MW Marqeta's stock may shed a third of its value as these factors spur weak outlook

By Emily Bary

Fintech company's forecast falls short of prior guidance as some customers move to in-house solutions and others react to heightened banking regulations

Marqeta Inc. underwhelmed with its outlook on Monday as the financial-technology company said that more of its customers are bringing functions in-house.

The company, which makes card-issuing technology, expects 10% to 12% growth in net revenue for the fourth quarter, along with 13% to 15% growth in gross profit. On Marqeta's $(MQ)$ last earnings call, the company modeled about 16% to 18% revenue growth and approximately 25% to 27% gross-profit growth.

Shares were down 32% in Monday's extended session.

"Our fourth-quarter guidance reflects several changes that became apparent over the last few months with regards to the heightened scrutiny of the banking environment and specific customer program changes," Marqeta said in its earnings release.

Marqeta went into more detail on its earnings call, noting some bank partners are responding to a "heightened regulatory environment" by focusing more on keeping their current programs running than starting up new ones.

"We now expect significantly fewer new programs will launch and ramp up in the second half of the year," Chief Financial Officer Mike Milotich said on the earnings call.

Further, certain other customers have built in-house some of the capabilities that Marqeta once addressed for them. For example, two are "quickly shifting their resources to take on more program-management responsibilities," while another is taking on more risk work in-house. "And three customers [are] connecting their platforms directly to their end users to reduce their reliance on card usage," Milotich added, according to a transcript provided by FactSet.

Marqeta believes this is a disruption that's unlikely to have broader customer implications. Milotich attributed the moves to "a few highly sophisticated, long-term fintech customers."

"We do not believe these types of customer actions will become broad-based because very few want to prioritize this type of work or have the scale and sophistication to execute in a way that is accretive to their business," he added.

Marqeta also posted results for the third quarter, in which the company recorded revenue of $128.0 million, up 18% from a year before. That was the high end of the company's growth outlook and roughly in line with the FactSet consensus view.

Marqeta cut its losses roughly in half, posting a net loss of $28.64 million, or 6 cents a share, while analysts tracked by FactSet were forecasting a 5-cent loss per share. The company generated adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) of $9 million, beating the roughly $7 million consensus view.

"In the third quarter our true growth trajectory was back on display as we lapped the Block contract renewal, while continuing to demonstrate operational discipline to fuel strong adjusted Ebitda," Chief Executive Simon Khalaf said in a release.

-Emily Bary

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November 04, 2024 18:22 ET (23:22 GMT)

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