Wall Street may sell this Fintech stock, but I’m buying. Here’s why

Fintech card issuer Marqeta (MQ -0.19%) it went public in the summer of 2021, and the market has sold it mercilessly ever since. The stock peaked near $33 shortly after the IPO, but has fallen as low as $3 and is around $5 today. Investors should be careful about letting price action define the company behind the stock.

Was marqeta expensive at over $30? Was the stock worth trading for a few dollars per share? The truth is usually somewhere in the middle.

I was a buyer. Marqeta is still trading near the lower end of its broad range, and the fundamentals are strong enough to suggest the stock is a bargain for long-term investors today.

Here’s what you need to know.

The fintech behind modern business models

There is more innovation in business than ever before. Products and services such as Buy Now, Pay Later and Instacart they haven’t been around much more than a decade ago. Why? Old heavy financial technologies could not adapt to new business models. Traditional debit and credit payments send money back and forth. Marqeta’s technology has opened up new possibilities.

Marqeta is a modern card issuer capable of creating personalized payment technologies. When you order on Instacart, a shopper fulfills your order at the grocery store. The company uses Marqeta’s payment technology to match your order with the buyer’s purchases. In other words, it won’t pay for unapproved items, preventing a buyer from fraudulently spending your money. Fintech for cryptocurrencies CoinbaseIts payment card allows people to pay for items in dollars using the cryptocurrencies in their Coinbase accounts. Marketa technology makes this happen.

Marqeta charges a small fee for each transaction its technology has. It creates recurring revenue tied to the various innovative and fast-growing companies it serves.

Why Wall Street Sold Stocks

The company faced some problems. Block (SQ -0.51%)Marqeta’s biggest customer, renewed its relationship last year with a four-year deal that included a 40% lower take rate. This negatively affected Marqeta’s growth.

Additionally, the company’s founder, Jason Gardner, has left. He stepped down as CEO in August 2022 and then from the board as executive chairman in June 2024. It’s never ideal to see a founder leave a company when the business is young.

Finally, the investment climate changed as near-zero percent interest rates disappeared and aggressive short-term rate hikes slowed the overheated economy. That has dampened the market’s appetite for riskier investments. That downward pressure, new block deal terms and a change in management help explain the stock’s woes.

Here is the long-term investment proposition

There are several reasons why investors should see a much brighter future with Marqeta moving forward.

First, the renewal of the Block paints too negative a picture of Marqeta’s commercial drive. Marqeta admitted to a lower take rate, but the deal wasn’t bad at all. Previously, Marqeta charged exchange, network and banking fees for the Cash app business and then charged Block for these. Now, Marqeta feeds them directly to Block. The result is lower reported income, but gross profit remains intact apart from the lower takeover rate.

You can see the impact of these changes below:

MQ Revenue (TTM) data by YCharts

It seems that Marqeta’s business is collapsing, but the volume of payments continues to grow rapidly. In Q2, the company’s payment volume rose 32% year-over-year, despite reported revenue falling 46%. The good news is that Q2 was the last quarter compared to pre-block renewal financials, meaning Q3 and beyond will more accurately reflect the company’s growth.

Next, Marqeta is gradually diversifying its businesses from Block. While Block net revenue was still 47% of Marqeta’s total in Q2, it is down from 71% at the end of 2022. Management noted that non-Block revenue growth accelerated by more than 10 percentage points in Q2 , a healthy sign for business. The new Block contract lasts until 2027. The more it can diversify outside the Block between now and then, the more predictable Marqeta’s future earnings become.

Finally, aggressive selling is overdone at this point. Marqeta is working on some things, but this company is financially stable. Marqeta currently has $1.1 billion in cash versus almost zero debt on its balance sheet. The company is not yet profitable under generally accepted accounting principles (GAAP), but generates positive free cash flow. This gives the company flexibility to invest in growth while working toward positive net earnings. The market value of the stock is only $2.7 billion, which means that more than 40% of the stock’s value is in cash!

Changing interest rates and restated earnings make it difficult to quantify stock value. However, sentiment couldn’t be much lower than it is now. Again, this stock is more than 40% cash.

Marqeta stock could do very well once investors start to get a better picture of the company’s underlying growth in Q3.