Raising Our Uncertainty Rating for Marqeta to Extreme as Time Ticks Down for Its Block Contracts

We are changing our Morningstar Risk and Uncertainty rating for Marqeta MQ from Very High to Extreme as the firm closes in on the contract expiration date for its relationship with Block without news of a renewal agreement. Marqeta suffers from severe customer concentration issues with the firm receiving 72% of its net revenue from Block. The company had been seeing improvement on this issue in 2021, but Block’s acquisition of Afterpay, another Marqeta client, undid its progress on this front.

Marqeta’s contract for Block’s Cash App ends March 2024 giving the firm less than a year of safety, with the rest of Marqeta’s relationship with the other firm expiring in December of the same year. This makes 2023 a pivotal period for Marqeta as losing Block as a customer would have devastating consequences for the company. The loss of so much revenue would leave the company unprofitable for far longer than expected and could potentially do existential damage to the viability of its business model, which relies on scale to function.

Even without the outright loss of the contract, Marqeta’s reliance on Block places it at a disadvantage during contract renegotiation. While we do think it is likely that Marqeta will be able to eventually renew its contract with Block it seems inevitable that the firm will have to make concessions at the negotiating table. Our base case for Marqeta projects that the firm will retain the relationship but at worse pricing, with the firm’s gross margin falling to 36.5% in 2025 from 43% in 2022. However, there are no guarantees on how negotiations will play out, creating significant risk and uncertainty for investors as the economics of Marqeta’s business are fundamentally in doubt until a new contract is signed.