Chit Chat Stocks - Kris From Potential Multibaggers on Why He Likes Marqeta Stock (Ticker: MQ)

Episode Date: August 4, 2022

Marqeta operates a programming interface platform that delivers card issuing and transaction processing services. The company aims to serve commerce disruptors, digital banks, tech giants, and financial institutions. Listen as Brett and Ryan ask Kris questions about the company, its business model, and valuation. Enjoy the show! ***************************** This episode is sponsored by Stratosphere. Get started for free at stratosphere.io to get the powerful software and research for informed investing decisions. ****************************** Access our “Not So Deep Dive” episodes by signing up for CCM+. Sign-up directly through Spotify or Apple Podcasts. If you listen on another podcast player, use this link and create a private RSS feed: https://anchor.fm/chitchatmoney/subscribe Need more information? Check-out our launch newsletter: Here ****************************** Want updates on future shows and projects? Follow us on Twitter: https://twitter.com/chitchatmoney Interested to see more of Kris's work? Find his Substack here: https://twitter.com/FromValue?s=20&t=TpCqTh3dAFezp7ate0_ASA Contact us: [e-mail] Timestamps Marqeta | (3:56) Financials | (19:02) Disclosure: Chit Chat Money hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Brett Schafer and Ryan Henderson are general partners and portfolio managers at Arch Capital. Arch Capital and its partners may hold securities discussed on this show. Learn more about your ad choices. Visit megaphone.fm/adchoices

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join us on there today. Welcome to Chit Chat Money. This is our Thursday deep dive episode where we interview an analyst covering a single stock in typically 45 to 60 minutes. And today we have on the show, Chris, otherwise known as From Growth to Value. He's been on the show multiple times. And we talk about a pretty interesting financial technology company, very young, but they're growing quickly. And it's a pretty fascinating model. The company is called Marketta. What highlights did you have from the interview? Yeah, it was great to have Chris on again. We mentioned it, but check out Potential Multibaggers if you're interested in following more of his work. And he's been on the show multiple times before. Most exciting part for

me was learning about why they are so important to a lot of companies within the financial, not even financial it's just payments value chain you know you have your visas your master cards your add-ins your stripes your squares your paypals and why do all these companies including all the buy now pay later companies a lot of crypto companies use marketa and give them you know some of their revenue and it's important because they add a ton of value-added service for card issuing so really fascinating company to learn about and i appreciate some of his thoughts around why it's hard to bring this in-house and how strenuous or painful of a process that can be and why it's not always worth the reward for a lot of these customers. And we've really only seen

one example I've seen in the API world where a company brought it in-house, which was Uber with Twilio. That's the only one I can really think of. I think he mentions that in the interview. Yeah. I guess if anyone is kind of confused, think to start out Twilio for payments, obviously a little bit different, but it's hard to kind of get going and understand what this business is. So if you know Twilio, this is a little bit similar. All right. Without further ado, let's get to the interview. Welcome to Chit Chat Money. On this show, hosts Ryan Henderson and Brett Schaefer interview industry experts and riff on the world of investing. As a quick reminder, Chit Chat Money is a CCM Media Group podcast. Ryan and Brett are

also general partners at Arch Capital. And Arch Capital may have positions in the securities discussed in this podcast. Anything discussed on Chitchat Money by Ryan or Brett or any other podcast guest is not formal advice or recommendation. Now, please enjoy this episode. Okay, welcome in. Today, we are joined by our friend and, gosh, five-time guest, maybe. Just recurring guest at this point uh chris and you may know him as from growth to value on twitter or from value or the uh the the the leading writer writer contributor potential multi-bagger founder ceo whatever you want ceo of uh anyway we uh we are talking about marketa today and this is probably

I would say this is a company most people have maybe heard of if you're in the investing realm, but if you're just an individual investor who hasn't heard of or not involved in the fintech space, maybe this is an unheard of name. So how did you come across it? And then we'll kind of get to what they do. Well, you already say something from my answer, actually, in that way that if there's a new IPO, I usually look at it. I mean, I'm not going to pretend like some dude that I read

all of the S1. Of course, I don't have the time to do that. But I usually want to know what the company does, more or less, what sector it is in, how it makes money, something like that.

