New Initiatives Will Accelerate Client Transition And Expand BNPL Utilization

Key Takeaways

• Marqeta's innovations in portfolio migration and BNPL integration could significantly boost revenue growth and market share expansion.
  
• Optimized regulatory processes and embedded finance ventures present opportunities for improved profit margins and substantial revenue increases.
  
• Regulatory scrutiny and reliance on key customers threaten Marqeta’s growth, profitability, and strategic direction amid competition and fintech ecosystem challenges.

Catalysts

Operates a cloud-based open application programming interface platform that delivers card issuing and transaction processing services.

• Marqeta's recent launch of portfolio migration and UX toolkit is expected to accelerate client transition to its platform while reducing time-to-value. This can potentially drive significant revenue growth with new customer adoption and market share increase.
  
• The introduction of Marqeta Flex aims to revolutionize BNPL by integrating personalized options within payment apps, increasing BNPL utilization and distribution. This is likely to contribute positively to future revenue.
  
• The onboarding of new bank partners and optimizing existing processes in response to regulatory changes could alleviate current delays and improve program launch efficiency, which may enhance gross profit margins over time.
  
• Ongoing development in embedded finance and neo banking represents significant growth opportunities. As demand from embedded finance customers rises, revenue may increase substantially.
  
• Continued investment and automation in compliance and regulatory processes are expected to build a more efficient system, potentially enhancing net margins by reducing operational costs.

Marqeta Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Marqeta's revenue will grow by 19.7% annually over the next 3 years.
• 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 2.9% to the average US Diversified Financial industry of 14.6% in 3 years.
• If Marqeta's profit margin were to converge on the industry average, you could expect earnings to reach $122.9 million (and earnings per share of $0.26) by about February 2028, up from $14.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.7x on those 2028 earnings, down from 133.9x today. This future PE is greater than the current PE for the US Diversified Financial industry at 17.4x.
• Analysts expect the number of shares outstanding to decline by 2.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.71%, as per the Simply Wall St company report.

Marqeta Future Earnings Per Share Growth

Risks

• The regulatory scrutiny surrounding the banking partners and program launches has increased the time it takes to get new programs off the ground. This delay impacts Marqeta’s ability to grow its total processing volume (TPV), directly affecting gross profit and revenue projections.
  
• Marqeta’s dependence on a few key customers who are taking operational tasks in-house could lead to decreased transaction volume and lower revenue and margin rates as these customers aim to manage their programs directly, bypassing Marqeta's services.
  
• The underperformance of new programs due to issues like value proposition refinement and higher-than-expected costs signals a potential risk in Marqeta's product launch strategy, impacting net revenue and gross profit as the diversification intended by these programs is not realized.
  
• Though there is increased demand for Marqeta's services, competition and the need for rapid adaptation to regulatory changes suggest a possible increase in operational costs or delays that could strain EBITDA margins and stall profit growth momentum.
  
• External challenges in the broader fintech ecosystem and risks related to third-party oversight on small banks supporting fintechs could affect Marqeta’s strategic direction and financial performance, presenting potential revenue volatility and operational risk.

Valuation

• The analysts have a consensus price target of $5.114 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 $841.4 million, earnings will come to $122.9 million, and it would be trading on a PE ratio of 23.7x, assuming you use a discount rate of 6.7%.
  
• Given the current share price of $3.74, the analyst price target of $5.11 is 26.9% 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.