Rising Regulatory Scrutiny Will Squeeze Margins With Fierce Competition

Key Takeaways

• Deep reliance on a single large customer and the threat of aggressive competition could erode Marqeta's margins and long-term earnings power.
  
• Regulatory, cybersecurity, and market changes may force Marqeta to increase spending, squeeze profitability, and challenge future product relevance.
  
• Broad-based customer demand, expanding international presence, and product innovation position Marqeta for sustainable revenue growth and improved profitability across an evolving digital finance landscape.

Catalysts

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

• Rising regulatory scrutiny around data privacy and financial technology could result in costly compliance changes, limiting Marqeta's ability to launch new products and forcing increased investment in regulation-likely squeezing future margins and reducing net earnings growth.
  
• Heightened risk of cybersecurity breaches and payment fraud across the digital payments space could elevate operating expenses and introduce reputational risk, harming customer trust and requiring sustained, substantial spend just to protect existing revenue streams.
  
• Client concentration remains acute, with Block responsible for 45% of net revenue; this exposes Marqeta to sudden gross profit and revenue volatility if Block's performance declines, contract renegotiations intensify, or the customer churns.
  
• The commoditization of payment and card issuance services, combined with aggressive pricing competition from large legacy banks and payment networks expanding into similar services, threatens Marqeta's fee-based business model and could drive persistent downward pressure on gross profit margins and long-term earnings power.
  
• The accelerating adoption of alternative payment methods-including real-time bank transfers, blockchain platforms, and proprietary embedded finance solutions from tech giants-could steadily erode demand for traditional card programs, undermining Marqeta's core transaction volumes and revenue visibility over the next decade.

Marqeta Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Marqeta compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Marqeta's revenue will grow by 18.2% annually over the next 3 years.
• The bearish analysts are not forecasting that Marqeta will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Marqeta's profit margin will increase from 10.4% to the average US Diversified Financial industry of 15.5% in 3 years.
• If Marqeta's profit margin were to converge on the industry average, you could expect earnings to reach $135.3 million (and earnings per share of $0.36) by about July 2028, up from $55.1 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 bearish analyst cohort, the company would need to trade at a PE ratio of 17.1x on those 2028 earnings, down from 50.1x today. This future PE is lower than the current PE for the US Diversified Financial industry at 17.5x.
• 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 7.06%, as per the Simply Wall St company report.

Marqeta Future Earnings Per Share Growth

Risks

• Marqeta is experiencing robust TPV and revenue growth across both Block and non-Block customers, with non-Block segments such as neobanking, lending, and expense management growing even faster than Block, suggesting broad-based demand that could support continued revenue momentum.
  
• The company's deepening capabilities in portfolio migrations, product innovation, and program management are attracting established brands and new use cases, positioning Marqeta to capture an increasing share of both de novo and existing card-issuing programs, which could drive long-term earnings expansion.
  
• Rapid international expansion, particularly in Europe with TPV growth over 100% and the acquisition of TransactPay, is unlocking new revenue streams and diversifying Marqeta's business mix, which could contribute to higher overall revenue and margin stability in the future.
  
• Investments in flexible, API-based solutions, AI-enabled products, and a dual approach with white-label and embedded finance offerings are generating strong customer interest and should enable faster, more profitable launches, thus enhancing gross profit and EBITDA margins over time.
  
• Marqeta's proven ability to enable crypto and stablecoin card spending, as well as facilitate emerging use cases tied to real-time payments and Agentic commerce, aligns with long-term secular trends in digital finance, potentially supporting higher transaction volumes, expanded addressable market, and increased profit margins.

Valuation

• The assumed bearish price target for Marqeta is $5.0, which represents the lowest 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 more bearish end of the spectrum.
• 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 $5.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $872.4 million, earnings will come to $135.3 million, and it would be trading on a PE ratio of 17.1x, assuming you use a discount rate of 7.1%.
• Given the current share price of $5.89, the bearish analyst price target of $5.0 is 17.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.