And when Marketa had its IPO, I tried to do the same thing and um um you know it just said all of the time modern card issuing and you know just like anybody who's not in payments probably and maybe even a lot of people in payments you know that that's that didn't say anything that didn't ring a bell uh and you know when i think of when i thought about um modern card issuing i thought well oh this is a visa mastercard competitor or what well good luck then bye um so that was my initial reaction actually at the time

of the ipo um and then uh you know i i kept hearing i kept hearing the same thing over and over again modeling card issuing and then several months later i i read a you know a short news blurb that said that MasterCard had partnered with Marquetta. And I thought, have they partnered? And then I looked up and I saw that Visa had already partnered with Marquetta since 2017. And I was really intrigued and I thought, well, probably I don't understand this modern card issuing.

And I didn't. so i had to study real hard um to um you know to to understand and then and then i you know i read the big chunks of their ss1 um so the s1 for people who don't know that's the the filing that companies that have their ipo uh you know have to file at the sec um and um you know it's it's always a good starting point if you if you want to get to know a company and and i understood a bit i i you know i can't pretend that i understood everything already from that as one even uh but you know i i understood more of it and one of the other things that i always do is i go to my podcast player and i type in the name you know in this case marquetta and i i listened to several

podcasts then so hooray for podcasts that's our whole that's our whole growth strategy i think people might be they they anyone that looks at marketa may come across this one so yeah yeah in full circle well and and i heard an interview i heard several interviews with a you know founder and ceo um jason gardner but i also heard a very good interview with their vp of europe i think um i think his name was iron johnson and i could have i could have you know that that could be something else but i'm pretty sure that i have either i iron or johnson right uh and probably both i'm not sure but i heard an interview with him and that was a really great interview and he came from you know he had 20 years of experience in

in payments so he he explained everything very clearly and i thought well that this guy is great and if he you know markella is is still peanuts in europe really peanuts but if he's the head of europe i mean i i'm you know i'm confident i have confidence in this guy so i went back to um to jason gardner and then i went back to the company and ran more etc etc etc so that's uh that's actually my story and that's how I got convinced about, about marketing. So I slowly over time, when I,

when I first looked at it and I saw a modern card issue and I thought this was just, you know, a company with a bunch of printers that, that prints physical cards. It sounds like they do more than that. So do you want to talk about, I guess,

go through what they provide to their customers and then maybe what is is prohibiting other fintech companies from copying what Marquetta does. Yeah. Well, you know, I had the same reaction. You know, they're just printing those cards. And actually, they don't. They do not print the cards. So put that out of your head immediately.

It's no way. So Marquetta is a B2B company. It's not a B2C company. So it's business to business, not business to consumer. so you will never have direct interaction with marketa but maybe you have you know done transactions that were powered by market without you knowing it um so that that will you know it will remain probably quite unknown to the big public because it's a b2b company um now modern card issue. What does that mean? It actually means that Marketa has an API, an application

programming interface. Companies can use that open API to issue a card. Now, what does that actually mean to issue a card. It means that you can make a physical or digital card. Now, for example, you have a boss and that boss sends you from Washington to, let's say, Amsterdam. You have business expenses. Now, what can your boss do? Your boss can give you a tokenized card, And that means that it's on your mobile phone, for example. And then that boss can, you know, say, for example, you can eat in those five restaurants. You can go shopping in those five stores. You can only spend money in this area of Amsterdam and not in that one.

