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Existing home sales in the US dropped to their lowest level since 2010 this October. Potential buyers are staying on the sidelines because mortgage rates are high and home prices have not dropped enough to make up for the extra borrowing costs.
This is a problem for NerdWallet because it makes money by connecting people to lenders and insurance providers. When fewer people are shopping for homes, there is less demand for the mortgages and home insurance products that NerdWallet lists on its site, which eats into its referral revenue.
Source: Reuters
New data shows inflation rose more than expected in October. This likely means the Federal Reserve will keep interest rates higher for longer to cool down the economy. When rates stay high, it costs more for people to borrow money for things like credit cards and personal loans.
This is a direct challenge for NerdWallet because its business depends on people looking for new financial products. If high rates make loans too expensive, fewer people will search for them on the site. It also makes banks more cautious about lending, which means they pay NerdWallet less for finding them new customers.
Source: Schwab Network
William Blair lowered its rating on the company to Market Perform, which is essentially a neutral stance. This move comes just after the company reported quarterly results that missed expectations, leading to a drop of about 30 percent in the stock price.
Analysts are concerned that the business is becoming too reliant on expensive marketing to find new customers. While the average price target across all firms remains higher at $14, this downgrade suggests that some professional researchers are losing confidence in the company's ability to grow profitably as search engine traffic becomes more difficult to capture for free.
Source: William Blair
After NerdWallet reported its November results, we updated our fair value and cut our quality score to 2.1. We moved our rating to Watch after we reset our growth expectations to account for a double-digit decline in sales in the final three months of the year. We have added the cost of marketing as a share of revenue to what we track, which reached 72% in the quarter. We also added how much growth comes from the core business rather than acquisitions and dropped our projection that profit margins would continue to rise.
NerdWallet brought in $239.6 million in revenue this quarter, an 11 percent increase from last year but slightly below the $250 million analysts were looking for. Profits also came in lower than expected at $0.23 per share. While the company is still growing, the slower pace suggests it is facing a tougher environment for the financial products it helps consumers compare.
The company is focused on getting more people to sign up for accounts rather than just visiting once from a search engine. This strategy aims to make the business less dependent on Google's search algorithms, which can change without warning and hurt traffic. While this transition is still in progress, NerdWallet remains profitable on a GAAP basis, meaning its actual business operations are making money after all expenses are accounted for.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
Management has a history of clearing low bars by a penny, but two straight misses suggest they are losing their grip on forecasting as the business model shifts.
| Expectation | |
|---|---|
| EPS | $0.09 |
| Revenue | $208M |