What happened
Shares of card issuing technology company Marqeta (MQ +0.74%) rallied on Thursday, up as much as 9.8%, before settling into a 3.3% gain as of 12:11 p.m. ET. The move was especially notable since the tech-heavy Nasdaq Composite was down about 1.3% at that time.
The reason was pretty clear: Marqeta, which is a high-growth, money-losing company, announced a $100 million share repurchase authorization.
NASDAQ: MQ
Key Data Points
So what
You don't normally see high-growth software or fintech companies repurchasing shares at this stage of their corporate lives. Marqeta's innovative card issuing platform is still in high-growth mode, with revenue up a head-turning 53% last quarter. With Marqeta continuing to rack up customer wins, expanding geographically, and having penetrated less than 1% of its global opportunity, it's also still investing, so its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) are negative, to the tune of about $10 million last quarter.
High-growth, money-losing companies don't usually buy back stock, as their precious cash is typically earmarked for growth investments or acquisitions to expand their reach. Fortunately for Marqeta, it happened to go public at a good time for growth stocks, in June 2021, at a price of $27, raising $1.2 billion at the time.
As of last quarter, the company was pretty flush with cash, at about $1.7 billion, with no debt. Against that much cash, Marqeta's EBITDA losses are very modest indeed. Therefore, with the stock now down to below $8 per share before today -- less than one-third of the initial public offering price -- and with its cash levels making up nearly 40% of its $4.4 billion market cap, a buyback seems to make sense.
Marqeta's stock had plunged this year with many growth tech stocks, but took another leg down after its recent earnings report, even though its operating results came in ahead of expectations. That's because investors were concerned that founder and outgoing CEO Jason Gardner announced he would step down from the role to become executive chairman. Still, Gardner maintains he will remain active at the company as chairman and as Marqeta's largest shareholder.
In the press release, Gardner said:
The share repurchase program demonstrates the confidence our Board and management team have in the strength of our business and future growth prospects. ... We see a specific moment-in-time opportunity for us to execute a share buy-back program as we do not believe our current valuation reflects our performance or our long-term market opportunity. Our strong balance sheet with $1.7 billion in liquidity enables us to execute this program while continuing to invest in both organic and inorganic opportunities to grow the business.
Now what
While $100 million isn't that large -- the company could retire 2.2% of its stock at these levels -- it's certainly a good signal that management believes its stock is incredibly cheap. In 2022, high-growth stocks have been crushed as inflation and interest rates have risen. Yet over the long term, one would expect inflation to eventually reach the Federal Reserve's 2% target. Thus, Marqeta's stock performance will likely be tied to its long-term earnings growth.
Investors shouldn't invest in Marqeta just because the CEO thinks the stock is cheap. After all, look what happened to the ill-timed repurchases at Bed Bath & Beyond. Investors should invest in Marqeta based on its competitive advantages and future growth potential versus where shares trade. I would agree that the stock is quite undervalued at these levels, but investors should research the company for themselves to decide that.