And that card, you know, can be programmed according to those things you want. So that's one example. There are many, many others. There can be a physical card as well. So, but that's not, you know, so actually you have to see that Marketo programs the card. Someone else prints it then. Um, so any company can go to Marketo's website, use that API and, you know, start playing with those kind of, um, uh, metrics and, and, and conditions and what have you.

And for example, I don't remember which company it was, but there is a company that if you have a market if you have a card um that is powered by marketa um and you shop in that shop and you have um you have shares of that company you get a discount for example and and that's that's how they they um they um they can do it or for example doordash use uses marketa and they um They issue digital cards to their dashers, to the people who go and get the thing for you. And the condition is, you have to buy it in that exact store at that price. If that's not the case, if he asks an extra chewing gum for himself, that won't work. So those are a few examples.

So that's modern card issuing. You can really program that card, either physical or digital, the plastic card or digital, in all kinds of ways. I'm talking about credit cards, but there are also debit cards. They also have loyalty cards. um they you know you have the the same you can program advantages like you know like a visa and mastercard etc etc etc so that's that's uh more or less um the the answer to your first question now the second question is um is a really good one what's keeping other fintech companies from copying now that was one of the things that i you know struggled with initially as well because

thought it's just an API. It can be that hard, but it is because payments are extremely, extremely complicated. There are about a dozen parties involved with one transaction. Maybe not each, but several of those are very, very complicated because they have been stitched together for decades and decades. It's still very early in this game. First, let me explain the complexity. The complexity, for example, Marketo started in the UK, it had to do 18 months of compliance work. I'm not talking in between other things. No, that was really a focus. 18 months of very complex things just to be compliant. Now, if someone else would do this, let's say, for example,

PayPal or Square. Let's take Square. Square is their biggest customer. We will probably come back to that. Square and their acquisition, so Afterpay, both use Marketa. By now, PayLater is very often a firm as well, very often powered by Marketa as well. what happens if you if you look at um at square for example square has a you know um a total revenue in the last quarter about four billion um and um marquetta had about i think 160 million something like that now if you if you think of And about 60%, 60%, 65% was from Square Block. Now, that's about $100 million.

That's a drop in the bucket for Square. And that's their biggest customer by far. That's about 2.5%, something like that, of Square's revenue. And I'm just talking about what they would save on that. It's very complicated to achieve, as I said. So that means that Square would have to invest much more than it would cost them to do it themselves. Or not, that it would cost them to outsource it to Marketa. That's what I mean.

So, Square doesn't have an incentive to bring it in-house because it means nothing. It means nothing to them because what could they save? Let's take $100 million. They could maybe save $10 million because the rest would go into compliance issues. Those $10 million would be after years of investments. So, it means nothing. But because Marketa is really only focused on this, and it aggregates not just Square but other services as well, because of the scale, it can do something that, for an individual

company, would not really work. Now, suppose that PayPal or Square would say, let's take Square. Oh, we're taking this in-house. They could not go, you know, just think of PayPal, for example. PayPal would not say, oh, Square, I'm interested in that because Square could see every single transaction on PayPal. And, you know, all those payment companies want to keep their own data for themselves because they generate a lot of insight. so those are actually the two main things why someone else it you know cannot really do it now um of course marketa has a head start to you know if if i if you would say you know someone new

someone completely new that is possible but it would take years and years and years um to build out something like that and of course you have to have trust as well and you know Marcada has built that trust over time

you know a new player would have to start from scratch and would have to go through

you know so much administration and of course you know the technical side but I think

that that part is the easiest part but the compliance is you know

huge and Jason Gardner already had a lot of experience in this area before he started

