On Tuesday, Deutsche Bank (ETR:DBKGn) downgraded Marqeta Inc. (NASDAQ:MQ) stock from Buy to Hold and reduced the price target to $4.00 from the previous $9.00. This change comes after Marqeta reported a slight miss on its third-quarter 2024 gross profit growth, which was approximately 24% year-over-year.
Despite the miss on gross profit, Marqeta did beat adjusted EBITDA expectations with around $9 million, equating to roughly 7% margins, attributed to the company's operational discipline.
However, Marqeta has significantly lowered its future outlook, citing increased scrutiny from the banking environment that has delayed the ramp-up of new clients and caused a reduction in value-added services from existing customers. The company experienced fewer than expected program launches in the third quarter of 2024, with only 5 out of 15 planned launches taking place.
The banking regulatory changes, which have been known since the previous year, were severely underestimated by Marqeta in terms of their operational impact on bank partners, leading to delays. Additionally, some of Marqeta's sophisticated fintech clients have started to manage aspects of their program management and banking relationships in-house.
Looking beyond the fourth quarter of 2024, Marqeta has also revised its expectations for the fiscal year 2025, projecting gross profit growth to align with the fourth quarter's exit rate. The firm expressed concern that the fiscal year 2026 outlook presented at the investor day might be at risk.
Deutsche Bank's decision to downgrade Marqeta's stock reflects the anticipation that the confusion and uncertainty within Marqeta's core embedded finance market will persist.
The analyst from Deutsche Bank also adjusted their forecasts, slightly increasing the fiscal year 2024 estimated adjusted EBITDA by about $1 million to approximately $24 million, while reducing the fiscal year 2025 and 2026 estimated adjusted EBITDA by about $8 million and $30 million to around $50 million and $81 million, respectively.
In other recent news, Marqeta has undergone several significant developments. KeyBanc Capital Markets has downgraded Marqeta from Overweight to Sector Weight following the company's third-quarter financial report, which included a significant revision of its full-year 2024 revenue and gross profit guidance. The company has projected a 15% year-over-year gross profit growth for fiscal year 2025, a decrease from the previously expected 25%.
Marqeta has also confirmed the departure of Chief Product and Technology Officer, Randy Kern. His responsibilities will be distributed among the existing management team.
Additionally, the company announced the development of Marqeta Flex (NASDAQ:FLEX), a product designed to integrate Buy Now, Pay Later options within payment apps and digital wallets, in collaboration with Klarna, Affirm, and Branch.
In the second quarter, Marqeta reported a 46% decrease in net revenue and a 6% contraction in gross profit, but a significant 32% year-over-year increase in total processing volume, reaching $71 billion.
Goldman Sachs (NYSE:GS) has maintained a neutral rating on Marqeta, acknowledging the company's positive growth trajectory and potential for international expansion. These recent developments indicate Marqeta's strategic growth, despite mixed financial results.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Marqeta's financial situation, providing context to Deutsche Bank's downgrade. The company's market capitalization stands at $3.02 billion, reflecting the market's current valuation amid the challenges outlined in the article.
InvestingPro Tips highlight that Marqeta's stock price movements have been quite volatile, which aligns with the uncertainty in the embedded finance market mentioned in the Deutsche Bank analysis. Additionally, analysts anticipate a sales decline in the current year, corroborating the lowered outlook discussed in the article.
The company's revenue for the last twelve months as of Q2 2024 was $470.95 million, with a concerning revenue growth of -44.19% over the same period. This significant decline in revenue supports Deutsche Bank's decision to downgrade the stock and lower the price target.
Despite these challenges, InvestingPro data shows that Marqeta has experienced a strong return over the last three months, with a price total return of 27.41%. This recent performance suggests that some investors may see potential in the company's long-term prospects, despite the current headwinds.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips for Marqeta, providing a deeper understanding of the company's financial health and market position.
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