Nerdwallet Inc (NASDAQ:NRDS) raised $131 million in its November 2021 initial public offering (IPO). Its initial pricing of $18 per share immediately rose to the $25 range in the following weeks. The personal finance site is valued at around $1.6bn but some think it could be worth as much as $5 billion.
You may trust its financial information, but is NerdWallet stock a buy?
The personal finance site and app grew rapidly in its first decade. By 2014, the website drew up to 30 million users, and by 2018, it reached over 140 million visits. The NRDS IPO filing showed it grew from 16 million unique monthly viewers (UMV) in 2020 to 21 million UMV in 2021.
The company has expanded through a series of merges and acquisitions, and its subsidiaries include Fundera, and aboutLife. It also bought similar site Know Your Money in the U.K. to expand its operations internationally.
With a wide range of financial services and information, NerdWallet competes with the likes of Credit Karma, Mint, and MyBankTracker. It provides financial information for both consumers and businesses.
What Is NerdWallet?
NerdWallet is a personal finance company founded in August 2009 by Jacob Gibson and Tim Chen, who also serves as the company’s CEO. It started during the financial crisis with only $800 after Chen lost his job. He noticed it was difficult to compare banks and credit card companies online without sifting through biased promotional material.
The company soon expanded through financial journalists creating large volumes of content to boost its search presence. It covers credit cards, banking, investing, loans, and insurance, giving its primarily Millennial audience comprehensive information about each product and service’s pros and cons.
The Nerdwallet acquisition of aboutLife expanded the firm’s reach into retirement offerings, and Fundera gave it access to the small business financial sector. Is Nerdwallet (NRDS) a trusted resource?
Is NerdWallet a Credible Source?
Yes, NerdWallet is a credible and unbiased resource. It holds positive ratings with a variety of review aggregators for its money-tracking tools, mobile app, and personal finance reviews. Besides editorial content, it’s noteworthy for its financial tracking, handling of credit score issues, and mobile app.
The downside of the site is the claim that NerdWallet partners do have some influence on editorial coverage. That’s a side effect of the business model relying on referral commissions, which we’ll get to more in the next section.
While it does have general articles on retirement, cryptocurrency, or the importance of investing, you won’t find a deep dive into topics as you might find on other financial sites. Instead, you’ll find pricing comparisons of products and services along with pros and cons, and high quality, straightforward reviews.
How NerdWallet Makes Money
According to its IPO prospectus with the SEC, NerdWallet generated $181.6 million in the first six months of 2021. This is up from $137.3 million in the same period of the prior year, and it’s not making that money by charging customers – NerdWallet is free for readers.
The company makes its money from advertising and marketing for its partners, which include Allstate (NYSE:ALL), Capital One Financial (NYSE:COF), American Express (NYSE:AXP), Acorns, and Intuit (INTU).
NerdWallet’s Advertiser Disclosure says these payments do not guarantee favorable reviews. Instead, they could affect which products are reviewed and where they appear on the site. However, it reminds readers that the recommendations and advice are purely research based.
This helped the company earn $24.2 million in net income for 2019, and $5.3 million in 2020. The slowdown in 2020 took its toll as businesses cut marketing expenses to control operational expenses.
NerdWallet Financial Forecast
NerdWallet had $150.4 million in working capital before raising another $131 million during its IPO. Chen emphasized these funds would be used to pay off interest-bearing debt, with the remainder being invested in the business.
The company has a run rate to generate about $360 million in revenue for the year, but it’s also aggressively spending on marketing to keep its user numbers up. Like many media businesses, it’s struggling to keep traffic and revenue growing as brands tighten purse strings and more competition pops up.
The company has a high price-to-sales valuation that has bearish investors focused on risk factors?
Will NerdWallet Stock Fall?
A major risk factor to NerdWallet (NRDS) is its dependency on search engines like Google and Bing, which drive most of the traffic through its sites.
In the NRDS IPO prospectus, the company cites Alphabet (GOOG) penalties as a major risk factor that could lead to lower page rankings. In the past, this has directly impacted traffic, on which it depends on for revenue.
Should something like this occur again moving forward, NerdWallet investors could take a hit. And this market factor is out of the company’s control. Nerdwallet would have no recourse in such a situation. As Google rolls out major algorithm updates every year or so, companies like Nerdwallet stand in the crosshairs. To mitigate the risk, Nerdwallet will need to diversify its revenue streams from relying almost exclusively on affiliate content partnerships to other income channels.
Is NerdWallet Stock A Buy: The Bottom Line
NerdWallet is a financial review website and app that’s continuing to grow its user base. It’s one of the highest ranked sites for all things financial, and its 2021 IPO valued the company at almost $2 billion. This makes it larger than major media outlet Gannett (NYSE:GCI).
The firm’s business model is somewhat fragile – it depends on search traffic and page rankings (that are to some extent outside of its control) to drive eyeballs. If users choose to purchase products or services through the site, it gets referral traffic.
On the flip side, it’s no easy feat for a competitor to compete with Nerdwallet now. The average blogger cannot simply write reviews and expect to displace Nerdwallet in the search rankings. The company has too much domain authority, quality writers, capital and brand awareness to be dethroned anytime soon.
Even a well capitalized competitor may take years to catch up to Nerdwallet in the eyes of Google’s algorithm, and that should provide investors with a good degree of solace that NRDS will remain at the top of the mountain of financial review sites for the foreseeable future.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.