Dive Brief:

• Marqeta plans to cut 15% of its workforce, or about 150 employees, as part of a cost-cutting plan aimed at becoming profitable, the company said on Tuesday in releasing a first-quarter earnings report.
• The Oakland, Calif.-based fintech will save between $40 million and $45 million on an annual operating expense basis by way of the cost reduction plan to be implemented in the second quarter, Marqeta’s Chief Financial Officer Mike Milotich said during an earnings call with analysts to discuss the results.
• The company’s biggest customer is Cash App parent Block, and analysts who spoke with Marqeta executives on the call are increasingly concerned about the future of that contract. “Renewing the Block business remains a top priority for Marqeta, as the business represents about 50% of gross profit,” William Blair analysts said in a report on the results. “The economics of such a renewal are uncertain.”

Dive Insight:

CEO Simon Khalaf, who took over as CEO from founder Jason Gardner in January, is implementing the cost-cutting plans after fast growth at the company since its founding in 2010.

For the first quarter, the company reported Tuesday that its loss widened to $68.8 million, from $60.6 million in the year-earlier quarter. Revenue for the quarter rose 31% to $217 million over last year.

The reduction in headcount “is part of the current management team’s broader prioritization of organizational efficiency in order to put our company on a sustainable long-term path to profitability,” Milotich said during the call. The cuts will take place in the next few weeks and will result in a restructuring charge of $9 million to $11 million, he said.

He explained that Marqeta doesn’t expect the workforce cuts to impact the company’s operations because Marqeta is “hyper-focused” on limited opportunities; the major pieces of its business are already in place; and it has increased automation so it’s “less dependent on large numbers of people.”

Marqeta has experienced “rapid growth” with its employee headcount rising 14% over the past year to 974 employees as of the end of March, up from 856 a year earlier, the company said in a quarterly filing Tuesday with the Securities and Exchange Commission.

“As we expand our business and mature as a public company, we may find it difficult to maintain our corporate culture while managing this growth as our employees and other service providers increasingly work from geographic areas across the globe,” the company noted as one of the risks to its business in the filing.

Khalaf is also focused on increasing the company’s business of offering embedded finance services that let its corporate clients take a slice of interchange fees on transactions. “This shift is already evident in our numbers, as more than 50% of our sales in the back year came from embedded finance customers,” he said during the call.

On the embedded finance front, he’s particularly interested in offering Marqeta’s corporate clients accelerated wage access services for providing their employees with on-demand wage services.

Since its start, Marqeta has principally focused on providing corporate customers with virtual cards for managing their employees’ expenses, but the company has increasingly added new services, including offering banking services last year and expanding its card services with the acquisition of Power Finance in January.

Still, analysts asked the executives several questions about the company’s reliance on business from Block, its largest customer, during the earnings call. Block uses Marqeta services for both its mobile Cash App and Square Card services provided to consumers. 

The Cash App contract expires in March 2024 and the Square Card contract expires that December, according to the SEC filing. Analysts are interested in when Marqeta will renew its contracts and under what terms.

For the first quarter, Marqeta’s revenue from Block increased to become 76% of its overall revenue, up from 66% of revenue for the year-ago quarter, the company said in the SEC filing.

That occurred as revenue from Block climbed by 51% while non-Block revenue dropped 8% for the quarter, the William Blair analysts said in their Tuesday note to clients. “Key to the stock is renewing the Block contract, even if it is with compressed economics,” they said.

Marqeta’s executives didn’t provide any details about the discussions with Block. Regardless of what happens with Block, Marqeta made clear that for now it will continue to be dependent on a small number of customers.

“Although we expect the net revenue from our largest customer will decrease over time as a percentage of our total net revenue as we generate more net revenue from other customers, we expect that net revenue from a relatively small group of customers will continue to account for a significant portion of our net revenue in the near term,” the company said in the SEC filing.