This article is part of Wellesley Hills Financial’s Market Movements series, found in our weekly newsletter.
Marqeta Inc. raised $1.2 billion in capital on Wednesday, June 9th, as part of its IPO onto the Nasdaq exchange. Like many of its FinTech contemporaries, COVID-19 catalyzed explosive growth for Marqeta, as the digitization of financial services became a requisite to operate in the new economy. Given the tremendous secular growth witnessed, Marqeta’s revenue more than doubled in 2020 to $290.3 million, while its valuation increased 4x between its IPO last week and its last financing round held in May 2020.Founded in 2010, Marqeta operates as the world’s first open API modern card issuing platform and generates the majority of its revenues from interchange fees. According to the IPO prospectus, Marqeta only contracts with Durbin-exempt issuing banks, which were assigned less stringent interchange restrictions as part of the Dodd-Frank Act in 2010. While interchange rates are susceptible to change from Visa and Mastercard, planned alterations have been postponed until 2022 due to COVID-19 concerns. Boasting marquee clients such as Square, Affirm, Uber, Instacart, and DoorDash, Marqeta is well-positioned to take advantage of accelerating technological changes to commerce such as mobile wallets, BNPL, and the expansion of the gig economy.With all that the Company has going for it, Marqeta’s profile is not without serious drawbacks. In the world of investing, if a single client accounts for over one-fifth of a company’s annual revenue the concentration is considered to be a potential risk to continued growth. In this regard, Marqeta’s relationship with Square is a neon red tarp swaddling the company’s Oakland headquarters. In Q1 2021 Square’s Cash App business was responsible for 73% of Marqeta’s total revenue, up from 70% for all of 2020. Thankfully for Marqeta, the Company has a contract to service Square’s Cash App through March 2024, which should give the newly public company sufficient time to diversify its revenue streams.It is rare to see any company so reliant upon a singular client, let alone a publicly-traded company listed on the Nasdaq. While Marqeta’s current revenue structure is concerning, receiving $1.2 billion in capital can go a long way for a company looking to invest in diversifying its revenue sources.