By Michael Elkins
Morgan Stanley downgraded Marqeta, Inc. (NASDAQ:MQ) to Equal-weight (From: Overweight) and cut the price target on the stock to $4.50 (From $8.00) as MS analysts see a challenging catalyst path for the card issuing platform.
MQ is working through a multitude of headwinds over the next ~12 months, including SQ contract renewal, non-SQ stagnation, gross profit growth uncertainty, and path to profitability. The analysts don't expect near-term resolution, but valuation reflects the road ahead.
They wrote in a note, "We think risk/reward over the next ~12 months has become less attractive given growth headwinds, margin complexity, and a reduction in pro-forma net cash related to the Power acquisition (approx. ~$2.50/share pro-forma, vs. ~$3.00 on 12/31/22). Our May '22upgrade to OW was predicated on the balance between limited downside surrounding net cash and asymmetric upside given MQ's compounding growth and sturdy competitive advantages. We overestimated the strategic value of MQ's cash pile, non-SQ growth durability, and the trajectory surrounding the underlying unit economics. Now, for material upside from current levels, we think MQ will need resolution regarding 1) SQ renewal;2)non-SQ growth drivers;3)gross profit margin stability; & 4)new product attach to drive a re-rating – where it may take multiple quarters for management to show progress."
Morgan Stanley's '23/'24 GMV estimates stay relatively unchanged at $209.0bn/$258.6bn, vs. $208.3bn/$258.8bn prior. However, accounting for new renewal economics leads to updated revenue expectations of $911.7mm/$1,081.0mm, from $924.3mm/$1,083.4mm, for '23/'24.
The changes flow through Morgan Stanley's gross profit forecasts, which reflect worsening contract renewal dynamics and slower non-SQ growth (in comparison to SQ), such that Morgan Stanley updated their '23/'24 gross profit estimates to $367.8mm/$422.3mm, from $390.9mm/$435.7mm previous.
Shares of MQ are down 3.61% in afternoon trading on Monday.