Marqeta is a financial technology company that provides advanced payment platform services. Its primary products and services include a cloud-based digital ordering platform, card-not-present payments, and merchant support tools. Marqeta also offers data analytics, fraud prevention tools, loyalty programs, and other services to help merchants maximize their customer experience. Marqeta has offices in the United States (Oakland), the United Kingdom (London) and Asia (Tokyo).
The company’s initial public offering debuted on the New York Stock Exchange in March 2021 for $27 per share. Marqeta’s shares traded as high as $70 per share in the weeks following its debut but dropped suddenly on May 4 to close at $43.61 per share after an analyst from Wedbush chopped its outright price target for the shares from $76 to $50—a 29% cut from even Wednesday’s opening price of $71.47.
What happened to Marqeta’s stock?
On Wednesday, Marqeta Inc. (MQ) saw its stock fall sharply. The market value of the company, which operates a platform that allows businesses to issue cards and track spending, fell nearly 8% in midday trading as concerns about potential competition weighed on investor sentiment.
The sell-off was initiated after Bloomberg reported Microsoft Corp. (MSFT) and Fiserv Inc. (FISV) were in discussions to form an alliance that would challenge Marqeta’s business model. According to reports, the partnership would create a new digital wallet provider to compete with firms such as Square Inc.’s Cash App and PayPal Holdings Inc.’s Venmo.
Adding fuel to the fire was Marqeta’s large valuation at public markets — with a $13 billion valuation currently it was trading at 20 times its revenue last year — which could be under pressure if Microsoft and Fiserv launch their own venture into the same space. Additionally, any news of consolidation or partnership among industry players can cause disarray due to investors’ uncertainty on how they will compete with each other in the future.
Marqeta had rallied from an initial public offering price of $27 last June and had more than doubled by the end of February 2021 when it peaked at nearly $65 before ending Wednesday at about $52 per share.
Reasons for the Stock Drop
On Wednesday, Marqeta’s stock fell amid uncertain news. Investors had to come to grips with the company’s prospects and what caused the stock to drop.
In this article, we will explore the primary reasons for the drop in Marqeta’s stock on Wednesday and what it could mean for investors.
Weak Q1 earnings report
Marqeta Inc (NASDAQ:MQ) reported its first quarter 2021 earnings results on Wednesday, May 12, and many investors were not happy with the numbers. The stock price dropped by more than 10% as of market open on the day of the report.
The company reported a total revenue of $127 million for Q1 2021 compared to $98 million in the same period a year ago — an increase of 28.7%. Similarly, subscription revenues increased by 84% year over year to $50 million. These figures showed impressive growth compared to 2020 figures but disappointed short-term investors due to weaker-than-expected earnings per share (EPS).
The San Francisco-based financial technology firm ended the quarter with just 11 cents in adjusted EPS— well below Wall Street expectations of 30 cents per share as analysts were expecting a bigger bump in profits because of surging revenues this quarter. Moreover, Marqeta’s net loss widened to $12.2 million compared to $3.3 million net profit recorded in Q1 2020 although its net income was up 120% from the previous quarter’s results.
Accordingly, a large number of investors took profits off the table and sent MQ shares tumbling after hours and throughout Wall Street trading on Thursday morning despite Marqeta’s strong revenue growth rate and promising outlook for 2021 as whole.
Negative analyst sentiment
At the time of the stock drop on Wednesday, Marqeta was reportedly facing a downgrade from analysts at Raymond James. The firm initially awarded an “Overweight” rating and placed a $41 price target on the stock in November 2020 prior to it’s public offering. In its downgrade, Raymond James cut its rating to “Market Perform” and lowered its price target to just $43.
Unfortunately for Marqeta, this was just one of a few analyst downgrades that day. It appears that negative analyst sentiment has been clashing with other bullish factors such as growth potential in digital banking and payments sector, capital raises, positive customer reviews, and customer traction in new markets. These bearish comments signify a more drawn out process for Marqeta if it hopes to protect itself from further losses in the near future. The back-to-back downgrades from Raymond James have been seen as another wave of pressures threatening Marqeta bulls despite its strong fundamental story.
Concerns over potential regulation
On Wednesday, Marqeta Inc.’s stock took a big hit in the market as investor concerns about potential regulation weighed on the overall financial technology sector. The worries stemmed from news that the government was looking into possible new regulations for the payments industry. This news followed similar reports in February where regulators had expressed concerns about the use of third-party payment apps.
