Introducing MQ

Hello,

This is my first thread on this board. I’ve been a lurker for almost two years now. I wanted to introduce a ticker, MQ, that I think is undervalued, and has been seeing accelerating growth.

Most of you may be familiar with Bill.com (BILL). They recently beat earnings, and are accelerating enough to be a top position on this board. MQ is one of their major suppliers.

To describe Marqeta (info largely from: https://tanay.substack.com/p/marqeta-s-1-teardown)

If you’ve ever used Doordash, Instacart, Square, Brex, or Affirm, your experience was in part powered by a company called Marqeta, even though you never came across them directly.

Marqeta is a financial infrastructure startup that provides the platform and APIs to allow companies to issue virtual or physical cards and process transactions. It enables customizable payment experiences for tech-driven and developer-led companies. Think of it as a Stripe or Twilio for Cards. The dollar-based net revenue retention was over 200% for both 2019 and 2020,

Marqeta had 160 customers at the end of 2020 (up 24% y/y), across a range of categories:

  • On-demand services including Doordash, Uber, and Instacart, use the cards to allow their gig workers to pay for orders at restaurants/grocery stores

  • Buy Now, Pay Later providers such as Affirm and Klarna use the cards to programmatically pay merchants on behalf of the BNPL customer.

  • Expense Management providers such as Brex and Ramp which leverage Marqeta to build their card programs

  • Digital Banks such as Square which leverages Marqeta for their cash app and their merchant debit card

  • Financial Institutions such as J.P. Morgan, which leverages Marqeta to provision digital commercial cards instantly for their customers.

  • Square accounts for 70% of Marqeta’s revenue, a crazy high customer concentration. Marqeta does have contracts in place with Square that run until 2024 but is definitely a risk for the business.

Over the course of 2021, MQ saw a significant slowdown from its pandemic boost (from 100% YoY to around 56% YoY). This has spooked investors, and is one of the reasons I did not enter the stock for a while. The biggest contributor was a slowdown in SQ, which is its biggest customer by far.

Besides overall multiple compression across the market, MQ stock has declined for three reasons:

  • Slowdown in SQ
  • CFO retiring
  • Belief that they would not meet guidance

However, over the course of February, there were 5 events that happened that said each of these reasons for the selloff were misplaced.

MQ is reporting earnings eod today.

Rev. SQoQ YoY COGS Gross Profit Gross Margin
Jun-19 36 19 17 46.8%
Sep-19 39 10% 23 17 42.4%
Dec-19 43 9% 25 18 40.9%
Mar-20 48 13% 30 19 38.4%
Jun-20 69 43% 95% 42 28 39.8%
Sep-20 84 21% 115% 49 35 41.9%
Dec-20 88 5% 106% 52 36 41.3%
Mar-21 108 22% 123% 58 50 46.2%
Jun-21 122 13% 76% 75 47 38.4%
Sep-21 132 8% 56% 72 59 44.9%

High-point of Company Guidance for Q4 (since no longer valid, company said they would beat):

  • Revenue of $139 million and a loss of as much as $10 million.

I am posting now before the earnings release today. If we see $150M+ revenue, that would return the company to begin a 70% YoY grower, and definitely a buy.

29 Likes
Better readability

	Rev.	SQoQ	YoY	COGS	Gross Profit	    Gross Margin
Jun-19	36 			19 	17 	            46.8%
Sep-19	39 	10%		23 	17 	            42.4%
Dec-19	43 	9%		25 	18 	            40.9%
Mar-20	48 	13%		30 	19 	            38.4%
Jun-20	69 	43%	95%	42 	28 	            39.8%
Sep-20	84 	21%	115%	49 	35 	            41.9%
Dec-20	88 	5%	106%	52 	36 	            41.3%
Mar-21	108 	22%	123%	58 	50 	            46.2%
Jun-21	122 	13%	76%	75 	47 	            38.4%
Sep-21	132 	8%	56%	72 	59 	            44.9%

Update on earnings:

Fourth Quarter 2021 Financial Results

TPV increased by 76% year-over-year, from $19 billion for the quarter ended December 31, 2020, to $33 billion for the quarter ended December 31, 2021.

Net revenue increased by $67 million, or 76% year-over-year, primarily driven by higher TPV from existing large customers and continued growth in total processing volume from both our Digital Banking and Buy-Now-Pay-Later customers.

Gross profit increased by 108% year-over-year to $76 million. Gross margin increased from 41% during the quarter ended December 31, 2020, to 49% during the quarter ended December 31, 2021.

Net loss increased by $23 million, or 167%, year-over-year to ($37 million), primarily resulting from our increase in compensation, benefits and technology expenses as we continued our investment in our people and platform, partially offset by our increase in gross profit.

Adjusted EBITDA in the fourth quarter of 2021 was $1 million, an improvement of $4 million year-over-year.

