Marqeta is a stock that has been on our watch list for a while, but with the recent sell-off in tech companies and its subsequent 42% drop, we have initiated a position in the company.
Marqeta is a pioneer in modern card issuing, an industry that has seen the explosion of custom payment cards, virtual cards, and payment tokens that run on or power platforms like Block(Square), Apple Pay, Cashapp, and more. They enable just-in-time fund transfers on all card services and payment wallets, which have changed the face of fintech and modern card payments.
They allow any fintech app or platform to create its custom cards and their customers range from Block to Klarna, DoorDash, Instacart, and more through open APIs. Finally, their platforms support debit, credit, and prepaid cards, including non-card payment tokens, making them a complete suite for any payment or fintech business.
Total Processing Volume (TPV) was at $37B in Q2, a 53% increase from the previous year. On an annual basis, their TPV has grown from $21.7B in 2019 to $111.1B in 2021. The net revenue growth in 2021 was 78% higher than in 2020, and they have incredible retention as their revenue from customers more than doubled year-over-year. Marqeta powers more than 400M cards across many fintech platforms.
One of Warren Buffet’s maxims is that you should invest in a business selling picks and shovels during a gold rush. Marqeta fits this bill. They power custom cards and allow fintech platforms to issue their cards, a service almost every fintech platform wants to add to their offering. This puts them in an enviable position to benefit from the fintech revolution. They also have the advantage of being a first mover and the biggest player and leader in this category. This means that even the largest and newer fintech players all want to work with Marqeta. Lastly, their software and customer service allows them to build a moat around how easy and intuitive it is to integrate with them. Despite the current sell-off in growth companies, Marqeta’s valuation of less than $5B is an incredible steal.
One of the most significant risks with Marqeta is that their revenue from Cashapp cards (by Block) makes up a high percentage of their total revenue, coming in at more than 60%. This makes them vulnerable to a critical customer and the latter’s business performance. However, they are working hard to reduce this dependence, and we see it as a mark of just how early-stage they are. Another risk is that, given the current market environment, they will face some potential lower margins in the short term to invest in their platform and gain market share.
Despite these risks, we have a high degree of conviction in the value Marqeta holds in the long term and have opened a significant position in the stock.