👋 Public Comps Customers 👋
Sorry its been a few weeks since our last newsletter. Over the summer we will be more consistent!
IPOs & Prospectus Watch (Marqeta, Coinbase, Monday.com)
Marqeta is a card issuing and payments company that provides “a single, global, cloud-based, open API Platform for modern card issuing and transaction processing.” Marqeta pioneered the programmable instant issuing technology that partners like JP Morgan use to launch digital credit cards for customers to use in mobile wallets before the physical card arrives. Through programmable card technology, Marqeta is the fintech enabling the digital first payment ecosystem that results in novel utilization of legacy payment infrastructure.
Typically the card issuer and issuing bank were one singular entity, but Marqeta’s technology decouples card creation and authentication from the issuing financial institution. Prior to Marqeta, a 4 part model existed where card issuers provide cards to consumers and 3rd party processors allow the card issuers to process payments on card network infrastructure. Marqeta’s programmable and instant issuance technology is tremendously valuable and unique as it empowers companies that are not banks to issue customizable physical, digital, or tokenized card credentials at an instance. This enables Marqeta customers at the forefront of the gig economy like DoorDash and Instacart to dynamically provision cards for certain payment amounts or order parameters. For example, DoorDash issues a Marqeta-powered Red Card to pay at the point-of-sale using “just-in-time funding” feature to authenticate transactions in real time if the order information is exactly what the consumer ordered. Through programmable offerings, Marqeta powers B2B and gig economy transactions that increase net new payments for all members of the payments stack from issuing banks to card networks like Visa and Mastercard. The company is the pioneer and category leader in the programmable card market but recent competition has arisen from fellow fintech giants Stripe and Adyen with similar but albeit less sophisticated offerings. Legacy payments platforms including Global Payments, Fiserv, and FIS are also competitors.
Marqeta operates on a usage based model that is driven by total processing volume. This results in top-line growth being driven by interchange fees from daily transactions on its platform’s card programs. Additional revenue is also generated by monthly platform access, tokenization, and fraud monitoring fees.
- Revenue growth in Q1 ‘21 was 123% YoY as revenue rose to $108M. Revenue grew 103% in FY20 to 290M compared to FY19. In Q1 ‘21, 81% of revenue was generated by interchange fees with processing fees accounting for 17.5% of revenue. The remaining 5% came from ancillary services. Square, another fintech company, comprises 70% of net revenue. Total Processing Volume (TPV) grew 167% in Q1 ‘21 to 24B a slight drop in TPV growth compared to FY20 TPV growth of 177%.
- Loses have dropped 12% from 14.5M in Q1 ‘20 to 12.8M in Q1 ‘21. Net losses declined 18% from 58M in FY19 to 47.7M in FY20. Adjusted EBITDA losses decreased from 34M in FY19 to 15.4M in FY20 while the 10.4M loss in Q1 ‘20 became a positive adjusted EBITDA of 1.6M in Q1 ‘21. Marqeta generated positive operating cash flow in 2020 and was free cash flow positive in Q1 ‘21. Overall, the Rule of 40 was around 140% for Q1 ‘21.
- Dollar-based net retention over 200% for FY20 and FY19!
- Most recent equity raise indicates a private valuation of 4.3B in May 2020. However, on secondary markets Marqeta has been trading for 33 to 35 dollars per share. With 484.4 million Class A and Class B shares, Marqeta is valued at about 16B to 17B privately. Using this current private market capitalization of 16B yields a 38x EV/Run Rate multiple.
- Payback period for FY20 was an insanely low 0.036 as market and advertising spend was minimal at 1% of net revenue in FY19 and even less than 0.5% of net revenue in the most recent quarter.
Coinbase is the leading cryptocurrency exchange platform that democratizes access to the entire cryptocurrency ecosystem. Users are able to access, store, and transact with a variety of crypto assets all from a simple web and mobile application. Traditional exchanges like the NYSE that carry out swaps between buyers and sellers without custody of the security. This differs from crypto centralized exchanges like Coinbase that require storing funds in digital wallets on the exchange itself. This means Coinbase also acts like a bank account, not just a platform for the exchange of crypto assets.
Coinbase is the 3rd largest exchange globally allowing it to leverage its massive scale to provide increased value to customers through greater liquidity in the crypto markets. The company reports 56M retail users, 8k institutional investors, and 134K ecosystem partners.
Coinbase is increasingly becoming the singular location for all crypto transactions for both retail and institutional investors. The company dwarfs competing exchanges in trading volume and customer usage, but increased competition from decentralized exchanges is on the horizon. Decentralized exchanges are different from centralized exchanges like Coinbase, as they don't require users to hand their digital tokens to the exchange to be able to trade. There is no central authority or middleman with decentralized exchanges meaning that in every transaction users are unaware of the identity of the other party. This allows for more variety in the unique coins traded but poses a risk for investors worried about money laundering. Even with increasing competition, Coinbase is poised to remain the leader in the crypto exchange market due to superior liquidity and the safeguards in place to confirm trader identity.
Revenues are primarily generated by the associated transaction fees from trading and via services like storage and analytics. Transaction fees are estimated to be around 0.5% but vary based on trading volume as larger trades have lower fees. The remaining portion of revenue is from Coinbase’s sales of its own crypto assets to customers.
- Revenue growth in Q1 ‘21 was an absurd 845% YoY as revenue rose to 1.8B with QoQ growth being 207%. Revenue grew 139% in FY20 to 1.28B compared to FY19. Around 94% of revenue came from retail investors with the remaining coming from institutional customers. Verified users grew 30% to 56 million with trading volume exploding 276% to 335B in Q1 ‘21. Trading volume split between retail and institutional investors was consistent with previous quarters with 36% retail and 64% institutional.
