Leading edge card issuer Marqeta (NASDAQ: MQ) announced better-than-expected results in Q3 FY2023, with revenue down 43.2% year on year to $108.9 million. Turning to EPS, Marqeta made a GAAP loss of $0.10 per share, down from its loss of $0.10 per share in the same quarter last year.
Is now the time to buy Marqeta? Find out in our full research report.
Marqeta (MQ) Q3 FY2023 Highlights:
- Revenue: $108.9 million vs analyst estimates of $95.4 million (14.1% beat)
- EPS: -$0.10 vs analyst expectations of -$0.09 (10.1% miss)
- Free Cash Flow of $38 million is up from -$26.1 million in the previous quarter
- Gross Margin (GAAP): 66.6%, up from 41.8% in the same quarter last year
“Our Q3 results represent the new baseline for Marqeta, post Block’s Cash App renewal. We've shown continued sales bookings momentum against a backdrop of operational discipline, continued scale, and new innovations through the launch of our credit platform,” said Simon Khalaf, CEO of Marqeta. “We are in a good position to return to strong growth by Q3 2024 as we lap the Cash App contract and expect to accelerate that growth in future years as the market for embedded finance continues to materialize.”
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.
After many quarters of strong growth, Marqeta's business has been sliding down recently.
This quarter, Marqeta's revenue was down 43.2% year on year, which might disappointment some shareholders.
Looking ahead, Wall Street was expecting revenue to decline 40.2% over the next 12 months before the earnings results announcement.
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. See it here.
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 66.6% in Q3.
That means that for every $1 in revenue the company had $0.67 left to spend on developing new products, sales and marketing, and general administrative overhead. While its gross margin has improved significantly since the previous quarter, Marqeta's gross margin is still poor for a SaaS business. It's vital that the company continues to improve this key metric.
Key Takeaways from Marqeta's Q3 Results
Sporting a market capitalization of $2.7 billion, Marqeta is among smaller companies, but its more than $1.3 billion in cash on hand and positive free cash flow over the last 12 months puts it in an attractive position to invest in growth.
We were impressed by Marqeta's strong gross margin improvement this quarter. We were also excited its revenue outperformed Wall Street's estimates, depite the drop in absolute numbers and its free cash flow improved. Zooming out, we think this was a decent quarter. The stock is flat after reporting and currently trades at $5.37 per share.
Marqeta may have had a good quarter, but does that mean you should invest 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.
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.