Marqeta is Trailing Its Rivals and Is Way Overpriced

Marqeta (NASDAQ:MQ), a payments processing company, had a successful initial public offering (IPO), completing the day with a 13 percent gain at a share price of $30.52. The company raised $1.23 billion at a valuation of somewhat more than $16 billion, raising a total of $1.23 billion. In total, the business sold about 45.5 million shares of its Class A common stock at a price of $27, which was higher than the company’s goal range of $20 to $24. In this post, we’ll go over some of the company’s most important operating outcomes, as well as its future growth potential.

Marqeta is lagging behind its competitors.
Although initial public offerings (IPOs) are typically unprofitable, the current context of low interest rates and slowing growth has created a more forgiving environment for unprofitable IPOs. This is due to the fact that, with growth being so limited, a premium has been placed on growth. I believe that the fundamentals of a firm should be important, and the research demonstrates that they are important in the long run. Merqata hasn’t exactly done itself any favours in this department.

Despite having world-class revenue growth, the company’s S-1/A filing demonstrates that it has a chronic incapacity to create profits. 2020 became the first year in which the company’s net revenue increased by 103 percent year on year, with net revenue increasing from $143 million in 2019 to $290 million in 2020. According to historical data, just 5.5 percent of companies in the world achieve a one-year revenue compound annual growth rate (CAGR) of 45 percent or more. However, as previously stated, Marqeta’s revenue growth is not profitable: the company’s net loss attributable to shareholders in 2020 was $48 million, a decrease from the previous year’s loss of $122 million.

Although Marqeta has a diverse client base that includes Affirm, DoorDash, Instacart, Square, and Uber, the company’s net revenue was attributable to Square in 2020, up from 60 percent in 2019. This represents an increase from 60 percent in 2019. Regardless of Square’s outstanding credentials, the level of concentration displayed here is obnoxious.

Logic dictates that a corporation that does not generate any profits for its shareholders is a company that is destroying value. During the first quarter of 2020, Marqeta’s return on invested capital (ROIC) was -19 percent, an increase from -34 percent in 2019. Nominal after-tax profits (NOPAT) margin for the payment processor was -16 percent as of the year 2020.

These figures fall short of the operating performance achieved by its competitors. With the exception of PayPal, Marqeta’s balance sheet efficiency, as evaluated in terms of invested capital turns, outperforms that of its competitors. Marqeta is lagging behind its competitors in terms of ROIC and NOPAT margin.

Marqeta is overvalued at the moment.
The stock price of the company is significantly overvalued. Indeed, even its initial target stock price range nwas overvalued when it was first announced. The market’s expectations were reflected in the stock price at the midpoint of the company’s initial stock price range, $22, which predicted that Marqeta would earn a NOPAT margin of 13 percent (compared to the -16 percent it earned and the 13 percent that is the average of its peers) and grow net revenue by 42 percent compounded over an eight-year period, a growth rate that would outpace the rate at which the digital payment market was expected to grow. As a result of this, the market expects the company to earn net revenue of $4.8 billion in 2020, which is 16 times what the company earned in 2020 and 64 percent of what global payments achieved in the trailing twelve-month period (TTM).

The intrinsic value of the company is closer to $9 than it is to the current share price of the company. In order to make a great investment, you must be able to leave it alone for years on end, until you are able to take advantage of elderly day programmes, secure in the knowledge that your investment is secure. Marqeta is not a financially secure investment.

Company NOPAT Margin Invested Capital Turns ROIC
PayPal 15% 1.5 23%
Wex 12% 0.3 4%
Fiserv 14% 0.3 4%
Global Payments 16% 0.2 3%
Fidelity National Information Services 10% 0.2 2%
Marqeta -16% 1.2 -19%