Marqeta (MQ), which is a payments processing operator, pulled off its IPO last week. On the first day of trading, the shares rose by 13% to $30.50, putting the market capitalization over $16 billion.
The performance may seem unimpressive, but it's actually strong, considering that the company initially set a range for the offering at $20 to $24. (See Marqeta Stock Stats and Charts on TipRanks)
The underwriters on the offering included Goldman Sachs (GS), J.P. Morgan (JPM), Citi (C), Barclays (BCS), William Blair, and KeyBanc Capital Markets. The most recent private round of funding was disclosed in May 2020: the company had raised $150 million from an undisclosed investor at a $4.3 billion valuation.
So let’s take a deeper look at the company.
Backgrounder on Marqeta
In 2009, Jason Gardner founded Marqeta as he wanted to build a platform that would simplify the payments process. His focus was on improving the speed, flexibility and scale of payments. Before launching the company, he was the cofounder of PropertyBridge, which was a provider of rental payment and transaction systems. He sold that company to MoneyGram International (MGI) in 2007.
Gardner used an API technology platform for Marqeta. In fact, he was the first to use this technology for a card-issuing system.
No doubt, the pandemic has been a major catalyst for the business. Corona lockdowns drove a huge demand for contactless solutions, and Marqeta is the platform that powers many fast-growing companies like DoorDash (DASH), Uber (UBER), Affirm (AFRM), Square (SQ) and Instacard.
Its business model is straightforward, in that the company generates fees from transactions. Additionally, Marqeta receives some ancillary software licensing revenues.
Last year, revenues more than doubled to $290.3 million and the dollar-based net revenue retention was over 200%. The net losses have also been declining. In the first quarter, they came to $12.8 million, down from $14.5 million in the same period a year ago.
While the pandemic is starting to fade, there will still remain a secular trend for payments systems. According to a study from Euromonitor, electronic payments will account for 46% of the total global transaction volume by 2025, compared to 31% in 2017.
In other words, the market opportunity is enormous. Based on the S-1 from Marqeta, it is estimated at $45 trillion and is forecasted to hit $80 trillion by 2030.
Marqeta News Sentiment
According to TipRanks' News Sentiment rating, media coverage of Marqeta has been neutral. 50% of news articles are bullish on its stock, and 50% are bearish.
Bottom Line on the Marqeta IPO
In a way, Marqeta is like a modern-day Visa (V). The company is building a global network that has become essential for many companies that provide payments services.
When it comes to the payments business, it is critical to have a trusted system that can scale, and Marqeta seems to fit the bill. Now it’s true that there are a variety of other payments companies that provide card offerings, but they have traditionally been focused on banks. In regards to Marqeta, it’s about being the leading provider to fintech companies or firms that want to provide online services.
Perhaps the biggest risk for the company is its customer concentration. Given that Square accounts for move than 70% of its revenues, there is cause for concern that Square might be tempted to negotiate more favorable terms, look for alternatives or even create its own offering.
This is not an automatic disqualifier for Marqeta. The company certainly has a strong platform and should continue to grow. Then again, investors could still be somewhat cautious on Marqeta. The best approach to this stock may be to wait to get a better price.
Disclosure: Tom Taulli does not have a position in Marqeta stock.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.