Introducing Marqeta: 123% YoY growth,200%+ DBNER

Hello everyone, first of all, thank you and especially Saul for this resplendent board. I’ve read almost every post since discovering this treasure about a year ago and not only enjoyed writings by Saul, Muji, Bear, Rico, ExponentialDave and others but also got some nice returns by changing my portfolio from s&p 500 and IT technology ETFs to a set of individual high growths stocks, currently it is well known names like Upstart, Crowdstrike, Cloudflare, Datadog, Snowflake and Marqeta (6%), which I’d like to introduce to this board.
A bit about me – I am running a small SaaS business here in Russia, I’m an ex-programmer, I’m 40 years old and currently I got very interested in investments. I can easily read in English, but I may write with some mistakes which I hope will not be critical – please correct me in such unfortunate cases.

What does Marqeta do

Marqeta is b2b company which lets its customers to issue prepaid, debit and credit cards with API. Cards can be virtual and used with Google Pay, Apple Pay or Samsung Pay and likes, or they can be plastic, and since August, 3 they offer cards made from 43% recycled plastic.

Some use cases

Ramp – “The Corporate Card That Helps You Spend Less” uses Marqeta to issue corporate credit cards. You can read more at https://ramp.com/welcome
DoorDash uses Marqeta for their Dashers, people who deliver food from restaurants and pay at restaurants POS with Marqeta cards. Article and case study: https://www.marqeta.com/blog/2020/04/20/doordash-marqeta-sea…

Square uses Marqeta for their Cash Card, card which is linked to their Cash App
Affirm, Buy Now Pay Later company uses Marqeta to issue virtual cards used to pay later, read more: https://www.marqeta.com/payment-solutions/buynowpaylater
Marqueta gets a share from every transaction made with their cards.

What I like about Marqueta

  • it is the only company focused on issuing cards. They do have competitors, Adyen (70B market cap) and Stripe (95B valuation), but for them cards are not central part of their business
  • revenue growth for the latest quarter is 123% YoY
  • DBNER is over 200% for latest 2 years
  • market cap is 14B – not too large
  • used by growing and innovative companies like Brex, Square, Doordash, Instacart, Klarna, Uber, Coinbase, Affirm
  • two days ago they announced a new customer - Google Pay; more about it below
  • revenue is transaction\usage based, which usually leads to high and sustainable DBNER (examples: Twilio, Snowflake, Agora)
  • valuation is 40x last twelve month revenue (Snowflake is 113x LTM revenue)
  • certified to operate in 36 countries
  • Marqeta CEO Jason Gardner have 95% Approve rate on Glassdoor

What’s not so cool

  • gross margin is 46% - but Twilio, Snowflake, Shopify with comparable gross margins (50%, 57%, 52% respectively) are doing pretty well, and the gross margin have increased from 42% in 2019.
  • 73% of revenue comes from Square
  • IPO lockup period will end in December so it is possible that the stock will sink at that time, when insiders will start selling
  • revenue growth is not steady, latest 6 quarters sequential growth: 9% , 13% ,43%, 21%, 5%, 22% - but in average it is 19%
  • gross margin decreased from 42% during the year ended December 31, 2019 to 41% during the year ended December 31, 2020, primarily due to the increase in Revenue Share amounts paid to Customers.
  • I am not sure that this company have a big moat, but APIs are a sticky business, and their payments to banks (costs of sales) and tied to total payment volume (TPV) which grows, so it won’t be possible for a small company to compete on price (I think)
    From S-1: “Our modern architecture allows for flexibility, a high degree of configurability, and accelerated product development, democratizing access to card-issuing technology. Marqeta’s open APIs provide instant access to our highly scalable, cloud-based, and configurable payment infrastructure that enables our Customers to launch and manage their own card programs, issue cards to their customers or end-users, and authorize and settle payments transactions. Our business is supported by our first-mover advantage and a deep moat of technology, customer, and industry expertise”
    “In February 2021, we launched credit servicing capabilities on our Platform, which we believe makes us the only modern card issuing platform that supports every card type—prepaid, debit, and credit”

About Gross Margin

Gross margin is increased with total payment volume (TPV). From S-1, 2020 vs 2019: “Issuing Bank fees increased $7.3 million, or 58%, which was lower than the percentage of increase in TPV as a result of volume tiers being met at Sutton Bank.” TPV have increased 177% in 2020 vs 2019.
Google Pay partnership
The partnership will allow Google Pay users to issue a virtual debit card to spend their Google Pay balance. Google Pay balance is topped up by cashbacks from special offers, for example: https://dannydealguru.com/google-pay-offers/
Also Google Pay balance can be topped up by people sending money to you.
I think it is big news because Google Pay have about 25M users in USA._

Some recent news

August, 03 Marqeta to power virtual Google Pay balance card
July, 20 Marqeta welcomes Randy Kern (ex-Salesforce and Microsoft) as new Chief Technology Officer
June, 30 Marqeta welcomes new Chief Revenue Officer Darren Mowry (ex- AWS EMEA, Microsoft)
June, 15 Marqeta named CNBC Disruptor and Forbes Fintech 50
April, 21 Marqeta has joined Cardtronics’ Allpoint network of surcharge-free ATMs. Now any digital bank, fintech, or business building a card program on the Marqeta platform can offer cardholders convenient, no-fee access to cash
March, 16 Marqeta wins “Best B2B Payments Company” at 2021 Fintech Breakthrough Awards
Marketa investor presentation:
https://ipocandy.com/wp-content/uploads/2021/06/Marqeta_MQ_I…

I’ve opened a 6% position in Marqeta today and will possibly add after their report on August, 11. Thank you for reading and best wishes to all!

115 Likes

Very cool.
That 73% in one customer makes this a watch-and-wait for me though. Well spotted.

7 Likes

Yup - the 73% customer concentration is a no go for me. Especially as I already have interest in Square and am playing this space though other digital payment / e-commerce / cross border transactions plays like Square, Afterpay, Global e online, Mercadolibre and SEA.

Ant

3 Likes

Hello everyone,
as I said in my first post, I did open a 6% position in Marqueta.
I did open it in spite of their customer concentration (Square brings 73% of revenue) because

  • Google might become their big customer too
  • Their other customers might grow as well
  • Square should do well
  • The numbers were appealing - 123% YoY growth, 22% sequential in Q1, 200%+ DBNER

Since that time the stock climbed up up to 15%, everything went well, but suddenly they’ve released their Q2 earnings and the fairy tale was over.

I (very optimistically) expected 21% sequential revenue growth, because their average sequential growth is 19%, but if we omit 2019 4Q with 9% growth, their average growth would be 21%.

I know, that’s silly - first, I should use median instead of average, and second, why omit 2019 Q4?

So, they have released Q2 results, and their actual sequential growth is only 13%, YoY growth is 76%, and their guidance for next Q is 116.5M at the midpoint, which is less than Q2 revenue (122M), and corresponding to 38% YoY growth!
I don’t like it so I’m going to close my position as soon as possible, and will buy MORE UPST instead! Bye bye Marqueta!

11 Likes

Krokokot - These results scared me a lot. They basically lost 150% of their revenues in the net margin. The reason for their high growth apparently was card usage which was also apparently the reason for their losses. It seems their entire business has negative unit economics.

Ant

5 Likes