Marqeta Earnings: Better-Than-Feared Results as Block Contracts Are Renewed and Extended

No-moat-rated Marqeta MQ reported decent third-quarter results that were better than we had expected as good cost management and solid volume growth helped partially mitigate the damage from its new contract with Block for its cash app card. Net revenue decreased 43% from last year to $109 million. The scale of the decrease was primarily due to a new revenue recognition methodology for Marqeta’s contract with Block’s cash app card. Gross profit, which controls for this change, decreased 9% to $72.5 million, primarily due to weaker pricing from its relationship with Block as processing volume continued to grow during the quarter.

Alongside earnings, Marqeta also announced that it had renewed its agreement for Block’s Square debit card and extended its new contract for the cash app card, with the new deals now lasting until 2028. We had expected Marqeta to retain the Square card, but seeing it confirmed removes a material source of risk for the firm and the extension is a significant positive for the company. While Marqeta still suffers from severe customer concentration issues, with Block being responsible for most of its revenue, the company has gained considerable room to breathe with the renewals. That said, the company will need to work to diversify its revenue streams or risk simply finding itself back in the same position in 2028. As we incorporate these earnings, we do not plan to materially alter our $7.20 fair value estimate.

On a positive note, Marqeta’s total processing volume continues to show good momentum, rising 33% from last year to $56.6 billion. Additionally, the company’s focus on managing its operating expenses delivered strong results during the quarter. Total operating expenses increased only 1.9% from last year and decreased 7.6% from last quarter to $142 million. This was lower than we had expected, though there were $2 million to $3 million in expenses that were shifted into the fourth quarter.