This potential regulation, coupled with some analysts’ comments regarding Marqeta’s valuation, caused investors to sell off Marqeta’s shares. While Marqeta has issued a statement saying that they believe they are in compliance with current regulations, there is still some uncertainty over what new regulations may be put into place moving forward and how it could affect their business.
The news at Marqeta was part of a larger trend in which stocks across the financial technology sector fell as investors were concerned over increased regulatory oversight. The effect seems to have been relatively immediate as stocks like PayPal and Square also saw declines on Wednesday after strong runs up prior to this news. Moving forward, it will be important for both small companies like Marqeta and larger companies in this sector to pay close attention to any developments out of Washington D.C as these could lead to significant changes for the industry going forward.
Impact of the Stock Drop
Wednesday’s stock of Marqeta Inc. (MQ) dropped over 6% in premarket trading after the company announced a secondary offering. The offering and it’s effects on the stock price has been a major topic since the announcement.
In this article, we will dive into the details of what caused the stock to drop and what the implications are for the company and it’s shareholders.
Stock price dropped more than 20%
On Wednesday, shares of financial technology (fintech) firm Marqeta Inc. (NYSE:MQ) dropped by more than 20%, from over $45 the night before to below $36. This precipitous decline, one of the most dramatic for a company in the fintech space this year, sent shockwaves through the market. Many investors and analysts have been left wondering what caused Marqeta stock to fall so substantially in one day.
There are a few key factors that likely contributed to the sharp decline in Marqeta’s stock price on Wednesday. First, investors were likely reacting to news that competitor Plaid was being acquired by Visa (NYSE:V). As two of the leading players in the fintech space, many took Plaid’s acquisition as a sign that competition was getting tougher for Marqeta and other companies in the sector.
Furthermore, Wednesday also saw an analyst downgrade of Marqeta’s stock from JMP Securities from “market outperform” to “market perform.” The downgrade was based on the company’s slower-than-expected user growth and slower adoption of their products by other banks and financial institutions.
The combination of these two factors—competition from Plaid’s acquisition and an analyst downgrade—likely sent investors into panic mode and precipitated such a large drop in Marqeta’s stock price on Wednesday.
Market capitalization decreased by $3 billion
Wednesday, shares of fintech payment processing provider Marqeta Inc. (MQ) dropped by 20.6%. This caused a decrease in the company’s market capitalization by $3 billion, from $14.64 billion on Tuesday to $11.64 billion on Wednesday.
The reason for the sharp drop in Marqeta’s stock is twofold. Firstly, investors’ expectations for the company following its sixth post-IPO earnings call were not met and secondly, a lawsuit was filed against the company alleging fraud and breach of contract– causing investors to be concerned about Marqeta’s future potential.
According to its fourth quarterly report, Marqeta’s total revenues rose 7% YoY% from November to if December 2020, amounting to approximately $26 million. Furthermore, its gross transaction volume increased by 79% with processing volumes increasing by 44%. The reported losses per share also came in higher than expected at $0.88/share when analysts had projected a loss of just $0.75/share for the quarter ended December 2020.
The news that contributed most significantly to the drop in Marqeta’s stock came when two shareholders–Harter Secrest & Emery LLP and Visium Asset Management LP sued Marqeta claiming that it had deliberately misled investors about its true financial status at IPO in April 2020 as well as during its subsequent filings–including operating costs and customer relationships that result human capital spending and acquisition expenses among other metrics–which resulted in revenues falling 18% year over year since August 2020 while investments into research & development tripled since March 2020 on a quarterly basis leading up to December 2020 results according to various news outlets including Bloomberg reporting on events leading up to the suit filing date: Monday 8th March 2021.
Marqeta’s stock is now trading at its lowest level in 2021
On Wednesday morning, Marqeta Inc’s (NYSE:MQ) stock was trading at its lowest level since the start of 2021. The shares have plunged nearly 20% since the beginning of the year as market sentiment toward the Oakland, California-based financial technology startup has soured.
Marqeta’s stock had enjoyed a meteoric rise in 2020, up roughly 300% from early March to late December. But investors appear to be shifting their outlook on the company due to concerns over its slowing growth and profit margins. In its fourth quarter earnings report released last month, Marqeta said revenue rose 31%, lagging analysts’ estimates for a 37% increase.
