Marqeta Inc. shares lost 3% in Monday’s session after Morgan Stanley ended its bullish call on the card-issuing company.
Analyst James Faucette sees a “[m]ixture of headwinds” and a “meaningful amount of uncertainty” that “cap upside” over his 12-month time horizon, though he noted that the company’s balance-sheet strength limits the stock’s downside.
A key issue for Marqeta
MQ,
is that the company needs to renew its deal with Block Inc.
SQ,
its major customer, and there are “a very wide range of potential outcomes,” which raises the risk profile for the stock. Marqeta powers Block’s Cash Card.
Faucette expects that executives at Block will “negotiate aggressively given their outsized bargaining power,” he wrote. “On the other hand, SQ already takes the vast majority of available interchange economics,” and Block’s management may not want to “disproportionally” hurt Marqeta by asking for much more.
He also has some concerns about Marqeta’s business outside of Block.
“While we’re cognizant of impact from renewals, some customer program churn, and SQ’s Afterpay acquisition, we’re also monitoring emerging headwinds in key customer verticals like expense management & BNPL [buy-now-pay-later] in the current macro backdrop,” Faucette wrote.
He commented that Marqeta’s non-Block areas are vastly more profitable than its Block business, so investors “would need to see a reacceleration of the non-SQ cohort to turn more constructive given the disproportionate impact on MQ’s gross profit growth.”
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Faucette cut his rating on Marqeta’s stock to equal-weight from overweight Monday, while reducing his price target to $4.50 from $8.
Wolfe Research’s Darrin Peller was more upbeat in a note to clients last week, as he upgraded Marqeta’s stock to outperform from peer perform, writing that the stock’s risk-reward balance was “too compelling” to ignore.
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