By Emily Bary
Investors have a new way to play the payments infrastructure behind some of Silicon Valley’s hottest companies.
Companies from Instacart to DoorDash Inc. /zigman2/quotes/222973991/composite DASH -1.48% to Affirm Holdings Inc. /zigman2/quotes/223715966/composite AFRM +7.11% rely on card payments to facilitate customer purchases, allowing delivery workers to pay for just the items in orders, for instance. Marqeta Inc. /zigman2/quotes/227203754/composite MQ -3.62% offers card-issuing technology that lets businesses build out these functions, and the financial technology company is now in the process of going public.
Oakland, Calif.-based Marqeta, which was incorporated in 2010, says that’s it putting a modern spin on the practice of issuing customized cards. The company offers application programming interfaces, or APIs, that let companies leverage Marqeta’s relationships with banks and card networks while building out virtual and physical card programs.
Square Inc. /zigman2/quotes/205989440/composite SQ +3.28% is Marqeta’s largest customer, relying on Marqeta technology to power Cash Card debit cards that let users spend the funds from their mobile wallets. Marqeta also enables a function that lets Square’s Cash App users receive direct deposits from employers or the government, according to the prospectus Marqeta filed with the Securities and Exchange Commission ahead of its initial public offering.
Marqeta offered about 45 million Class A shares priced at $27 apiece , well higher than the $20-to-$24 price range it expected; founder and Chief Executive Jason Gardner, as well as early investors, have class B shares with 10 times the voting power. At the elevated price, the company raised $1.22 billion while fetching a valuation of more than $14 billion. Underwriters, led by Goldman Sachs and JP Morgan, have access to an additional 6.8 million shares that could push those numbers higher.
Marqeta shares were expected to begin trading Wednesday morning on the Nasdaq exchange under the ticker symbol MQ. Here are five things to know about the company.
Doubling revenue, but still in the red
Marqeta generated net revenue of $290.3 million last year, more than double the $143.3 million that the company recorded a year earlier. For the first quarter of 2021, Marqeta saw revenue rise to $108.0 million from $48.4 million.
The company is still losing money, though losses narrowed in the last fiscal year. Marqeta posted a net loss of $47.7 million in 2020, compared with a loss of $58.2 million in 2019. Marqeta lost $12.8 million in the first quarter of 2021, compared with $14.5 million in the comparable period a year prior.
Marqeta’s total processing volume, or the dollar value of payments processed through its platform, increased 167% in the first quarter to reach $24 billion.
Squarely its biggest customer
Marqeta is highly reliant on Square, which accounted for 70% of the company’s net revenue last year and 73% of its net revenue in the first quarter of 2021.
“Although we expect the net revenue from our largest customer will decrease over time as a percentage of our total net revenue as we generate more net revenue from other customers, we expect that net revenue from a relatively small group of customers will continue to account for a significant portion of our net revenue in the near term,” the company notes among the risk factors listed in its prospectus.
“It’s unprecedented to see a company going public with that much of business coming from one customer,” Jordan McKee, a principal analyst at 451 Research, told MarketWatch.
Marqeta’s Cash App contract term ends in March 2024, and its contract for the Square Card — a separate product meant for businesses — expires in December 2024. Both agreements can automatically renew for successive one-year periods after that.
Bernstein analyst Harshita Rawat sees little risk that Square moves its business to another card-issuing platform, since the other companies offering this technology are those Square competes with in other areas of its business. The bigger long-term risk is that Square develops card-issuing capabilities in-house, in her view.
“While it is very hard to definitively say whether Square is considering building an in-house solution or not –— we believe precedence exists with Stripe and Adyen, and as such this customer-concentration risk should be baked into Marqeta’s valuation,” Rawat wrote.