Nerdwallet S-1: Truth-teller and consumer advocate, or just another lead gen business?

Nerdwallet needs to prove out repeat engagement and long-term customer engagement to create enduring value

1/ TLDR @nerdwallet S-1: Back in Quinstreet’s glory days, what NerdWallet did was called lead gen. You generated leads and sold them for a little more than you bought them for. It was valued at a low multiple. 

2/ Now… @nerdwallet is expected to price its IPO at a value of $1.3 billion and is somehow valued at 4.5x TTM revenue.

3/ Nerdwallet’s website positions itself as a content business, but it’s definitionally lead gen: “We generate substantially all of our revenue through fees paid in the form of revenue per action, revenue per click, revenue per lead, and revenue per funded loan arrangements.”

4/ @nerdwallet is buying growth. In 1H 2021 sales and marketing grew from $85.5M to $151.2M YoY (+73.8%). At the same time, revenue was up only 32.2%. Gross margin is >90% —> they spent ~$64M more in sales & marketing to get $44M more in revenue.

5/ A big chunk of that marketing budget, 43%, was attributable to brand marketing, with 33% to performance marketing, and the remainder to organic and other expenses. Call me a skeptic, but unattributable brand marketing expense that high is a yellow flag, even if you justify it as “growing brand awareness.”

6/ Below, I graphed revenue per unique user and sales & marketing expense per unique user from Q1 2019 to today. You see revenue per user is down since 2019 while sales and marketing cost per user is way up. 

7/ It is very clear what @nerdwallet is doing: pouring every dollar of gross margin into marketing to catalyze growth. It’s a very rational strategy if there is strong repeat. 

8/ But if there was strong repeat, wouldn’t revenue per unique user move upwards as users go back to NerdWallet to be connected to more and more services? That just isn’t the case here. 

9/ So what’s the bull case? Spending every dollar of gross margin on marketing for the next decade will raise brand awareness to the place where @nerdwallet is the de facto brand consumers go to when buying financial services. 

10/ Bull case, part 2: @nerdwallet is riding the consumer wave toward pervasive digital financial services. They will be the trusted source of truth as consumers choose financial services ranging from neobanks to wealth management to brokerage and crypto.

11/ I don’t buy it - the @nerdwallet bull case is a speculative bet. It would be easier to believe if the S-1 showed repeat usage stats indicating @nerdwallet is building a long term trusted brand vs. a transactional lead gen site. 

12/ It’ll be hard for @nerdwallet to justify its $1.3B valuation in a drastically more expensive digital marketing environment. @nerdwallet needs to do more to show it has long term brand value, can mitigate Google algorithm risk, increase repeat usage and demonstrate earnings power.