Marqeta: Fintech Company Yet to Justify IPO Price

Marqeta (NASDAQ: MQ) is a modern card-issuing platform. Its platform empowers businesses like Affirm, DoorDash, Instacart, Klarna, and Square to create customized payment cards that provide innovative payment experiences for their customers and end-users.

It derives most of its revenue from interchange fees generated by card transactions through its platform, and from other processing services, including monthly platform access, ATM fees, fraud monitoring, and tokenization services. The company was founded in 2010, and is headquartered in Oakland, California.

The payment processing firm went public via an IPO in June 2021, raising $1.2 billion. I am bearish on MQ stock trading now at about $15.50 a share, 43% lower than its IPO price of $27.

You can check out other upcoming IPOs on TipRanks, though they are often risky and overvalued.

Marqeta Business News

On December 9, Marqeta announced its “first corporate investment since going public in June 2021” in ConnexPay, a company that “was founded in 2017 and serves travel, marketplace, and commerce intermediary companies with its payments gateway technology, processing billions in transaction volume.”

As a result of this investment, Marqeta stated it would get a seat on ConnexPay’s board.

In early December 2021, the fintech company announced “that it has expanded its partnership with Klarna, the leading global retail bank, payments, and shopping service, into 13 new European markets: the United Kingdom, Germany, France, Italy, Spain, Netherlands, Poland, Belgium, Austria, Ireland, Norway, Finland, and Denmark.”

Also in December 2021, Marqeta “announced a partnership with First National Bank of Omaha (FNBO), expanding its ecosystem of partners that enable its customers to launch modern credit card programs.”

Insights on MQ Stock

Every public traded company should aim to maximize shareholders’ value with exceptional business and financial performance.

The word exceptional may seem too much but let’s assume adequate performance as a more conservative approach to valuing companies.

First, it is fine for any company to search for other alternative investment opportunities if they are expected to deliver value and gains, thus implementing the management’s decision to maximize shareholders’ value.

It seems a bit extravagant at this moment for Marqeta to invest elsewhere rather than try to improve its financial performance. It would be fine for a company that has tons of cash, is making healthy profits, and has a proven successful business model to search for corporate investments.

The problem for Marqeta is that its fundamentals are not bad, but the firm is losing money, signaling a problematic business model.

MQ stock earnings in Q2 and Q3 2021 were negative. GAAP EPS in Q3 2021 were -$0.08 (a beat by $0.09). Revenue of $131.51 million was also a beat by $12.29 million.

On the negative side, Marqeta has reported two consecutive declines of quarterly revenue, negative EBITDA, and again negative free cash flow of $11.82 million in Q2 2021 and $4.89 million in Q3 2021.

The EPS is expected to decrease by -31.25% on average over the next five years. The Piotroski-F score of MQ stock is 1.00, a very weak score that indicates problems in health and profitability.

Wall Street’s Take

Marqeta has a Hold consensus based on two Buys, four Holds, and one Sell rating. The average Marqeta price target of $28.86 represents 87.2% upside potential.

Marqeta is considered a growth stock based on the impressive annual revenue growth of 102.62% for 2020.

This growth has slowed down, especially in Q2 and Q3 in 2021. The company is unprofitable and has an unstable free cash flow trend in 2021.

The underperformance of the stock in 2021 does not make it attractive now, as it continues to have a rich valuation.

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Disclosure: At the time of publication, Stavros Georgiadis, CFA did not have a position in any of the securities mentioned in this article.