The Marqeta share could become one of the most exciting fintech developments of the year. And if you can get it at the right price, it could be a day buy.
Physical currency has been around for 5,000 years, but recently I can’t remember the last time I opened my wallet to pull out paper bills or get a quarter out of my change box.
If you’re like me or a lot of businesses these days, you probably can’t remember the last time you used cash.
This growing digital economy is a big reason I’m looking at Marqeta Inc. (NASDAQ: MQ), a hot fintech stock behind some of the payment technologies from Square Inc. (NYSE: SQ), DoorDash Inc. (NYSE: DASH.) . ), Uber Technologies Inc. (NYSE: UBER), Coinbase Global Inc. (NASDAQ: COIN), and Affirm Holdings Inc. (NASDAQ: AFRM).
All of these companies trust Marqeta for one important reason: It offers innovative card issuing and payment processing technology. It features the credit cards that DoorDash drivers use to pay for food when they pick up for their customers and the Square Cash Card debit cards that users can use to spend directly from their mobile wallet.
Marqeta was also used by the federal government to pay out economic checks to millions via its cash app.
Simply put, Marqeta is part of the key to this future cashless society with its bespoke virtual and physical cards. It also doesn’t hurt that it already works with large clients and gives them a good reputation when they go public.
Today we’re going to look at Marqeta’s balance sheets and business model and see if this is a stock that should be in your portfolio after the IPO …
Why the Marqeta share will be a popular buy
Marqeta has an exciting history, but let’s see how that translates into making money.
Although it is not yet profitable, Marqeta achieved net sales of 290.3 million last year. This revenue is generated from transaction fees paid on purchases by credit or debit card users.
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Last year, Marqeta processed around $ 60 billion, which is less than 1% of the annual transaction volume of $ 6.7 trillion via US issuers. That is how big its market is and the size of the runway it works with.
The diversity of customers is a major risk. Right now, Square accounts for 70% of its business. This is a huge risk when business slows down. I’m not worried about this right now as Square’s business is growing rapidly, but it could pose a longer-term risk if it is unable to diversify its customer base.
Another risk is competition. There are traditional issuers like Global Payments and Fiserv and other emerging companies like Stripe and Adyen. While I don’t see the older companies in this space as a major threat, it’s worth keeping a close eye on companies like Stripe given their existing relationships with dealers.
Against this backdrop, the shift to digital commerce will continue, and the global pandemic has pushed us further in one year than in the last five years. Today’s card manufacturers also want to digitally integrate payments into their platforms, and Marqeta is a pioneer in this.
Think of Coinbase as a great example. Its card allows you to spend crypto anywhere Visa debit cards are accepted and you can get 4% back in crypto rewards which we have never seen before. One of the biggest benefits of credit cards has been rewards, and Marqueta can better tailor them to a company’s product to increase engagement.
Marqeta is also revolutionizing the DoorDash transaction system with the DoorDash Red Card, which offers integrated fraud prevention. So when a dasher pays for food, the transaction is only approved and funded if the order matches the customer order in the system.
Marqeta goes public today (June 9th). We don’t know how it’s traded, but we do know that there are some big names behind the company: Coatue, a well-known hedge fund, owns 5% of the company, and other investors are none other than Visa and Mastercard.
Marqeta stock opened at $ 27 per share, slightly above the expected range of $ 20 to $ 24. At this higher price, I would wait and see how it trades before buying it.
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About the author
Alex Kagin is Director of Technology Investing Research at Money Map Press. He has worked in equity research for the past decade, most recently at Energy Capital Research Group (ECRG), where he led technology equity research and worked as part of a team on developing a customizable financial data platform for securities analysis.
Prior to joining ECRG, Alex spent 8 years with DeMatteo Research, a boutique primary research firm and broker-dealer serving the institutional investment community. He led the Tech, Media and Telecom industry, where he spent time connecting with hundreds of technology managers and hedge funds to get the pulse of the market.
Alex holds a BS in Economics from American University and previously held Series 7 and 63 Security Licenses.
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