It's been a tough year for investors. At one point, the S&P 500 was down more than 25%, with growth stocks taking the brunt of the selling. Marqeta (MQ 0.28%) is an innovative growth stock that was no different, plummeting 83% from its peak in November 2021.
The fintech hasn't turned a profit since going public in June 2021 -- a common theme in some of the stocks that have sold off the most sold-off this year. Marqeta has faced criticism over its heavy reliance on one customer for most of its profits.
However, there is a reason for optimism. The fintech recently announced new partnerships that position it to capitalize on an industry that could balloon to tens of billions of dollars in the coming years. Here's why you'll want to own this stock before the bear market ends.
Marqeta is the future of money
Marqeta creates digital payment products for companies so they can keep up with the ever-changing world of money movement. The company competes with legacy payment companies such as Global Payments, Fiserv, and Fidelity National Information Services.
One of its early advantages was its speed to market. Legacy payment companies could take months to create payment solutions. This timeline was unacceptable for Block Inc., so it chose Marqeta as its partner. That helped Block turn around a virtual debit card product for its Cash App in just six weeks.
Its growth is solid, making investors nervous
Marqeta gets paid every time a customer completes a transaction with one of its products. This revenue model is similar to how Visa and Mastercard receive fees for transactions that run through their networks. Because of this, total processing volume (TPV) is a crucial metric that management pays close attention to.
TPV measures the total number of payments that run through Marqeta's platform, net of returns and charge reversals. The company sees this as a top indicator of its platform's market adoption and the growth of its brand and business. Through the first three quarters of 2022, Marqeta's TPV grew 53% to nearly $120 billion.
Image source: Marqeta.
However, a couple of things have weighed on Marqeta's business and bottom line. For one, stock-based compensation is rising -- totaling $116 million in the first nine months of 2022 -- and a big reason the company's net loss in the period widened 25% from last year to $159 million.
Another concern is the company's reliance on Block for most of its revenue. Although Marqeta partners with several companies, Block still accounted for 73% of its net revenue in the third quarter. Marqeta's agreement with Block expires in 2024 and will automatically renew annually if no changes are made. However, the business would take an enormous hit if Block were to decide to go with one of Marqeta's competitors.
Marqeta plans to capitalize on the multibillion-dollar opportunity
Marqeta is expanding its offerings beyond payment products into embedded finance. Embedded finance, also known as banking-as-a-service, is a growing industry where companies offer banking services directly through their websites or apps. Capitalizing on this trend, Marqeta announced its Marqeta for Banking product in October. The service provides several banking products -- like account, ACH, instant funding, and direct deposits through its banking peers -- and benefits customers, who will have simpler, more convenient shopping experiences.
It also allows companies to create branded payment cards, insurance offerings, or investment products. According to consulting firm Bain & Co., the embedded finance industry's total transaction value is forecast to double to $7 trillion by 2026, with revenue opportunities of as much as $51 billion.
Coinbase is one of the customers using Marqeta's banking service. Sanchan Saxena, vice president of retail product at Coinbase, said Marqeta's platform helped "bring Coinbase Card to market, providing our customers the ability to earn crypto rewards and easily make everyday purchases with their crypto."
Marqeta also recently partnered with ONE -- a Walmart-backed fintech that will introduce checking accounts to its 1.6 million employees in the next year -- and Stash, a company helping people invest. Marqeta will help support Stash's Stock-Back Debit Mastercard, a debit card that helps customers automatically invest in stock as they spend money.
Marqeta is a growth stock worth the risk
MQ PS Ratio data by YCharts. PS ratio = price-to-sales ratio.
Marqeta trades at a price-to-sales ratio of 5, its cheapest valuation since going public. The stock is beaten down as broader market weakness weighs on all stocks. The company will need to diversify its revenue beyond Block, and as long as it relies heavily on a single customer, it will likely face more volatility.
However, I think at its current price, Marqeta is an attractive stock to buy. And its expansion into other banking products gives it the potential for explosive growth -- making this one stock you will wish you own when the bear market finally ends.
