After a change in Marqeta’s revenue recognition practices led to headline metrics that “look a little odd,” the card issuing platform is “happy to have our P&L get back to looking more normal…and just continue to execute to drive the kind of growth we expect,” CFO Mike Milotich told CFO Dive in an interview.
The Oakland, California-based card issuing company, which provides debit, prepaid and loyalty cards for fintechs, neobanks and mobile banking providers, reported its Q2 earnings at the top of August — where it noted a 46% drop in net revenue year-over-year to $125 million. Its net profit also declined by 6% year-over-year for the quarter ended June 30 to $79 million, according to its earnings results. It also reported net income of $119 million.
However, these figures obfuscate a successful quarter by the card issuer, Milotich said, as they are largely impacted by a change in revenue recognition practices relating to its partnership with Cash App — a P2P payment app operated by Block and by far Marqeta’s biggest customer. Block represented 47% of the platform’s revenue in its second quarter, with a large portion of that driven by Cash App, Milotich said.
“Even though our revenue says it’s shrinking 46% year over year, the impact of that revenue presentation change is 60 percentage points,” Milotich said of Cash App.
Sustaining growth
Its most recent quarter will be the final earnings period where its Block revenue recognition shift impacts its results in such a way, Milotich said.
The platform reupped its partnership with Cash App last year for a five-year period, a renewal which included a change on designating the decision makers for certain program elements, Milotich explained. This “wasn’t a big change in terms of the day-to-day management of the program, but by contractually committing to that, it changed the way we recognize revenue,” he said.
A long-time payments industry veteran, Milotich joined the company as its CFO in 2022 after a decade-long stint at card provider Visa, where he served in a number of positions including as its SVP, head of corporate finance and investor relations, according to his LinkedIn profile. His previous experiences in the payment industry also includes stretches at firms including PayPal and American Express.
Peering beneath the impact of the Cash App renewal, Marqeta has seen strong underlying growth, the CFO said.
The company’s total processing volume — the “lifeblood” of any payments company, Milotich noted — jumped by 32% to $71 billion year-over-year for its most recent quarter ended June 30, for example.
“Back even to the beginning of last year, we’ve been growing in that low to mid 30s rate now consistently, even as our base is getting much, much bigger,” he said. “So we’ve been able to sustain that growth even with tougher and tougher comparisons.”
Going after the fintech ‘winners’
Marqeta is looking to keep up steady growth at a time when the larger fintech and neobank space where it plays has changed significantly from its earlier days.
During its development, fintech showed “the art of the possible” when it came to a non-bank potentially offering financial services, he said.
Nowadays, however, there are more entities which “already have a platform business, for example, and they already have tens of millions of users,” he said. “They just want to insert some sort of card offering into that user base.”
For Marqeta, “one of the benefits, or one of the outcomes… of the shakeup in fintech over the last two years or so…is that the winners have been crowned,” Milotich said. That means many of the leaders in the space are “becoming big business,” representing growing opportunities for Marqeta for both existing and new customers, he said.
The platform is focusing on growth in several key areas, including financial services, buy now, pay later and expense management, Milotich said. Its recent partnerships include a five-year deal with neobank Varo Bank, serving as its issuer processor for the U.S., according to a press release. Meanwhile in July, the company announced a contract with Swiss4 to provide digital payment options.