1 Like
(4th post, I know, I'm sorry, but important to update the table here):

Reported results
	Revenue	QoQ	YoY	COGS	Gross Profit	    Gross Margin
Jun-19	36 			19 	17 	            46.8%
Sep-19	39 	10%		23 	17 	            42.4%
Dec-19	43 	9%		25 	18 	            40.9%
Mar-20	48 	13%		30 	19 	            38.4%
Jun-20	69 	43%	95%	42 	28 	            39.8%
Sep-20	84 	21%	115%	49 	35            	    41.9%
Dec-20	88 	5%	106%	52 	36 	            41.3%
Mar-21	108 	22%	123%	58 	50 	            46.2%
Jun-21	122 	13%	76%	75 	47 	            38.4%
Sep-21	132 	8%	56%	72 	59 	            44.9%
Dec-21	155 	18%	76%	79 	76 	            49.0%

Guidance for Q1 2022 (first row is based on numbers they gave, second is based on my expected beat):

	Revenue	QoQ	YoY	COGS	Gross Profit	    Gross Margin
Est.	162 	4%	50%	91 	71 	            44.0%
Est.	173 	11%	60%	90 	83 	            48.0%

Note*: They will have a hard comparison because of how good Q1 2021 was, and that seasonally it's not the best quarter.
6 Likes

I wanted to introduce a ticker, MQ, that I think is undervalued

I am posting now before the earnings release today. If we see $150M+ revenue, that would return the company to begin a 70% YoY grower, and definitely a buy.

Do you mind sharing your valuation model that suggests that it is undervalued?

tecmo

2 Likes

Biggest takeaways from the earnings call:

  • The company outlined a dollar-based net revenue retention rate of 175% for 2021. This is higher than Snowflake!
  • Block concentration declined from 68% of total net revenue in the third quarter to 63% in the fourth quarter of 2021. (Analysts were expecting an even larger decline, but SQ re-accelerated, so…)
  • January got off to a bit of a slower start as Omicron likely impacted volume in many of our verticals with the exception of on-demand delivery, which thrived as more people stayed home. Volume did pick up in February as the Omicron wave passed, with February volume comfortably exceeding January despite having 3 fewer days. Also in general there are tough comps against Q1 2021, which had the stimulus checks.
  • Top 5 customers grew over 50% in Q4, and then the remaining customers grew over 200%.
3 Likes

Maybe I don’t understand Stripe properly, but I was under the impression that Stripe is already “Stripe for cards.” Or is this more billed as a way to get exposure to the same industry as Stripe, since Stripe is private and not open to investment from the average investor?

Is there any competitive advantage that MQ has over Stripe? My impression, certainly underinformed, is that Stripe is the 800 lb gorilla in this space.

1 Like

Is there any competitive advantage that MQ has over Stripe? My impression, certainly underinformed, is that Stripe is the 800 lb gorilla in this space.
And your impression seems correct! Here’s the tl;dr from an article I came across: Stripe does what Marqeta does, and more, much more. But Marqeta’s proficiency with cards will make up for it big time if you’re not looking for all the bells and whistles that come with Stripe.
Here’s the article published a month ago: https://thedigitalmerchant.com/ecommerce/payment-processing/…

Hot off the presses at Seeking Alpha this afternoon, comes a well-considered but ultimately bullish assessment of MQ from Bert Hochfeld:

https://seekingalpha.com/article/4497647-marqeta-a-recent-fi…

The piece addresses some of the questions coming up here in the thread, such as what gives Marqeta an advantage – and a potential moat – in the crowded fintech card-issuing space? The answer: It targets the developer community, providing constantly evolving tools that enable them to issue their own cards in a customized way:

“The company’s API’s do indeed allow developers to write software that enables fintech firms to issue physical, virtual and tokenized cards. (A tokenized card for all of us non-tech folks, is one in which the sensitive information is encrypted so instead of readable data, the card only has a meaningless string of numbers and letters that are useless to a hacker. Many of the digital payments wallets such as Apple Pay (AAPL) and Google Pay (GOOG) operate on a tokenization principle. Merchant tokenization is another form of this paradigm). Overall, at this point, Marqeta has issued around 400 million cards with about 100 million cards currently active.”

As I read it, one advantage of this is that other card issuers can be customers, not just competitors. As the article states about who comprises the competitive set:

“The FinTech space has vast number of competitors chasing an immense market. Most of Marqeta’s competitors, who are offer directly comparable services, are legacy company such as Fidelity National (FIS), Fiserv (FISV), First Data and Wex (WEX) who have been selling to FI’s for years.”

My reading here is that MQ is positioned as a disruptor in a stodgy industry, and again has put themselves in a position to sell to / partner with their competitors, giving old-line financial legacy companies the ability to offer relevant, in-demand “modern card issuing.” They appear to be a one-stop shop for legacies to tap in to the new demands of a cashless market.

Shares were up 8% today on the recent earnings news. I’ve taken a small starter stake in the after-hours session and will be watching them closely.

15 Likes