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Marqeta stock could be 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 one buy.
Physical currency has been around for 5,000 years, but lately, I can't remember the last time I opened my wallet to pull out paper bills or grab a quarter from my change jar.
If you're like me or many businesses these days, you probably can't remember the last time you've used cash.
This growing digital economy is a big reason why I'm looking at Marqeta Inc. (NASDAQ: MQ), a hot fintech stock behind some of the payment technology at 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 rely on Marqeta for a big reason: It offers innovative card-issuing and payment processing technology. It provides 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 lets users spend directly from their mobile wallet.
Marqeta was also used by the federal government to disburse stimulus checks to millions via its Cash App.
Simply put, Marqeta is part of the key to this future cashless society with its customized virtual and physical cards. It also doesn't hurt that it is already working with large customers, giving them a good reputation as they are set to go public.
Today, we're going to dig into Marqeta's balance sheets and business model and see if this is a stock that belongs in your portfolio after the IPO...
Why Marqeta Stock Will Be a Popular Buy
Marqeta has an exciting story, but we want to see how that translates into making money.
While it is not yet profitable, Marqeta did generate net revenue of $290.3 million last year, more than double the $143.3 million it did in 2019. It also started 2021 off strong with revenue up 123% year over year with its net loss dropping 12%. This revenue is generated from transaction fees that are paid when credit or debit card users make a purchase.
Last year, Marqeta processed roughly $60 billion of volume, which is less than 1% of the annual $6.7 trillion of transaction volume conducted through U.S. issuers. That's how big its market is and the size of runway it is working with.
One major risk is customer diversity. Right now, Square makes up 70% of its business. This is a big risk, if that business slows down. I'm not concerned about this at the moment given how fast Square's business is growing, but it could be a longer-term risk if it is not able to diversify its customer base.
Another risk is the competition. There are traditional issuers like Global Payments and Fiserv and other up-and-coming companies like Stripe and Adyen. While I don't view the older companies as a big threat in this arena, it will pay to closely watch companies like Stripe given its existing relationships with merchants.
With that said, the shift to digital commerce is here to stay, and the global pandemic has pushed us further ahead in one year than in the past five years. Today's card manufacturers are also looking to digitally integrate payments into their platforms, and Marqeta is frontrunner to provide that.
Look at Coinbase as a great example. Its card allows you to spend crypto anywhere Visa debit cards are accepted and lets you earn 4% back in crypto rewards, something we have never seen before. One of the biggest perks of credit cards have been rewards, and Marqueta can better tailor it to a company's product to drive engagement.
Marqeta is also revolutionizing DoorDash's transaction system with the DoorDash Red Card that offers built-in fraud control. 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 is going public today (June 9). We don't know how it will trade, but we do know there are some big names behind the company: Coatue, a prominent hedge fund, owns 5% of the company, and other investors include none other than Visa and Mastercard.
Marqeta stock opened at $27 a share, a bit above its expected range of $20 to $24. With that higher price, I would wait to see how it trades before buying in.
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About the Author
Alex Kagin is the Director of Technology Investing Research at Money Map Press. He has spent the last decade working in equity research, most recently with Energy Capital Research Group (ECRG), where he led technology stock research along with working as part of a team developing a customizable financial data platform for securities analysis.
Prior to joining ECRG, Alex spent 8 years at DeMatteo Research, a boutique primary research firm and broker-dealer servicing the institutional investment community. He managed the Tech, Media, and Telecom vertical where he spent time connecting with hundreds of tech executives and hedge funds to get the pulse of the market.
Alex has a B.S. in Economics from American University and previously held Series 7 and 63 security licenses.