Marqeta (NASDAQ:MQ) Reports Q4 In Line With Expectations

Full Report / February 28, 2023
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Leading edge card issuer Marqeta (NASDAQ: MQ) reported results in line with analyst expectations in Q4 FY2022 quarter, with revenue up 31.1% year on year to $203.8 million. Marqeta made a GAAP loss of $26.3 million, improving on its loss of $36.8 million, in the same quarter last year.

Marqeta (MQ) Q4 FY2022 Highlights:

  • Revenue: $203.8 million vs analyst estimates of $202.7 million (small beat)
  • EPS: -$0.05 vs analyst estimates of -$0.09 (47.1% beat)
  • Free cash flow of $14.3 million, up from negative free cash flow of $4.78 million in previous quarter
  • Gross Margin (GAAP): 42.7%, down from 48.8% same quarter last year

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.

The digitization and commercialization of electronic payments is accelerating as commerce continues to shift to online and mobile payments. Likewise, thanks to innovative products like Square almost any merchant can accept card payments while new business models have sprung up which involve multiple payments to multiple parties like Uber or DoorDash. However, legacy card issuers have been slow to innovate card issuing because their main customer bases were large financial institutions that didn’t demand expanded functionality.

Marqeta provides modern card issuing infrastructure that is open to developers, which enables businesses to develop modern, frictionless payment card experiences for consumer and commercial use cases that are either the core of their core business. Marqeta generates revenues from its platform’s usage: interchange and processing fees.

As might be expected, Marqeta’s customer base is largely comprised of digital-native businesses. Square uses Marqeta to offer Cash Card for its Cash App customers, which is a customizable Visa card that enables consumers to make purchases with funds in their Cash App stored balance. It also uses Marqeta for the Square card, which is a Mastercard debit card that enables merchants to make payments using their Square account balance. Marqeta also provides virtual card services for buy now pay later players like Klarna, Affirm, and Afterpay, which require cards to be issued to process payments to merchants for installment payments.

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.

Marqeta’s competition can be grouped into legacy card issuers such as Global Payments (NYSE: GPN), Fidelity National Information Services (NYSE:FIS), Fiserv (NASDAQ: FISV), and modern card issuing peers like Adyen (ENXTAM: ADYN), Stripe and Galileo who is owned by Sofi (NASDAQ:SOFI).

Sales Growth

As you can see below, Marqeta's revenue growth has been incredible over the last two years, growing from quarterly revenue of $88.2 million in Q4 FY2020, to $203.8 million.

Marqeta Total Revenue

And unsurprisingly, this was another great quarter for Marqeta with revenue up 31.1% year on year. On top of that, revenue increased $12.2 million quarter on quarter, a very strong improvement on the $4.94 million increase in Q3 2022, and a sign of acceleration of growth.


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 42.7% in Q4.

Marqeta Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.43 left to spend on developing new products, marketing & sales and the general administrative overhead. While it improved from the previous quarter this would still be considered a low gross margin for a SaaS company and we would like to see the improvements continue.

Cash Is King

If you have followed StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Marqeta's free cash flow came in at $14.3 million in Q4, down 74% year on year.

Marqeta Free Cash Flow

Marqeta has burned through $15.3 million in cash over the last twelve months, resulting in a negative 2.04% free cash flow margin. This below average FCF margin is a result of Marqeta's need to invest in the business to continue penetrating its market.

Key Takeaways from Marqeta's Q4 Results

With a market capitalization of $3.1 billion Marqeta is among smaller companies, but its more than $1.18 billion in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

It was good to see Marqeta deliver strong revenue growth this quarter. And we were also glad to see the improvement in gross margin. Overall, this quarter's results seemed decent. But the market was likely expecting more and the company is down 1.98% on the results and currently trades at $5.7 per share.

Is Now The Time?

When considering Marqeta, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. Although we have other favorites, we understand the arguments that Marqeta is not a bad business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last two years. And while its gross margins show its business model is much less lucrative than the best software businesses, the good news is its very efficient customer acquisition hints at the potential for strong profitability.

Marqeta's price to sales ratio based on the next twelve months is 3.3x, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. In the end, beauty is in the eye of the beholder. While Marqeta wouldn't be our first pick, if you like the business, the shares are trading at a pretty interesting price point right now.

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