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volume so maybe give some reference for listeners there as well yeah i'm not sure i haven't checked it but i if i remember well it was something like 40 well you you have you have several numbers but um i think it was about a 40 billion in total payment volume per quarter um so that that's quite a bit. Now, Marketo shaves off, I think it's about 0.75% or 75 basis points of every transaction, if I remember well. This is from the top of my head, but it's a very low number, something like that. Did you want to say something? Oh, no. Go ahead. Sorry. It's something like that. That's their revenue model. Every transaction on the platform that goes through that API, and by the way,

you're completely right. This really feels like the version of Twilio for payments. Um, you know, you take a very old fashioned, um, you know, very, very not tech, um, um, you know, industry and you, you, you drag it into the 21st century, you know, and you are the intermediate player between the, you know, between tech and between the old infrastructure, which is still there and, and the old payments infrastructure, you know, days from the 60s and then you know stitched together part by part by part by part so you know if you if you have to do that yourself just like Twilio I mean if you have to go to through those you know telecom providers it's it's very hard it's much easier to just go to

Twilio and pay them a bit and the same goes with Marketo so that's their revenue model so Now, their unit economics at this moment, they have gross profit margins of about 45% to 50%, and that won't go that much higher. Because just like most other players in payments, they have other players in the market that they have to pay, usually the same guys, Visa, MasterCard. They're everywhere, and that's why it won't be that much higher in the future. Maybe just a little bit, but you shouldn't expect 80% or so. Now, Visa and MasterCard give incentives to Marketo for volume. If they have certain thresholds or they reach certain thresholds, they get probably a rebate or something like that.

will see that. Then it probably will be a 50% quarter and they will have a bigger earnings beat. Now, their biggest cost. Cost of revenue is about 50%, 55%. Then, of course, it's a young tech companies. So what do you think is their biggest cost? Sales. So as GNA, sales general and administrative is about 70% of revenue. So if you add that up, so 50% and 70%, that's 120% of revenue, that means that they lose about 20% of the revenue that they bring in. Now, before you say that is a disaster, in the last quarter, they had revenue of about $160 million. 20% of that is $32 million.

So that's what they lost, basically. um now they have 1.7 billion on the on the balance sheet and no debt so that means that i you know i looked it up um you know that means that they can go on for 53 more quarters like that so that's that's about 30 that's more than 13 years so that plenty of burn right yeah Yeah, that won't be a problem. So before they run out of money, we are already much older, right? So that's basically how you should think about this. Now, they're pretty close to free cash flow positivity, but, you know, not there yet. Probably that will be the case for, was it 2022 or 2023? I'm not sure.

You know, that includes a bit of, you know, stock-based compensation, of course, as well. You always have to factor that in with young tech companies. It's not excessive. I don't remember exactly, but it's not something that your mouth drops. But it's something to look at. Their free cash flow will probably grow quite fast in the coming years. That's more or less how you should think about a company. do you think let's let's play this out to maturity and it's a mature business what do you think it's

profit margins could be at at that stage like it's let's say free cash flow profit free cash flow mortgage well i think it's it's hard it's always hard to tell because those uh those sales are you know how much it you know suppose they they bring down the the the spending on sales how much influence does that have on the man that's a very hard question to answer um i think in theory again it's it's this is just you know you know throwing out something i i think 25 30 percent is possible um but you know i'm not i'm i'm not sure i don't have any actual evidence to you know to say that it's just my you know educated guess right and like you mentioned they're growing extremely fast right now at least i forget when they ipo all their public

filings have just done really really quick revenue growth i'm curious is it just going to be payment volume that drives the growth here or is there anything else that um you know we're to be that from your point of view you're kind of excited about um and owning this company about where their growth is going to come from i'll also add uh is do you feel like it's going to be a lot of new customers that drive growth or is it just like growing with your existing base it will be you know i think there will be three things that will contribute to to growth um existing customers for sure um and you see that there was a year in which they didn't add any new customer but they're um you know um um they they generated i think 96 percent more revenue without any single

extra customer so now that sorry it's a lovely business model yeah it is it is so and that was of course with uh that was um 2020 i think um with uh buy now pay later which exploded um so that that is part of their revenue um you will see new applications uh coming from new customers indeed um like for example and i know it's it's not like that much right now but but crypto they were the ones who who issued the the coinbase crypto card so that you could use uh crypto to pay in your you know local walmart so to speak um they were the ones behind that and um there will be plenty of new opportunities coming there so new customers um new opportunities uh so existing customers with more payment volume um new customers and then new applications that

