American Express Partnership Will Broaden Capabilities But Leadership Uncertainties Remain

Key Takeaways

• Expanding bank partnerships and acquiring TransactPay aims to boost revenue growth and geographic reach with more efficient and integrated solutions.
  
• Introducing American Express options and developing new insights enhances platform capabilities, customer acquisition, and service revenue, improving competitiveness and profitability.
  
• Leadership and customer dependency uncertainties, along with operational challenges and potential acquisition delays, could impact Marqeta's revenue stability, growth, and earnings.

Catalysts

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

• Marqeta's expansion of bank partnerships and streamlined program onboarding could potentially accelerate revenue growth as they enable faster and more efficient program launches, reducing time-to-market and increasing customer satisfaction, which can directly boost future revenues.
  
• The acquisition of TransactPay will allow Marqeta to offer a more integrated program management solution in Europe, enhance its geographic reach, and attract more customers seeking a single API-driven solution. This can significantly impact revenue and gross margins by capturing more market share and expanding customer base in high-growth regions.
  
• Introduction of American Express network options for card programs starting later in 2025 is expected to broaden Marqeta's platform capabilities, potentially increasing customer acquisition and differentiating its service offerings, thereby boosting revenue and improving competitive positioning.
  
• The development of new solutions in risk, compliance, and business insights aimed at deepening customer engagement and increasing platform usage can result in higher-margin service revenue, positively affecting gross profit growth.
  
• Accelerated growth in international markets, particularly in Europe, driven by enhanced product parity and embedded finance opportunities, indicates potential for substantial TPV and revenue growth, benefiting both net revenue and earnings.

Marqeta Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Marqeta's revenue will grow by 19.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.4% today to 0.8% in 3 years time.
• Analysts expect earnings to reach $7.1 million (and earnings per share of $0.02) by about April 2028, down from $27.3 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $33.2 million in earnings, and the most bearish expecting $-70.9 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 399.9x on those 2028 earnings, up from 72.4x today. This future PE is greater than the current PE for the US Diversified Financial industry at 14.5x.
• Analysts expect the number of shares outstanding to decline by 2.66% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.81%, as per the Simply Wall St company report.

Marqeta Future Earnings Per Share Growth

Risks

• The departure of the CEO and the current search for a replacement introduces uncertainty in leadership, potentially impacting strategic direction and execution, which could affect overall earnings stability and growth.
  
• Delays in program launches due to customer decisions could impact the anticipated revenue streams, thus impacting the net margins and the company's ability to meet its financial projections.
  
• Continued dependency on a few major customers, such as Block, for a large portion of revenue could pose a risk if these customers were to change terms or switch providers, affecting revenue and earnings.
  
• The need for a differentiated strategy to deal with contract renewals and pricing changes suggests operational challenges that could impact net revenue growth and gross profit margins due to possibly reduced revenue rates post-renewal.
  
• The expected acquisition of TransactPay, while potentially beneficial, involves regulatory approvals that can induce delays or additional costs, impacting operational efficiency and delaying potential revenue contributions.

Valuation

• The analysts have a consensus price target of $5.018 for Marqeta based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $866.9 million, earnings will come to $7.1 million, and it would be trading on a PE ratio of 399.9x, assuming you use a discount rate of 6.8%.
• Given the current share price of $3.92, the analyst price target of $5.02 is 21.9% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.