does Marqeta deserve a spot in your portfolio? let's run through the bull
and the bear case in about five minutes my name is Brian Feroldi my name is Brian Stoffel
now brian Marqeta is a recently public company that not many people have probably heard about
in real life what does Marqeta do took us a little while to figure that out but Marqeta
is a fintech company that operates a cloud-based software solution that provides cards issuance
and transaction processing services to other companies its major customers include square
doordash and even jpmorgan but what does that all mean in real life well you can
break down the business into three buckets first it can issue cards so companies can issue real or
virtual carts their customers or employees but importantly it can also process the funds going
through those cards especially with something called jit funding which is just in time funding
and finally Marqeta offers a full suite of applications that you can choose to use
to help you optimize the cards that you are sending out to your customers or employees
one thing that blew us away when we're researching this company is its growth rates not only is its
revenue growing more than 100 per year but its dollar based net revenue retention rate is over
200 percent recently that's a number so high i've almost never seen that before so what's the bull
case for investors well first off that high dollar base net rate retention rate suggests that the
company's switching costs are very high that means that once a company adopts marquetta's solutions
they're going to have a very hard time switching away second recent history has already shown that
there is insane growth with Marqeta right now but they've still captured about one percent of
their total opportunity which means that insane growth could continue for the foreseeable future
third one thing that pleasantly surprised us was how little this company spends on sales
and marketing in order to attract new customers that makes sense given that it's going after
enterprise-grade customers but that low sales and marketing was a big positive as impressive
as those growth numbers are it's important to examine the bear case now with Marqeta the most
important thing to be aware of is concentration risk one customer square accounts for two-thirds
of the company's revenue and while we believe the relationship is solid should square decide to try
and do this on their own or leave for a different provider it would be a huge blow to Marqeta and
its shareholders a second thing to keep an eye on is the company's bottom line it is not yet
producing profits or free cash flow although it's closer to producing free cash flow than it is
profits finally when we investigated the company's stock-based compensation we saw that shareholders
were getting diluted at a fairly high level given the size of the business that we're talking about
and we'd like to see those numbers regulate at a lower base how did Marqeta score in our investing
checklists for me this company got a 64 which is in my why bother category a few major areas of
concern for me are the customer concentration issue and the lack of profitability and brian
for much the same reason as you this landed in my fragile category with a score of a 5.5
by far the biggest reason that lost points was because of that reliance on its relationship
with square so what should investors keep an eye on moving forward the number one thing that both
of us agree on was customer concentration an overwhelming majority of this company's revenue
currently comes from square we want to see Marqeta not only sign up new customers but get those other
customers to spend so much more that that number comes down significantly over time
second there's a metric that investors should look for every time the company reports earnings called
total payment volume or tpv that counts the amount of money changing hands through Marqeta cards
the higher that goes the better their customers are doing and the larger the moat is around the
company third keep an eye on profitability while it's likely to be several more years before my
kind of starts driving net income the company is close on a free cash flow basis once that number
turns positive this company's risk level will go down substantially overall we think Marqeta is
a fascinating fintech company to watch and we are very impressed with the company's high growth but
there's still work for this company to do before we enter either of our portfolios brian's out