Like many new software and fintech stocks, modern card issuer Marqeta (MQ -1.99%) sold off hard in late 2021 and 2022, declining from its initial public offering (IPO) price of $27 in mid-2021 to around $6 by the end of 2022.
Yet was that totally justified? Marqeta has actually displayed strong growth during its public life, beating revenue estimates in every one of its earnings releases since going public.
Part of the reason Marqeta has sold off despite relatively solid results was last summer's announcement that founder and CEO Jason Gardner would be stepping down as CEO and into the executive chairman role. No replacement had been announced for months, and Marqeta's stock continued to languish. In addition, some investors have grown concerned over Marqeta's large customer concentration, with Block (SQ -0.28%) accounting for 73% of the company's revenues last quarter.
Yet last week, the company finally announced its new CEO after a five-month search. Not only that, but Marqeta also announced its first acquisition days later, perhaps in a bid to enhance its product offerings and diversify its revenue base.
Marqeta's new CEO is an insider...sort of
On Jan. 26, Marqeta announced that Simon Khalaf would be its new CEO. Khalaf was technically an internal hire as he was Marqeta's chief product officer prior to the appointment. However, he had only been with Marqeta since June of 2022.
Prior to that, Khalaf had been a CEO four other times, most recently with start-up Flurry, which was subsequently acquired by Yahoo!. In addition, Khalaf recently held senior executive positions at Twilio (TWLO 1.36%) and Verizon, among others.
In the press release announcing the appointment, Khalaf said:
Together with Jason as Executive Chairman and a skilled and accomplished executive team, I believe we have the recipe in place to unlock the next level of growth and scale for Marqeta. There is tremendous opportunity in front of us to enable the brands we serve with our innovative, flexible platform and grow the ubiquity of digital payments globally.
Founder and Executive Chairman Jason Gardner added:
Simon's diverse experience leading companies over a long career, the strong customer orientation and product vision he has shown in his time at Marqeta thus far, and his ability to build great teams, make him the right person to lead Marqeta into the next chapter.
It certainly seems as if Khalaf has lots of experience and has gelled well with Marqeta's internal culture. In addition, it's interesting that Khalaf was recently at Twilio, where he worked between 2019 and 2022. Like Marqeta, Twilio is an application programming interface (API)-based platform-as-a-service company. Whereas Twilio allows developers to embed media, whether text, video, or voice, via APIs into mobile communications, Marqeta does something similar with card payments, enabling embedding financial-card products into digital apps and building customized card programs, also via cloud-based APIs. So Khalaf appears to have the right technology credentials to continue Marqeta's innovation journey.
On that note, just four days later, Khalaf and Gardner announced Marqeta's first acquisition.
Marqeta buys Power Finance
On Monday, Jan. 30, Marqeta announced the acquisition of fintech start-up Power Finance, a 30-person New York-based start-up that makes embedded and customized credit card programs. The purchase price was $223 million in cash, with another $52 million in cash earnouts based on certain milestones over the next 12 months, for a potential total price of $275 million.
Power's platform allows customers to make highly customized credit card programs, including personalized rewards embedded in web and mobile applications. While it sounds as if Marqeta's technology overlaps with Power in some ways, Marqeta only entered the credit card space in February of 2021, with its historical focus on debit and pre-paid cards. Of note, Power Finance CEO Randy Fernando will now be leading Marqeta's credit team, so Fernando apparently brings some unique expertise in the field of credit card programs that may differ from Marqeta's expertise in digital debit and pre-paid cards.
The press release announcing the acquisition said:
This acquisition will allow Marqeta customers to launch a wide range of credit products and constructs. It will combine Power's next generation rewards engine with Marqeta's own rewards innovations, and add in Power's data science toolbox and ability to embed experiences inside existing mobile and web applications. Marqeta expects to use the acquisition of Power to significantly accelerate the capabilities offered in its credit product.
In an interview with TechCrunch, Simon Khalaf added:
A lot of folks want a credit card to become alive with a credit limit that changes dynamically based on a user's current financial situation, with rewards that change dynamically, and more importantly, that they can integrate into their e-commerce or retail workflows...That's what Power has built.
It's not clear if these are good or bad moves yet
It's hard to say whether either of these announcements are the huge positives Marqeta's shareholders hope for. One never knows how a new CEO will perform when they take the helm, and it's unclear how much revenue or how many customers Power is bringing with it, or exactly what technology gaps it's filling.
One hopes the Power team brings a lot with it, as the $275 million price tag seems like a steep price to pay for a mere 30-employee company. For context, Marqeta spent about $38 million on research and development through the first nine months of 2022. So, it's unclear why Marqeta couldn't just build similar capabilities itself for the same price or less.
On the other hand, when Meta Platforms bought Instagram for $1 billion in 2010, Instagram had only 13 employees at the time. I'm pretty sure no one thinks that was a bad acquisition. Moreover, Marqeta can certainly afford the acquisition, as its 2021 IPO left it with roughly $1.65 billion in cash and no debt as of Q3 2022.
Of course, Instagram had already established a critical mass of users at the time it was bought by Meta and had the potential to scale globally very quickly. Marqeta shareholders are certainly hoping Power's platform can accelerate Marqeta's growth in a similar fashion.
Investors will likely get more details on the new acquisition and CEO when the company reports Q4 earnings on Feb. 28.