NerdWallet IPO: Should you invest in the personal finance startup?

Wall Street has witnessed a flurry of IPOs by financial service companies this year. Personal finance startup NerdWallet, Inc. last week filed papers with the Securities and Exchange Commission revealing plans to become a public entity. It is looking to raise up to $100 million from the initial public offering.

Once approved by the regulators, NerdWallet will trade on the Nasdaq stock exchange under the ticker symbol NRDS. The underwriters in the offering include Morgan Stanley, Bank of America Securities, and Citigroup. Proceeds from the offering will be used primarily for the repayment of debt and general corporate purposes. However, details such as the number of shares being offered and the offer price are yet to be known.

Unique Model

The San Francisco-based company provides guidance and recommendations on an array of financial services including loans, banking, mortgage, insurance, mutual fund investment, and credit card, with focus on retail customers and small and medium enterprises.

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Read management/analysts’ comments on quarterly reports

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It was founded in 2009 by Jacob Gibson and Tim Chen, who has served as the CEO since then. One of the key offerings of the specialty financial services company is experts’ rankings on credit card services, which enabls customers to choose the most suitable and cost-effective services that meet their specific requirements. The unique model has allowed the company to stand out in that segment.

Meanwhile, NerdWallet’s financial performance has been impacted by the pandemic to some extent, causing a decline in partner activity. The partner base includes big names like American Express Company (NYSE: AXP) and Citigroup, Inc. (NYSE: C). Being an emerging area, the regulatory environment in the online financial services market keeps evolving, causing uncertainty.  

Growth Plan

The growth initiatives, especially international expansion, can put pressure on the company’s liquidity and would demand a healthy cash flow. As a prelude to its stock market debut, the company broadened its portfolio through a couple of acquisitions last year – UK-based online financial consultancy Know Your Money and New York-based micro-lending company Fundera.

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Earlier this year cryptocurrency exchange Coinbase Global Inc. (NASDAQ: COIN), e-commerce brokerage Robinhood Markets Inc. (NASDAQ: HOOD) and mobile commerce platform Affirm Holdings Inc. (NASDAQ: AFRM) went public through successful IPOs.

Mixed FY20

NerdWallet expanded its user base constantly in recent years. In fiscal 2020, it generated revenues of $245.3 million, which is up 7% from the prior-year period. However, net profit declined to $5.09 million or $0.05 per share from $24.2 million or $0.22 per share in 2019, reflecting a 22% increase in operating costs.