Marqeta Reports Q4 Results In Line With Expectations but 2023 Guidance Disappoints

No-moat rated Marqeta MQ reported fourth-quarter results that were largely in line with our expectations as the company continues to enjoy double-digit revenue growth. However, Marqeta’s guidance for gross profit growth in 2023 came in well below our projections, as the company’s margins face a number of headwinds in 2023. The company’s net revenue grew 31% from last year to $203.8 million, while Marqeta’s net loss shrank 28% from last year to $26.3 million.

As we incorporate these results, we are reducing our fair value estimate for Marqeta to $10.00 from $12.50. Roughly $1.25 of the negative adjustment comes from lower gross margin estimates as new agreements with Visa and pricing deterioration during client contract renewal place downward pressure on the firm’s margins. Another $0.75 comes from lower near- to medium-term revenue growth assumptions as we expect economic pressure and weak sales performance in 2022 to pressure revenue growth. The remaining $0.50 comes from the impact of Marqeta’s $275 million acquisition of Power Finance on its cash balances, as we anticipate that it will take time for the purchase to be a meaningful contributor to Marqeta’s results.

While much of the commentary surrounding expected 2023 performance was disappointing, Marqeta’s total processing volume, its primary driver of revenue, rose 41% from last year to $46.7 billion, even as Marqeta laps the strong performance of its buy now, pay later clients during last year’s holiday season. Unfortunately, Marqeta remains deeply reliant on revenue from Block, which accounted for 71% of total revenue in 2022. With Marqeta’s contracts with Block coming up for renewal in 2024, this overconcentration is a major risk point for the firm. While our base case for Marqeta does assume contract renewal, it seems likely that the firm will need to make concessions during the process, particularly as contract renewals with other clients are already resulting in worse average pricing for Marqeta in 2023.