they will bring to the market those three will drive growth makes sense uh what do you think well i want to talk about the block as a customer we kind of already mentioned it it's a huge customer for them. I think it was 70% of revenue. I got the card. I think I'm helping drive payment volume. Yes. Thank you very much, Brett. And it probably, I mean, it probably won't, it'll probably stay a big customer for them too, since they just, they'll be ingesting after pay, which is another one of Marquetta's clients, customers, whatever you want to call it. But I guess you kind of mentioned it, but does that worry you at all that it's kind of the million-dollar question because it's such a huge chunk of that revenue, but does

it worry you at all to have that much concentrated with one customer? Of course. If you have such a huge chunk of revenue coming from one customer, you should always be worried. I mean, just putting that aside is, you know, foolishly. or a bit foolish. And, and, you know, so, yeah, I, I, I mean, that was my biggest concern for Marketa or, you know, it still is because I have already explained my, my train of thought for, for, for block.

Now what you see is that the dependence on, on block came down, you know, quite fast quarter after quarter. And that, of course, came after pay, and then it was up again to 65%. But sure, I mean, I think that you should pay attention to that. And I really had to go through those numbers to realize that for Square, it would save them maybe $10 million over probably in five years or so only because that's how long it would take to set this up. So it's not worth it.

Now, of course, suppose that Block keeps growing so fast and that it becomes more viable for them to take it in-house, then Marketa has a problem. You have to be honest about that. Now, at this moment, their non-block revenue grows faster than their block revenue, which still grows very fast as well. That's what you want to see. So, you know, it was almost 70%. It was down to somewhere like 57% and then came after pay and was back at 65%. So, you know, I want to see that revenue dependence go down over time. Sure.

what uh that makes sense and it's and it's so hard to like get a no one i don't think anyone has any insight on whether it's like because the contract ends in like 2023 right but they keep renewing it so i think it's 24 but i'm not sure it could be 23 as well they also recently i was just scrolling through their press releases and they want a partnership to help power payments for a transit system in new south wales which i thought looks kind of cool um do you think that that can be a meaningful vertical for them i know they can pretty much apply to any vertical but i guess what did you take away from that uh announcement uh yeah i i really like that one um public transport if you look at it i'm not sure how that is over there but i've seen quite a bit

uh you know i've been to the states and and what i saw in new york especially i thought it's just the same as here in europe i mean it's it's you know it's let's let's be friendly it's not exactly the the highlight of modern technology right right so um you know if you if you if you go to public transport, if you go to parking services, you know, the payments are very often still archaic and, you know, you can't be happy that you can use your plastic cards. But you can only do, mostly you can only do that, you know, on site. And, you know, it's so much easier if you just have something on your phone and you know um you can pay all the all the parts of your trip on public transport all at once um through one single application and that's actually

what marketa is powering right now um they they they work um um you know in in australia there um now um they um it's it's some sort of app um they work together with a partner and marquetta is is the you know the payments side of that app and it would integrate everything and that i think i mean no nobody is against that i i guess and um and because you know marquetta is so much in background and has these partnerships or integrations with all kinds of payments, it will be extremely easy to pay for your public transport. I think that's just one of the examples that I mentioned that there will be new applications that we don't think about right now that will spring up and oh yeah that's a good idea and oh that that seems great as well and

i think we will see that over time and and and probably will you know i've wondered why hasn't anyone done that before um and and and probably we'll see much more of this uh over time right and it's a giant market it's a good example of again i come back to twilio but it is pretty analogous here the build it once they build this infrastructure once and now they can apply it to a ton of different organizations or companies that um will i don't know how robust the technology department is in the new south wales transit system but i don't think they'd be able to replicate what marquette has got again it just seems like a very uh plug and play thing yeah it is or god yeah it is i mean it's just using the api and and that's about it so it's

Indeed, it's quite simple, and Twilio is a perfect comparison. Okay, let's move into management. I'm always fascinated during the interviews to hear what people think because when we're researching the company, it's kind of hard to get a grip just doing a couple of days of research or something like that. So you said you listen to Jason Gardner a lot. Thoughts on him? How important is he to your investment thesis?

