Marqeta (NASDAQ:MQ) Exceeds Revenue Expectations In Q4

Full Report / February 28, 2024

Leading edge card issuer Marqeta (NASDAQ: MQ) reported Q4 FY2023 results beating Wall Street analysts' expectations, with revenue down 41.7% year on year to $118.8 million. It made a GAAP loss of $0.08 per share, down from its profit of $0.04 per share in the same quarter last year.

Marqeta (MQ) Q4 FY2023 Highlights:

  • Revenue: $118.8 million vs analyst estimates of $110.4 million (7.7% beat)
  • EPS: -$0.08 vs analyst estimates of -$0.08 (2.1% beat)
  • Free Cash Flow of $14.08 million, down 65.7% from the previous quarter
  • Gross Margin (GAAP): 70%, up from 42.7% in the same quarter last year
  • Market Capitalization: $3.72 billion

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.

Payments Software

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

Marqeta's revenue was down 41.7% year on year this quarter, primarily due to a contract renewal with Cash App and resulting change in revenue presentation. The impact of fees owed to Issuing Banks and Card Networks related to the Cash App primary Card Network volume is since Q3 netted against revenue earned from the Cash App program within Net Revenue, negatively impacting the growth rate. In prior periods, these costs were included within Costs of Revenue, so on the other hand Gross Margin has improved significantly.

Marqeta Total Revenue


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 70% in Q4.

Marqeta Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.70 left to spend on developing new products, sales and marketing, and general administrative overhead. Despite improving significantly since the last quarter (after the change in the accounting approach), Marqeta's gross margin is still lower than that of a typical SaaS businesses. Gross margin has a major impact on a company’s ability to develop new products and invest in marketing, which may ultimately determine the winner in a competitive market. This makes it a critical metric to track for the long-term investor.

Cash Is King

If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Marqeta's free cash flow came in at $14.08 million in Q4, roughly the same as last year.

Marqeta Free Cash Flow

Marqeta has generated $17.94 million in free cash flow over the last 12 months, or 2.7% of revenue. This FCF margin enables it to reinvest in its business without depending on the capital markets.

Key Takeaways from Marqeta's Q4 Results

We were excited Marqeta's revenue outperformed Wall Street's estimates. Positive free cash flow is a plus, although we some investors might want to see a stronger improvement. The market was likely expecting more, however, and the stock is down 4.4% after reporting, trading at $7.02 per share.

Is Now The Time?

When considering an investment in Marqeta, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.

We cheer for everyone who's making the lives of others easier through technology, but in case of Marqeta, we'll be cheering from the sidelines. Although its , Wall Street expects growth to deteriorate from here. And while its very efficient customer acquisition hints at the potential for strong profitability, the downside is its gross margins show its business model is much less lucrative than the best software businesses. On top of that, its low free cash flow margins give it little breathing room.

Given its price-to-sales ratio based on the next 12 months is 7.5x, Marqeta is priced with expectations of a long-term growth, and there's no doubt it's a bit of a market darling, at least for some. While we have no doubt one can find things to like about the company, and the price is not completely unreasonable, we think that at the moment there might be better opportunities in the market.

Wall Street analysts covering the company had a one-year price target of $7.41 per share right before these results (compared to the current share price of $7.02).

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