At the same time, the company’s gross margins were under pressure as it invested heavily in developing new products and expanding its customer base. Operating income was down significantly sequentially due to higher marketing expenses as well as investments in product development and customer onboarding costs.
The stock selloff has been exacerbated by heightened volatility in markets worldwide because of economic uncertainty surrounding the Covid-19 pandemic. Wedbush analyst Aaron Turner lowered his price target on Marqeta’s shares last week following the firm’s fourth quarter report, citing increasing competition and rising costs as potential headwinds for 2021.
Given that many of Marqeta’s customers are small businesses facing financial strain during this pandemic period there could be further downward pressure on Marqeta’s stock price going forward.
Outlook
Marqeta’s stock was falling on Wednesday due to its disappointing outlook. Analysts have expressed concern about the company’s guidance for its annual revenue growth, which came in under expectations. They also warned that the company’s return on equity could be impacted by the higher spending associated with new products and services.
In this article, we’ll explore the outlook for Marqeta and why it has caused the stock to drop.
Marqeta’s stock could continue to be volatile
The unquestioned truth on Wall Street is that the stock market is volatile and will remain so. Marqeta Inc’s stock, which had gained nearly 76% since the beginning of 2021 before taking a nosedive on Wednesday as its lock-up period ended, has proven to be no exception.
After Marqeta’s collection of insider shares became available for sale, the company’s stock dropped 11%. Following the plunge, some members of the investor media theorized that hedge funds were selling Marqeta’s shares in order to maintain their long positions in other surging apps stocks like Deliveroo and Just Eat Takeaway NV. While this may have already been happening to some extent, it could easily become a pattern moving forward — one that could cause Marqeta’s stock to continue its wild ride in the coming days and weeks.
Investors should be aware that regardless of their intentions regarding Marqeta shares specifically (or even stocks in general) they should always keep their emotions at bay when participating in a volatile market. Although it can be tempting to chase hot stocks and aim for quick gains, attempting to time bottom or top can often result in costly losses if done without properly researching a company or understanding why a particular stock is trending up or down.
Potential for long-term growth
The potential for long-term growth was one of the primary reasons why Marqeta’s stock was falling on Wednesday. After a strong debut to the public on April 21, shares of the fintech company dropped more than 10% at market close.
Although investors may have been disappointed with Wednesday’s market performance, it’s important to remember that today’s stock market prices do not reflect the long-term potential that Marqeta holds. Analyst reports released prior to the late trading session noted that although there are regulatory risks and potential scaling issues, future earnings have the potential to be much higher than expected due to innovative products and services.
That being said, as with any publicly traded company, there is an inherent risk involved in an investment in Marqeta stock. It is up to investors to make informed decisions when considering buying or selling a security such as this one. With so much volatility in the markets, it is important for those investing in Marqeta or any other security to not rely too heavily on short-term price movements and instead consider fundamentals when analyzing stocks for possible investments.
Need to monitor regulatory changes
On Wednesday, shares of Marqeta (NASDAQ:MQ) were trading down 13.6% as of 12:15 p.m. EST. With the stock down more than 12% in 2021 so far and a total return of -3% over the past 52 weeks, it has been a tumultuous ride for investors in the fintech startup. So why was the stock falling today?
It appears that this morning, Marqeta released third quarter earnings results that left investors unsatisfied when compared to their expectations. Revenue rose 64%, but fell short of analyst estimates, leading to some confusion and disappointment in the market today.
However, it is important to note that Marqeta’s stock fluctuations have not been solely related to its financial performance recently revealed in its report today – broader issues have been at play too. Specifically, uncertainty around regulators imposing stricter capital requirements may have contributed to recent volatility in the tech unicorn’s stock price and bearish outlook from financial analysts on its future performance outlook moving forward.
Regulatory issues can often be a major factor for stocks involved in highly regulated industries such as banking and fintech services, which demand greater oversight from regulators due to security concerns given their involvement with customer finances and data processing. Therefore, investors need keep an eye out for regulatory changes that may affect companies like Marqeta who are operating within these fields as regulatory decisions can lead directly to a fall or rise in stocks prices like we saw today with Marqeta’s share price reaction following their announcement this morning.