Very important, and I like him a lot. um he has had uh two previous companies um i don't remember exactly what the first one was it has something to do with um collecting rentals rental money um in you know um real estate yeah um and and then you know um his second company had to do with payments and you know in that second company there were seven founders and um you know the the company was sold actually because you know they they couldn't agree on anything anymore and that's why he he started he's one of the very few uh single founders um that are of companies that i know he's the only founder and uh and ceo uh and and from the start i'm i i think he did

uh a great job in collecting i would say or assembling is a better word a great team around And all people like I talked about, Ian Jones, and there are quite a bit of people with a lot of experience in payments for decades who are working at Marketo. And that comes, of course, because Jason Gardner already was in payments. And, you know, lots of people seem to think highly of him. And, you know, he already got a network. And that's how he could. And he also sees himself. He says, I'm an athlete.

I am an athlete in that way that I have to use a coach. He's very open that he uses business coaches and life coaches. He says, I'm constantly training myself to get a better and better CEO. What you see is that Marketos actually started out very small, and one of their very first customers was Facebook. Facebook wanted some kind of reward program that you could give as a gift for somebody's birthday or something like that. That was powered by Market. But the program never really was a success. After a few years, Facebook stopped it. Of course, their single biggest client was away. That means that you go through a tough spot. He was very clear. He said,

I've looked at this and we can make it. We will all have to earn 30% less. But because you all have to earn 30 percent less you know i'm taking a bigger cut and i i really like that i mean as a ceo he could have just said oh i mean i don't care uh i'm just firing uh you know several people and you know i'm keeping my pay and those people who can stay can can be paid the same but no he he wanted really he wanted his team and they got through and and that you know really ties that team together that core team of you know most of them have quite a high high function right now and they you know they've been through that and they if you if you if you hear i just i really would um advise everyone to to look that up that interview um there are pro there are two i think

and and both are great um so if you if you look up marketa i just you you'll find it um Then, if you hear him, he came in later, and he said, I was in a meeting, and I had to sell this. Five, six people came in, and they started listening to me. I was giving a presentation, and I was talking about the API. He says, two people just opened their laptop and started working. I thought, oh my God, I already lost them. Then he says, just five minutes later or 10 minutes later, two thumbs up to the other people, and the other people say, all right, we'll do it.

Those two people, of course, were developers who looked at Marquetta's Sandbox where you can just try it out. They say, wow, this is great. Nine Jones said, this is going to be the easiest job ever that I've done in payments. Going back to Jason Gardner, if you hear him talk on conference calls, in interviews, and I would really advise everyone to listen to his interviews. You have several types of CEOs, in my opinion. You have the people like Steve Jobs, who are incredibly talented, who have always been special from the start who were you know maybe even a bit socially awkward and then you have you know people like like um jason gardner who who actually started out as

you know a a very simple guy who loved who loved sports and and who worked his way up and who who by working hard, not just working hard, putting in many hours, but working hard on himself, got better and better and better. He says, I still have to get better and better because if Marquetta becomes bigger, I have to be prepared and I have to be there. You have several other CEOs like that as well who grow together with their company, who maybe were not the visionary from the start, but who can lead their company by seeing the next few steps ahead.

