Nerdwallet IPO: What You Need to Know – Value The Markets

NerdWallet, Inc. (NASDAQ: NRDS) provides financial education and personal empowerment via online tools. Last week, the company publicly launched by initial public offering (IPO), soaring 91% to a $2 billion valuation.

Initially bootstrapped, the company was founded by Tim Chen and Jacob Gibson in 2009. They started with an $800 budget and an Excel spreadsheet comparing credit cards. Miraculously, they've created a progressive personal finance site for the modern age.

Its suite of intuitive tools are a source of information, insight and consumer-driven advice centered around personal finance.

Jake Gibson left the company in 2014, but it was already a multi-million-dollar company. The following year led Chen to seek outside financial assistance in the form of a Series A venture capital round.

NerdWallet raised $131 million in its IPO after pricing shares at $18 each, the midpoint of the proposed range. It is listed on the NASDAQ under the symbol NRDS.

The company went public on November 4, with a share price high of $34.44. Unfortunately, the NRDS share price fell 23% the following day.

In the first half of 2021, NerdWallet significantly ramped spending on sales and marketing. It posted revenue of $182 million and a net loss of $27 million during this period. This compares to revenue of $137 million in the first half of 2020 and net income of $3 million.

CEO and co-founder Tim Chen owns 31.6 million Class B shares, while there are 33 million Class A shares available to the public. This means, at its current market cap of $1.6 billion, Chen's stake in NerdWallet is worth close to $800 million. He also maintains around 91% of the voting rights in NerdWallet.

Chen's Class B common stock grants ten votes per share, while ordinary Class A common stock shareholders have one vote per share.

Institutional shareholders include Innovius Capital, IVP, and RRE Ventures.

Innovius, founded by Justin Moore, owns 5.2 million shares of NerdWallet's' Class A common stock. Innovius also backed insurer Hippo Holdings (NYSE: HIPO), which went public via SPAC in August. Hippo was worth $5 billion at IPO but is now worth $2.3 billion.

Innovius has 1.5% total voting power in NerdWallet, with a stake currently worth around $135 million. Meanwhile, Institutional Venture Partners XIV L.P. has approximately 4.4 million shares and 1.3% total voting rights. Other notable IPOs IVP has backed this year include Compass (NYSE: COMP), The Honest Company (NASDAQ: HNST), and Coinbase (NASDAQ: COIN).

NerdWallet earns commissions by generating referral fees on the products it directs consumers to. It assures site visitors that this does not influence its product evaluations. Nevertheless, this commission structure does influence which products the company features along with how it directs product placement.

Financial institutions, such as banks, credit cards and mortgage lenders, pay the company for each signup they generate through the NerdWallet site. So, if a site visitor signs up for a loan, credit card or mortgage after reading an article on NerdWallet, then the relevant company pays a commission.

NerdWallet operates in a highly competitive online space, and its major competitors include Mint and Credit Karma, which are both owned by Intuit (NASDAQ: INTU), Lendingtree Inc (NASDAQ: TREE), The Motley Fool, and Bankrate (which also owns CreditCards.com).

One of the fundamental forces behind NerdWallet's meteoric rise is its unmitigated grasp on SEO.

The company had the foresight and clarity to build out a host of free finance tools, such as mortgage calculators, Interest rate calculators, Federal income tax calculator, Student loan refinance calculator and at least 20 more.

While also being relevant to the site's theme, this naturally brought organic page traffic, as it added genuine free value to consumers.

Along with the valuable tools, NerdWallet built enviable domain authority (proof that Google respects the site). As the company won awards such as 'Best Mortgage Lender' and 'Best site for young families,' its credibility in the eyes of search engines (and the public) grew.

According to SimilarWeb, nerdwallet.com's marketing strategy is focused on Search, with 86.22% of traffic coming from this channel, followed by Direct with 11.36%. And the website gets around 20 million visitors a month.

By investing heavily in new product offerings and new technologies it hopes to stay ahead of game and maintain a competitive edge.

The company is well respected and has a loyal following and good reputation.

It is expanding its global footprint.

NerdWallet depends on relationships with financial services partners which tend to be the type of organizations to have high cash reserves and are likely too big to fail.

As a smaller player in the space, it may be an attractive M&A target due to its loyal customer base. In this kind of scenario, the acquiring company often pays a 20-40% premium on the stock.

One of the top Risks to investing in NerdWallet is its dependence on Google and other internet search engines. If their algorithms, methodologies, or policies are modified or enforced without warning, this could affect its rankings.

It's a competitive and rapidly evolving space.

Revenues are unpredictable.

NerdWallet depends on relationships with its financial services partners, therefore any adverse changes in their financial strength, underwriting standards, or reputation could have a knock-on effect on NerdWallet.

It is embarking on an international expansion that increases its expenditure and heightens risks by operating in varying financial jurisdictions.

It is spending a lot of money on new product offerings and new technologies. This is an unmeasured risk because there are no guarantees the returns will be worthwhile.

If the consumer finance markets hit a rough patch or macroeconomic conditions deteriorate, so could NerdWallet's profit margins.

The financial services industry is subject to a variety of U.S. financial regulations, many of which are overlapping, ambiguous and still developing. This could result in unforeseen costs or restrictions down the line.

Tim Chen's significant voting control limits shareholder say in how the company is run.

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Nerdwallet IPO: What You Need to Know - Value The Markets