million - Free Cash Flow (FCF): $19.54 million
It's important to note that Q2 2024 revenue decreased 46% year-over-year, primarily due to the amended agreement with Block, Inc. that impacted the revenue presentation. Excluding Block, non-Block revenue grew over 10% year-over-year.
In terms of geographic performance, for the three and six months ended June 30, 2024, net revenue outside of the United States, based on the billing address of the customer, was 10% and 9% respectively. As of June 30, 2024, long-lived assets located outside of the United States were not material.
Liquidity
Marqeta's strong liquidity position, as evidenced by its $1.20 billion in cash and investments as of June 30, 2024, ensures that the company has ample resources to fund its operations, invest in growth initiatives, and weather potential economic uncertainties. The company's financial health is further underscored by the following metrics:
- Debt/Equity ratio: 0.014 - Current ratio: 3.77 - Quick ratio: 3.77
The company has access to and control over all its cash, cash equivalents and short-term investments, except amounts held as restricted cash of $8.50 million as of June 30, 2024. The restricted cash includes a deposit held at an Issuing Bank and cash held at a bank to secure the company's payments under a lease agreement.
Marqeta's Competitive Landscape and Growth Opportunities
Marqeta operates in a highly competitive payments landscape, with established players and emerging fintechs vying for market share. However, the company's unique value proposition and innovative solutions have allowed it to carve out a significant niche in the industry.
One of Marqeta's key competitive advantages is its ability to seamlessly integrate with a wide range of financial services providers, enabling its customers to quickly and efficiently launch and manage their own payment products. This flexibility, combined with Marqeta's robust compliance and security features, has made it a go-to partner for companies looking to embed finance into their offerings.
Moreover, Marqeta's focus on the rapidly growing embedded finance market has positioned the company for continued growth. As more businesses seek to integrate financial services into their core products and services, Marqeta's platform and expertise have become increasingly valuable. The company's recent partnerships with leading players in the Buy Now, Pay Later (BNPL) space, such as Affirm and Klarna, further solidify its position in this burgeoning segment.
Marqeta's geographic expansion, particularly in Europe, has also been a key driver of its growth. The company's strategic investments in enhancing its program management capabilities and establishing a presence in regional hubs, such as the recently opened office in Warsaw, Poland, have allowed it to better serve its international customer base and capitalize on the growing demand for its services globally.
The company continues to see strong momentum in its business, with 32% year-over-year growth in total processing volume (TPV) to $71 billion in Q2 2024. This growth was driven by strength across financial services, expense management, and buy now, pay later use cases. Ten of Marqeta's top 20 customers grew over 50% year-over-year during the quarter.
Marqeta recently announced a new partnership with Varo Bank, a neobank with 5 million cards in the market, to migrate their customers onto the Marqeta platform in a 5-year exclusive contract starting in 2025. This demonstrates Marqeta's ability to scale and innovate with large, sophisticated fintech customers.
Additionally, Marqeta became the first US issuer processor certified by Visa to support Visa Flexible Credentials, which allows consumers to toggle between payment methods on a single card. This innovative capability has been developed in partnership with Affirm and is expected to provide Marqeta with further differentiation in the BNPL space.
Product Segments and Revenue Streams
Marqeta operates two main product segments:
1. Platform Services Revenue: This is Marqeta's primary revenue source, which includes Interchange Fees (net of Revenue Share and other service-level payments to customers), and processing and other fees. Interchange Fees are transaction-based and volume-based fees set by Card Networks that are paid by merchant banks to the issuing banks. Marqeta earns these Interchange Fees on the card transactions it processes for its customers. Revenue Share payments are incentives Marqeta provides to its customers to increase their processing volumes on Marqeta's platform. Processing and other fees are priced as a percentage of processing volume or on a fee per transaction basis, and are earned when payment cards are used at ATMs or for cross-border purchases.
2. Other Services Revenue: Marqeta also generates revenue from its other services, which primarily consist of card fulfillment fees. Card fulfillment fees are billed to customers upon ordering card inventory and are recognized as revenue when the cards are shipped.
Financial Guidance and Outlook
Based on the company's recent performance and outlook, Marqeta has provided the following guidance:
- For Q3 2024, Marqeta expects net revenue growth to be 16% to 18% year-over-year. - For Q4 2024, Marqeta expects net revenue growth to also be 16% to 18% year-over-year. - For FY 2024, Marqeta expects net revenue growth to contract 24% to 27%. - For Q3 2024, Marqeta expects gross profit growth to be 25% to 27% year-over-year. - For Q4 2024, Marqeta expects gross profit growth to be approximately 3 points slower than Q3. - For FY 2024, Marqeta expects gross profit growth to be 79%. - For Q3 2024, Marqeta expects adjusted EBITDA margin to be 4% to 6%. - For Q4 2024, Marqeta expects adjusted EBITDA margin to be 6% to 8%. - For FY 2024, Marqeta expects adjusted EBITDA margin to be 3% to 5%.
Risks and Challenges
While Marqeta has demonstrated impressive growth and resilience, the company is not without its risks and challenges. The highly competitive nature of the payments industry, with both established players and nimble startups vying for market share, poses a constant threat to Marqeta's competitive positioning. The company must continually innovate and enhance its offerings to stay ahead of the curve and maintain its technological edge.
Additionally, Marqeta's reliance on a limited number of large customers, such as Block, Inc. (formerly Square), poses a potential concentration risk. Any disruption or changes to these key customer relationships could have a significant impact on Marqeta's financial performance.
The company also faces regulatory and compliance risks, as the payments industry is subject to a complex web of rules and regulations. Marqeta must navigate these challenges adeptly to ensure that its products and services remain compliant and secure, safeguarding the trust of its customers and partners.
Lastly, Marqeta's success is heavily dependent on its ability to attract and retain top talent, particularly in the areas of technology, product development, and customer service. The competitive nature of the labor market, especially in the tech industry, poses a ongoing challenge for the company.
Conclusion
Marqeta has established itself as a leading player in the fintech industry, revolutionizing the way businesses and consumers interact with payments. The company's innovative platform, robust financial performance, and strategic growth initiatives have positioned it as a trusted partner for some of the most prominent names in the financial services sector.
As the embedded finance market continues to expand, Marqeta's unique value proposition and commitment to innovation will be instrumental in driving its long-term success. While the company faces its share of risks and challenges, its strong financial position, talented team, and adaptable business model suggest that Marqeta is well-equipped to navigate the evolving payments landscape and capitalize on the abundant growth opportunities ahead.
With its continued focus on expanding its product offerings, fostering key partnerships, and driving innovation in areas such as BNPL and flexible payment credentials, Marqeta is poised to maintain its position as a leader in the modern card issuing and payment processing space. As the company executes on its growth strategy and expands its global footprint, investors and industry observers will be keenly watching to see how Marqeta shapes the future of embedded finance and digital payments.