And in the end, he did something that nobody else has done, which is still pretty much... And he actually started the company because he went out eating with a friend, something Asian. and um and that that friend had a groupon uh you know uh voucher and he said well you're the you're the you're the payments guy why don't you put all those things on a card that would be much easier than printing out everything and that's that's how it started um so the very first you know

thing that marketa was was uh you know some sort of card to put you know discounts on something like that and from and and and he said you know i i i know why nobody else had done that it was extremely complicated and as a as a payments nerd he had to work very very very very hard for months and months to even see a solution so um that's a bit the back story out there yeah it sounds sounds like an impressive sort of figure founder and i believe he still owns a big chunk of the company um or at least a big chunk of the voting power uh how do you think about what was oh yeah yeah both both how do you think about valuation for marketa it's obviously a young business and And I think we can picture the growth, but how do you balance that with the valuation?

Sure. I mean, I think that right now it trades at a price-to-sales ratio of something like eight and a half. Of course, you cannot judge this company on a PE. You cannot judge it on a price-to-free cash flow. You have to look at what comes in the future. And if I invest, I always try to invest for the next 10 years, 20 years. And I can, you know, if you look at several studies, you see that quality revenue growth is the, you know, the most important element in long-term stock appreciation. Now, both are important, revenue growth, but quality revenue growth.

Quality revenue growth, there are several implications there, but one of them is, of course, the unit economics. Those will have to get better at Marketo, of course. I don't think that will be a big problem. As I said, free cash flow will start soon and grow fast for quite a while because this is a company that really needs scale to be profitable. And it's, you know, it's still very early, you know, buy now, pay later. I mean, probably three years ago, most people hadn't heard about it. And that's something that, you know, buy now, pay later, by the way, you can talk about a firm, you can talk about Klarna, Afterpay or whatever. Or you could just pick the picks and shovels company behind all of them.

And that is Marketo. And you have that for several other big trends as well. Now, coming back to the valuation, I think that this is a company that usually if you use a discounted cash flow, you have a terminal end rate of 2% or something like that. For Marketo, I don't think this is even realistic. After 10 years, it will not grow at 2% or 3% or so. It will still grow at 20%, 25%, maybe 30% revenue because this is still so early. And if you do this kind of cash flow with, of course, very uncertain projections, that's a fact. I think that at this moment

it could be seriously undervalued now again that will totally depend on their execution of course you come at probably around depends a bit on your numbers but $28 to $30

a share so right now it's at $9.8 something like that so I think if you are a patient long-term investor and you don't freak out if the stock price moves without the fundamentals of the business being impacted, I think this could be a great investment for the long term. For the short term, I cannot predict that. Maybe it goes,

you know it was at seven just a few weeks ago or so i mean that could could happen again and actually i wouldn't care so i i know a lot of people do but i don't because because you know my investment horizon is always long and that's not because the market is out it has a you can listen to those you know three or four times that i wasn't here before when the markets were up um You know, I said the same thing. I see a lot of people who think that they are long-term investors, you know, until the stock market crashes. And then they start scrambling for their money. Right. Of course, the bear market will definitely test whether you're truly a long-term investor.

All right. One question I think myself, I had, and a lot of listeners probably had, is if this is a company that is just a take rate on a lot of payment volume, why invest in marketa instead of visa and mastercard i guess i have a follow-up there too but any thoughts on that yeah sure i mean uh i have i have an investment in visa mark mastercard in my what i call my legacy portfolio my legacy portfolio is a portfolio i don't add to anymore for several years because i started my uh potential multi-baggers future fund as i call it uh it's just my own personal fun so not a fun for someone else um but um you know and it's it's um i started it uh for my subscribers so that they can see um that they can see that i'm down

as well just like them at this moment right i started it in july 2021 so i mean of course i'm down something like 35% or so, and that's good. I mean, if you are a long-term investor, you should want lower prices, of course, as long as the company keeps executing. And, of course, I have picked losers just like everybody else, just like Warren Buffett. If you have 60% wins and 40% loses, you have a great batting average. So that's something that people often seem to forget. Now, again, so in my legacy portfolio, there is Visa, there is MasterCard.