- Coinbase reported net income of 771M representing a 43% margin with a EBITDA margin of 55% for Q1 ‘21. Coinbase FCF margin for Q1 ‘21 was 189% with FCF being 3.4 billion. Coupled with revenue growth, the Rule of 40 is a ridiculous 1034%. However, around 70% of the cash flow from operations came from gains in custodial funds due to customers in the net working capital section of the cash flow statement. Without this line item FCF margin is around 58%.
- Coinbase has an enterprise value of around 46B and trades at an 29x EV/Adj EBITDA multiple.
- Sales and marketing spend comprised 6.5% of revenue in Q1 ‘21 a slight increase from 5.2% in Q1 ‘20.
Monday.com is a leading SaaS project management platform that enables customers to “create their own work software.” Dubbed Work OS, the company states their software suite “democratizes the power of software so organizations can easily build software applications and work management tools that fit their needs.”
Monday.com’s product is based on the paradigm shift from rigid software applications like Microsoft Excel to highly configurable solutions that allow users to build their own workflows through low-code or no-code frameworks. The company’s productivity software platform consists of modular building blocks categorized as items, columns, views, automations, integrations, and widgets. Through adaptation of each modular block, customers can create custom tools for their desired use case and changing needs. Built on top of these modular blocks, are Product Solutions to address specific customer needs like CRM, project management, and software development. Additionally, external developers through low-code tools are able to build blocks and publish on Monday.com’s platform.
The company’s platform is similar to Smartsheet in its mission to create unified workspaces for teams, but Monday.com provides a unique and differentiated experience through its simpler, more modular, and spreadsheet-less design. Monday.com also differs from Asana and other competitors through their focus on complete modularity and their multitude of comprehensive prebuilt Product Solutions. Monday.com is a leader in the project management space but the overall market is highly fragmented as product offerings are highly substitutable between competitors. Customer adoption is highly dependent on individual teams as evidenced by the high industry-wide NDR and low industry-wide churn. It is unlikely that one platform will gain majority market share, but Monday.com has a competitive advantage due to its highly configurable platform that is able to service a multitude of unique workflows.
Monday.com offers 5 subscription plans ranging from individual to enterprise with pricing ranging from free for the individual plan to at least $16 per seat per month for the enterprise plan. The company also cites 127,974 customers across 200+ industries with 38% of Fortune 500 companies subscribed.
- Revenue growth for the quarter ending in March 2021 was 85% YoY as revenue rose to 59M with 235M ARR. Revenue grew 89% in the full year period ending in December 2020 to 161M. Customers with more than 10 users accounted for 53%, 63%, and 65% of ARR as of December 31, 2019, December 31, 2020, and March 31, 2021, respectively.
- Monday.com reported a FCF loss of 5.2M for the quarter ending in March 2021 and a FCF loss of 6.3M for year end 2020. EBITDA margin and FCF margin was -12% and -4% respectively for the full year period ending in December 2020 and FCF margin came in at -9% for the quarter ending in March 2021.
- NDR for customers with more than 10 users was 116% and 119% for the three months ended December 31, 2019 and 2020, respectively, and 119% and 121% for the three months ended March 31, 2020 and 2021, respectively. Additionally, NDR for all of our customers was 100%, 105% and 107% for the three months ended December 31, 2019 and 2020 and March 31, 2021, respectively.
- Most recent equity raise indicates a private valuation of 1.9B in June 2019. Currently, Asana and Smartsheet trade at 18x and 14x EV/NTM Revenue respectively. Monday will likely trade at a premium to Asana and Smartsheet due to faster revenue growth rates.
- LTM payback period came in at 24 with the magic number coming at 0.6. Monday consistently spends over 100% of revenue on S&M with S&M expenditure coming at 119% of revenue for year end 2020 and 107% of revenue for the period ending March 31st.
Market Update - Multiple Contraction
For the last several weeks, value and cyclical stocks have outperformed high-valuation growth companies as lingering concerns regarding rising interest rates, inflationary pressures, and grand investor expectations have resulted in multiple contraction. Health care in particular posted the biggest gains while energy and industrial stocks lost some ground.
The Fed recently acknowledged the potential for inflation to run greater than their 2% target, but policymakers have touted that long-term inflation expectations are in line with the Fed’s long term economic goals. Additionally, U.S Treasury yields are roughly unchanged this past week. T. Rowe Price traders indicated that the recent sell-off in cryptocurrency assets increased bids for Treasuries but this increased demand was countered by news on the Fed’s expected timeline for rate hikes. In Europe, eurozone bond yields ended higher due to expectations that the European Central Bank could slow bond purchases.
In the high-growth space, SaaS names have faltered recently trading at the lower end of their 52 week price ranges. Cloud stocks that have had an astronomical 2020 like Twilio and ServiceNow have seen share price depreciation after earnings even with impressive revenue growth beats.
Product Update - CommandBar!!!
CommandBar is the keyboard power user’s dream allowing users to navigate throughout the entire Public Comps interface without touching the mouse. To get more information about a company just type command/control+K then the ticker or company name and choose whether to view the company financials or company metrics. If you want to learn more about CommandBar visit CommandBar.com.
If anyone has any questions/feedback please feel free to reach out!
Aneesh Tekulapally, Public Comps Team
Like this analysis? Subscribe to the newsletter here where we send out investment memos, market maps and analysis on the broader SaaS market.
Disclaimer: The author owns stock directly in TWLO, DDOG, FB, ZM, DASH, SHOP, DASH, SQ, ANGI. Public Comps (SaaSy Metrics LLC) provides financial and industry information and analysis regarding public software companies as part of our weekly dashboard, our blog, and emails. Such information is for general informational purposes only and should not be construed as investment advice or other professional advice.