Leading edge card issuer Marqeta (NASDAQ: MQ) reported Q2 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 23.8% year on year to $231.1 million. Marqeta made a GAAP loss of $58.8 million, down from its loss of $44.7 million in the same quarter last year.
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Marqeta (MQ) Q2 FY2023 Highlights:
- Revenue: $231.1 million vs analyst estimates of $219.8 million (5.13% beat)
- EPS: -$0.11 vs analyst expectations of -$0.09 (24% miss)
- Free Cash Flow was -$29.4 million compared to -$14.2 million in the previous quarter
- Gross Margin (GAAP): 36.6%, down from 41.8% in the same quarter last year
"In the second quarter, we grew our business to ever-increasing levels of scale, exceeded our sales bookings goals again and reduced our cost structure. Our execution has been strong, including accelerating our go-to-market motion, enhancing our product offering, and extending our partnership with Cash App. I firmly believe Marqeta is well positioned to capitalize on the fast-growing embedded finance market," said Simon Khalaf, CEO of Marqeta.
Founded by CEO Jason Gardner in 2009, Marqeta (NASDAQ: MQ) is an innovative card issuer that provides companies with the ability to issue and process virtual, physical, and tokenized credit and debit cards.
Consumers want the ability to make payments whenever and wherever they prefer – and to do so without having to worry about fraud or other security threats. However, building payments infrastructure from scratch is extremely resource-intensive for engineering teams. That drives demand for payments platforms that are easy to integrate into consumer applications and websites.
Sales Growth
As you can see below, Marqeta's revenue growth has been impressive over the last two years, growing from $122.3 million in Q2 FY2021 to $231.1 million this quarter.
This quarter, Marqeta's quarterly revenue was once again up a very solid 23.8% year on year. Quarter on quarter, its revenue increased by $13.8 million in Q2, which was roughly in line with the Q1 2023 increase. This steady growth shows that the company can maintain a strong growth trajectory.
Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 17.2% over the next 12 months.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Marqeta's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 36.6% in Q2.
That means that for every $1 in revenue the company had $0.37 left to spend on developing new products, sales and marketing, and general administrative overhead. Marqeta's gross margin is poor for a SaaS business and it's deteriorated even further over the last year. This is probably the opposite direction that shareholders would like to see it go.
Key Takeaways from Marqeta's Q2 Results
With a market capitalization of $2.71 billion, Marqeta is among smaller companies, but its more than $950.2 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.
We enjoyed seeing Marqeta exceed analysts' TPV (total processing volume) and revenue expectations this quarter. Adjusted EBITDA also beat by a meaningful amount. Those really stood out as positives in these results. On the other hand, its deteriorating gross margin was a minor negative. Overall, this quarter's results seemed fairly positive and shareholders should feel optimistic. The stock is up 17.2% after reporting and currently trades at $5.8 per share.
So should you invest in Marqeta right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.
The author has no position in any of the stocks mentioned in this report.