Why would you invest? Well, you don't have to. I mean, it's your personal choice, of course. uh but you if if marquetta works out it will um you know it will be a much bigger winner uh than mass carter and visa if you know if if what i say is true and over the next 10 years it averages you know 25 26 27 percent revenue growth now if you if you if just the valuation would stay exactly the same and they have 20% revenue growth, that will mean that you have a 10X.

You will not have that on MasterCard and Visa. Of course, the probability of MasterCard and Visa being there in 2032 is much higher than Marquetta, of course. It could be acquired maybe. It could go out of business. That's always a possibility. You're never sure. I mean, from everything that I have seen, everything looks good, but you never know

what comes out of a dark hole or a dark corner. That's a bit why you should invest in Marketa. It has huge upside even at these lower prices if it would just remain the same valuation. I mean, you can see a 10x, even if valuation would go down, of course, because that's often what you see. You could see outsized returns. All right. Last question here. What do you think the biggest risk is with Marketo? Well, we already talked about it as an investment a bit, but just right now, what are the biggest risks as a business? Like, are there any other competitors out there?

Is there anyone that could take them in-house? Like you mentioned, I know you said it was tough, but just any risk for Marquetta as a business to stop growing? Yeah, for every business, there are risks, especially if they're smaller like Marquetta. Now, are there any competitors? Not really. I mean, there could be some smaller companies that I don't really know of yet. But I'm pretty sure there is some smaller private company that tries to build the same thing, but I'm not really aware of them. Now, taking it in-house is always a risk.

I mean, we have seen that you referenced, you know, Twilio and, you know, Uber was one of their big customers and it took it in-house as well, even though it, you know, it was, you know, quite complicated as well. So that is a risk. You know, you should be blind about that. Valuation. I mean, if you are scared of a 50% drop, that's still possible even after it has already gone down, what is it, 70% or so, 75% maybe. It could still go down another 50%. That's always possible with high-growth companies because valuations are based on the future. If people doubt the future looks grimmer than they previously thought, that could bring down valuations.

If people think, oh, a recession is coming, you can be sure that, of course, not just Marketa, but all the rest will go down as well. But definitely, you know, companies that lose money like Markela. So, of course, there are always risks involved with investing. That's also why we can have outsized returns because of the risks. And I'm not a big proponent of, you know, high risk, high reward, because that's not always true. You can have, you know, you can lower the risk by, you know, investigating by research, you know, with information.

But, you know, of course, this is not your Apple, right? This is more speculative than, you know, those big boys out there. Even though they work with the big boys. Yeah. Yeah. It's definitely not quite as entrenched as maybe Visa or MasterCard, but I don't know of any fintech. I don't know of a whole lot of companies that are. So I think that's all the questions we have for listeners that want to keep up with you. Where is the best place to do that? well you can go to twitter at from value and you can go to seeking alpha and there you can find from growth to value or potential multi-baggers my service on uh um on seeking alpha there's a two-week free trial um easy to cancel if you don't like it you can read everything i just want uh subscribers that are you know happy to pay and not you know feeling locked in so um yeah that's

there's always a two-week free trial for people who want to see what I have to offer. At least one write-up a week, right? Or at least one, something to set your inbox. Oh, yeah.

If it's a calm week, it's three articles a week. If it's a bit busier, then it's seven or eight articles a week. Wow. All right. Well, I think that's going to do it. We'll also link to all the resources that he just mentioned in the show notes if you want to click on those. But I want to end with a disclosure here. So Brett and I are not financial advisors. Anything

we say or discuss here on Chit Chat Money is not formal advice or recommendation. We are, however, general partners at Arch Capital. So clients may have positions in the securities discussed in this podcast. Thank you all for listening. Thank you, Chris, for coming on the show again. This was fun. We will see you all next time. Bye.