Embedded Finance And Real-Time Payments Will Expand Markets

Key Takeaways

• Harmonizing North American and European operations could rapidly accelerate global client wins, boosting margins and driving transformational long-term revenue growth.
  
• Platform leadership in embedded finance and real-time payments positions Marqeta to capture high-margin fintech demand and achieve sustained profitability ahead of current expectations.
  
• Overreliance on a few key clients, rising competition, regulatory challenges, and disruptive payment technologies threaten Marqeta's margins, growth prospects, and overall market relevance.

Catalysts

Operates a cloud-based open API platform for card issuing and transaction processing services.

• While analyst consensus underscores Marqeta's European expansion post-TransactPay as a revenue growth driver, this may significantly understate its impact-harmonizing offerings across North America and Europe could unlock transformational increases in cross-border client wins and total payment volume, compressing time to win major deals and driving both rapid net revenue and gross margin expansion over multiple years.
  
• Analysts broadly agree that value-added services and embedded finance will boost growth, but this likely undervalues Marqeta's potential to become an essential platform powering real-time risk, compliance, and payment experiences for next-gen fintechs; this shift could lead to a step-function increase in high-margin revenue, meaningfully elevating long-term net margins and earnings.
  
• Marqeta's leadership in "pay anywhere" cards and new BNPL innovations positions it to dominate the rapidly expanding global demand for flexible, programmable digital payments, capturing disproportionate share as the transition from cash to digital accelerates, supporting outsized future revenue and TPV growth.
  
• The company's durable relationships and deepening integrations with market leaders in the gig economy and expense management, coupled with its real-time decisioning and machine learning enhancements, can drive significantly higher payment volumes-per-customer and enduring operational leverage, directly boosting earnings over the next several years.
  
• Marqeta's disciplined execution on cost optimization, increasing internal software capitalization, and more scalable organizational design set a foundation for sustained improvement in adjusted EBITDA and drive earlier-than-expected inflection to GAAP profitability, which is likely not adequately captured in current valuation multiples.

Marqeta Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Marqeta compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Marqeta's revenue will grow by 22.3% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -11.7% today to 19.2% in 3 years time.
• The bullish analysts expect earnings to reach $194.5 million (and earnings per share of $0.42) by about September 2028, up from $-64.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 18.4x on those 2028 earnings, up from -41.6x today. This future PE is greater than the current PE for the US Diversified Financial industry at 16.5x.
• Analysts expect the number of shares outstanding to decline by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.42%, as per the Simply Wall St company report.

Marqeta Future Earnings Per Share Growth

Risks

• Marqeta remains heavily dependent on a few large customers, with Block/Square still accounting for 46% of net revenue, which exposes the company to significant concentration risk and could cause a sharp decline in revenue and growth if any of these customers were to leave, scale back, or renegotiate terms unfavorably.
  
• The commoditization of card issuing and processing solutions, along with intensifying price competition from both large incumbents and vertically integrated fintechs, puts downward pressure on Marqeta's gross and net margins as they may be forced to lower pricing to retain or win business over the long term.
  
• Rising regulatory scrutiny and tightening of data privacy policies globally, especially in the EU, could increase compliance costs and restrict the company's ability to innovate with data-driven products, leading to higher operational expenses and constraining their ability to monetize customer insights, thus negatively impacting earnings.
  
• The company's expanding investments in R&D and geographic expansion, particularly in Europe following the TransactPay acquisition, may result in escalating operational and development costs that could outpace revenue growth, potentially eroding earnings or leading to periods of negative cash flow.
  
• The advancement of central bank digital currencies, real-time payment systems, and embedded finance platforms could ultimately bypass traditional issuer-processor networks such as Marqeta's, reducing the addressable market for stand-alone card issuers and pressuring both future revenue and margins.

Valuation

• The assumed bullish price target for Marqeta is $8.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Marqeta's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $5.75.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $1.0 billion, earnings will come to $194.5 million, and it would be trading on a PE ratio of 18.4x, assuming you use a discount rate of 7.4%.
• Given the current share price of $6.0, the bullish analyst price target of $8.0 is 25.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.