Please ensure Javascript is enabled for purposes of website accessibility

The 1 Company I'll Be Buying When It Goes Public

By Courtney Carlsen - Updated Feb 22, 2021 at 11:01AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Marqeta is a disruptive fintech bringing payments control into the digital age, and is looking to go public this spring.

A number of big private companies have gone public in the past couple years, with plenty more on the way soon. One that I don't think gets talked about enough is Marqeta.

Marqeta is the expert at issuing customizable credit cards that help clients reduce fraud. It has done a great job of finding valuable partners over the years, like Uber Technologies and DoorDash, and it is changing the payments game by bringing payments control into the digital age. This combination of vision and expertise has me the most optimistic about the company's growth prospects.

What it does

Marqeta issues customizable cards for big companies, and its payment control options have reduced fraud significantly. The company recently partnered with Goldman Sachs in building its Marcus checking accounts and has worked with younger disruptors like Square, Uber, and Instacart.

Marqeta has significantly reduced the amount of time it takes a company to bring these cards into existence. For example, when Square decided to issue a virtual debit card to work alongside its fast-growing money-transfer app, it looked to Marqeta to build its product. Marqeta turned it around in six weeks, significantly cutting down on the time it would have taken a traditional card issuer.

The strategy of partnering with private unicorns and public newcomers will certainly help Marqeta grow alongside them.

Someone paying for food with card

Image source: Getty Images.

How it works

Marqeta's cards can be physical or virtual. They can be created in an instant for customizable payment, providing clients with added flexibility when it comes to managing payment methods. In addition, the company ensures clients are compliant with PCI regulations, or standards the require merchants to protect customers' financial information, and can perform just-in-time funding, where transactions are only authorized in real time at the point of transaction.

One other interesting feature of its cards is dynamic spend control. This reduces fraud and limits where users can transact, based on where they are, what time it is, and how much the transaction is for. For example, corporations issuing purchasing cards are naturally prone to fraud. By utilizing Marqeta, they can put rules in place to reduce the chances of fraudulent charges, such as only allowing payments at certain vendors or at certain locations.

Another example is DoorDash, which partnered with Marqeta to issue debit cards for its contractors. Because many restaurants require payments at the point of sale, DoorDash had to find a solution that would enable its workers to efficiently pay restaurants while minimizing fraud risk. While traditional cards could be programmed with simple controls like transaction minimums or daily minimum charges, they are still prone to fraud. So Marqeta worked with DoorDash to create the "Red Card", which "Dashers" could present at the restaurant to pick up customer orders. A key feature was its just-in-time funding, where the Red Card is only funded if the Dasher is at the correct restaurant and is picking up an order where the dollar amount is equal to the customer order amount. This control not only cut down on fraud, but it also reduces the chances of Dashers picking up incorrect orders.

Because of its customizability and control, fraud can be minimized using certain controls, reducing losses for companies which have helped delivery companies cut fraud in half, to 5% or less in the past two years.

Financial performance and growth numbers

Marqeta makes its money on a per-transaction basis, very similar to Visa and Mastercard. While the company is quiet on how much it makes per transaction, it is estimated that the average fee it charges is about 1% prior to rebates.It's no surprise to see that both payments companies have partnered with and invested in Marqeta. These heavyweights recognize the value of a Marqeta partnership, for things from launching new card programs to utilizing Marqeta's developer-friendly platform to help bring payments products to the market faster.

Forbes estimated Marqeta pulled in $300 million in revenue in 2019, and had doubled its revenue every year since 2016. 2020 is sure to have been another record year for the company, thanks to increased demand among key customers like Instacart and DoorDash. A drastic change in consumer behaviors brought on by the effects of the coronavirus pandemic has benefited many of those up-and-comers Marqeta partnered with early on.

Valuation and potential public offering

The company filed paperwork confidentially last week and could go public as soon as April. In its last funding round in May 2020, its valuation was pegged at $4.3 billion. However, with the company nearing its public debut, it is seeking a valuation of $10 billion to $15 billion. With support from huge names in the payments space, like Visa, Mastercard, and Goldman Sachs, Marqeta may just be a success out of the gate.

What has me most excited is its strategic partnerships with many potential disruptors that have gone public in recent years. These partnerships will be a key driver of revenue growth for the company for years to come, and is why this stock is high on my list of future IPOs to buy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

DoorDash, Inc. Stock Quote
DoorDash, Inc.
$66.23 (-1.07%) $0.72
The Goldman Sachs Group, Inc. Stock Quote
The Goldman Sachs Group, Inc.
$306.80 (-0.45%) $-1.40
Mastercard Incorporated Stock Quote
Mastercard Incorporated
$336.18 (1.19%) $3.96
Visa Inc. Stock Quote
Visa Inc.
$199.03 (0.84%) $1.66
Uber Technologies, Inc. Stock Quote
Uber Technologies, Inc.
$23.35 (0.47%) $0.11
Block, Inc. Stock Quote
Block, Inc.
$83.44 (-4.25%) $-3.70

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.