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Marqeta (NASDAQ:MQ) Q1 Sales Beat Estimates But Gross Margin Drops


Anthony Lee /
2023/05/09 4:18 pm EDT
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Leading edge card issuer Marqeta (NASDAQ: MQ) reported Q1 FY2023 results topping analyst expectations, with revenue up 30.8% year on year to $217.3 million. Marqeta made a GAAP loss of $68.8 million, down on its loss of $60.6 million, in the same quarter last year.

Is now the time to buy Marqeta? Access our full analysis of the earnings results here, it's free.

Marqeta (MQ) Q1 FY2023 Highlights:

  • Revenue: $217.3 million vs analyst estimates of $211.8 million (2.62% beat)
  • EPS: -$0.13 vs analyst expectations of -$0.10 (28.7% miss)
  • Free cash flow was negative $14.2 million, down from positive free cash flow of $14.3 million in previous quarter
  • Gross Margin (GAAP): 41%, down from 45% same quarter last year

“In the first quarter of 2023, we started to see our strategic focus on embedded finance and the implementation of new operating efficiencies pay off, laying a strong foundation for Marqeta’s future. Our financial results once again showed our ability to innovate at scale,” 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 exceptional over the last two years, growing from quarterly revenue of $108 million in Q1 FY2021, to $217.3 million.

Marqeta Total Revenue

And unsurprisingly, this was another great quarter for Marqeta with revenue up 30.8% year on year. On top of that, revenue increased $13.5 million quarter on quarter, a solid improvement on the $12.2 million increase in Q4 2022, and even a sign of slight re-acceleration of growth.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 18.9% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. 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 is left after paying for servers, licenses, technical support and other necessary running expenses was at 41% in Q1.

Marqeta Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.41 left to spend on developing new products, marketing & sales and the general administrative overhead. This would be considered a low gross margin for a SaaS company and it has been going down over the last year, which is probably the opposite direction shareholders would like to see it go.

Key Takeaways from Marqeta's Q1 Results

With a market capitalization of $2.41 billion Marqeta is among smaller companies, but its more than $1.46 billion in cash and positive free cash flow over the last twelve months give us confidence that Marqeta has the resources it needs to pursue a high growth business strategy.

It was good to see Marqeta outperform Wall St’s revenue expectations this quarter. That feature of these results really stood out as a positive. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Zooming out, we think this was still a decent, albeit mixed, quarter, showing the company is staying on target. But the market was likely expecting more and the company is down 1.81% on the results and currently trades at $4.34 per share.

Should you invest in Marqeta right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable 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 70% 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.