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This Stock Could Be a Surprise Growth Pick in 2022

By Jennifer Saibil – Jan 1, 2022 at 8:10AM

Key Points

  • Marqeta had a blah IPO in 2021.
  • The company is posting strong growth rates and developing new partnerships.
  • Marqeta has a huge addressable market, and the tide might turn for it this year.

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Down on its luck for now, this fintech stock still has huge potential that could come to fruition this year.

Not all IPO stocks hit the ground running. Card-issuing fintech Marqeta (MQ -1.38%) went public in June in a largely stale debut that has continued to fizzle out, losing 45% of its value since then.

The price drop is curious, considering the investment community's love of fintech and Marqeta's strong results. Because of its performance, this stock remains below Wall Street's radar, but with its robust opportunities and effective business execution, it could be a surprise growth pick for 2022.

Two women standing at a cashier and one using a phone to pay.

Image source: Getty Images.

A strong and relevant fintech business

Marqeta CEO Jason Gardner started the company in 2009 just as the concept of fintech was gaining momentum. Legacy credit card platforms didn't support technology innovations, and he felt he could start an easy-to-use, agile, and customizable system to enable an array of credit card functions -- and Marqeta was born.

Marqeta is a tech-driven credit card infrastructure platform offering customizable credit card solutions. It works through an API plugin, so clients can integrate it into their systems and connect to the Marqeta network seamlessly. The platform handles contact with the processing network, such as Visa and the issuing bank, for quick and easy transactions.

This model targets corporate clients, which might have different credit card needs than the standard bank-issued credit cards. Some of the end users are employees, while others are customers. Some of its clients include Block (formerly Square), Affirm Holdings, and Uber. Some of the features it offers include instant payments and expense cards for employees with default spending controls, which are important for companies like Uber, whose drivers need the ability to quickly pay for orders. Another example is Alphabet's Google Pay, which partners with Marqeta to power a virtual, tokenized card for users with which to spend Google Pay balances.

Why did Marqeta get hammered in 2021?

For the two quarters (ending June 30 and Sept. 30) that Marqeta has posted earnings as a public company, it's done pretty well for itself.

Metric Q2 Q3
Revenue $122 million $132 million
Revenue growth year over year 76% 56%
Earnings per share (EPS) ($0.29) ($0.08)

Data source: Marqeta quarterly reports.

In both quarters, revenue growth exceeded analyst expectations. Another important metric, total payment volume, has been growing at similar rates as revenue. Loss per share came in way below average analyst expectations of $0.07 in the second quarter, but it topped expectations of $0.14 per share in the third quarter.

So why all the stock price negativity? For one thing, losses are mounting, and the company's valuation is high. It's pretty typical for losses to pile up as new companies grow; more focus is put on expansion than on generating profits. But investors like to see losses decrease as time passes, not increase, which they did in both the second and third quarters. As for valuation, shares trade at a high 19 times sales, even at the lowered price. Even though it's growing at a fair clip, revenue is still small, and may not support the current valuation. Finally, fintech as an industry hasn't been performing well lately as the omicron variant of the coronavirus makes its rounds and some regions of the country have implemented new restrictions.

Where will Marqeta go in 2022?

Marqeta has announced some exciting developments lately. It has several partnerships with cryptocurrency companies, and it offers the right technology to further crypto's vision. For example, it powers a card with Coinbase Global that allows crypto wallet holders to use their balances for retail payments. It also recently minted a deal with that provides enterprise-level services for small and medium-sized businesses through its infrastructure. It also has international opportunities, and the European client count doubled year over year in the third quarter.

The real surprise is that Marqeta hasn't excited investors until now. Management defines its addressable market in "modern card issuing" at a gargantuan $30 trillion, and even though its focus is somewhat different, its services can chisel away at the hold that leaders such as Visa and American Express have on credit card solutions. It can also work together with them, such as its partnership with Mastercard to support its "buy now, pay later" platform. Gardner says "Marqeta can out-scale new entrants to this market and out-innovate legacy platforms."

Marqeta is still a risky stock to own for the reasons mentioned above -- high valuation, not profitable, and in the midst of a global pandemic. But the future looks very bright, and as it grows and becomes more stable, it could be a huge gainer in 2022.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company. Jennifer Saibil owns American Express. The Motley Fool owns and recommends Affirm Holdings, Inc., Alphabet (A shares), Alphabet (C shares), Holdings, Inc., Block, Inc., Coinbase Global, Inc., Mastercard, and Visa. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.

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