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Is This Fintech a Buy After Earnings?

Marqeta (NASDAQ: MQ) hasn't been a public company for very long, but the early results are impressive. Not only that, but the latest earnings from the card payment specialist look very strong. In this Fool Live video clip, recorded on Nov. 15, Fool.com contributor Matt Frankel and Industry Focus host Jason Moser discuss the numbers and what investors should keep in mind going forward.

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Jason Moser: Recent IPO, but another really interesting business. They are in card issuing and processing and really focused on being the modern issuer. Ultimately helping customers like Square (NYSE: SQ), Affirm (NASDAQ: AFRM), DoorDash (NYSE: DASH), Instacart create customized payment card programs for their businesses. This is a business. I own shares of Marqeta myself, but it's one that I think really plays into that whole idea of expanding digital payments. It does feel like there's a lot of potential here, but they certainly need to prove themselves. In this past quarter, it looked to me like they took another step in that direction.

Matt Frankel: Did you see who their newest big customer was in the last quarter? It's one of your favorites also.

Moser: I did. Another favorite of ours here on the show Bill.com (NYSE: BILL). We saw that headline and I got to admit, I got a little bit excited there.

Frankel: There's a lot of possibilities, I think right now they're just kind of using it to issue debit cards, I think, to some of their customers.

Moser: Yeah.

Frankel: But there's a lot of different adjacent opportunities with Bill.com they can pursue.

Moser: For sure.

Frankel: One thing people need to know, this is a big, high-volume business.

Moser: Yeah.

Frankel: Annualized payment volume surpassed $100 billion in this quarter, $27.6 billion in payment volume on their cards, that's up 60% year-over-year. Granted, that's not the best comparison to the third quarter of 2020, when the pandemic still had most things shut down. But on that, they generated a $132 million of revenue, so not a high-margin business. They make, I think it works out to something like 0.5% of their transaction volume is revenue.

Moser: Yeah

Frankel: It's kind of what these payment networks do. They kind of like take a little bit of revenue off the transaction. They are still losing money. They're not a profitable business. That's important for people to know. On a non-adjusted basis, like I said, they did $132 million in revenue. They lost about $46 million. That's a profit margin of something to the effect of negative 30%. On the surface, that sounds terrible, but when you're a payment processing business growing at 60% year-over-year and signing up clients like Bill.com, Uber (NYSE: UBER), Square, they expanded their relationship with Uber recently. DoorDash.

If you're signing your clients like that, which all have big addressable growth markets, by the way, and their relationship will grow as the companies do. If Square 10Xs its payment volume, its relationship with Marqeta is going to 10X essentially. When you are signing up customers like that and you're still growing your customer base that fast, it's not that much of a concern. One other thing that did stand out to me in Marqeta's report is their international growth. In Europe, their transactions grew 340% year-over-year. Their international growth is impressive. They've gotten to where they are so far with mostly domestic growth and are now just getting into the rapid growth phase internationally. That's something to watch too. But you're a shareholder, so I'm curious as to what you think about it.

Moser: Yeah. I feel like it was a good quarter. As you said, as their customers succeed, they succeed. They have a usage-based model that's based on that processing volume, and ultimately, the more that goes through their network, the better their customers do. Primarily, they get the majority of their revenue from those interchange fees. Very familiar model perspective. I feel like this is a business that is helping to accommodate a lot of new ways that we are doing business today. With the advent of the mobile economy and everything that we're doing on our phones, it's not just your physical cards anymore.

It's just that Marqeta is able to go physical, virtual, tokenized. They're getting a foot in the crypto door. You mentioned earlier the focus on debit, but now into a focus on credit as well. Big relationship with MasterCard (NYSE: MA), all very encouraging, and then when you look at the market opportunity and clearly, we talked about it all the time, trillions of dollars moving around the world on these networks, and so getting just a little piece of that can be very meaningful into that point there. They even note that your monitor projects that electronic payments are going represent 46% of total global transaction volume by 2025, which is 31% in 2017.

That 46%, actually when you think about it, it's like, that seems actually low, because who in the world is using all this paper? This cash and this paper. But the fact of the matter is, around the world, it's still very much a normal way of doing business. Yet to me, this is a founder-led business with a very passionate founder, I might add in. I think there's a lot of potential there.

I think the one real red flag that a lot of investors noted early on was the reliance on Square, the majority of revenue being generated from its relationship with Square. That continues to come down. I'm not so concerned with that regardless because Square is so pervasive. That's actually a good thing. I think the longer that companies rely on the products and services that a company like Marqeta offers, the longer they stick with them. I think it's a sticky business overtime. For me, valuation is always going to look a little bit wonky with some of these new fangled IPOs. But to me, Marqeta seems like it's on to something special.

Jason Moser owns shares of Bill.com Holdings, Inc., Marqeta, Inc., Mastercard, and Square. Matthew Frankel, CFP® owns shares of Square. The Motley Fool owns shares of and recommends Affirm Holdings, Inc., Bill.com Holdings, Inc., Mastercard, and Square. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.


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