2023-05-04 13:46:24 ET
Summary
- NerdWallet, Inc. continued to suffer from revenue growth deceleration in Q1 2023, despite reporting slightly higher than expected sales in the most recent quarter.
- NerdWallet, Inc.'s Q2 2023 top line guidance was significantly below expectations, and this led to NerdWallet's share dropping by -22% on May 3, 2023.
- But NerdWallet's current valuations are undemanding, and the company has just initiated a new share repurchase plan.
- My rating for NerdWallet, Inc. stays as a Hold, taking into account both the company's weaker-than-expected Q2 revenue guidance and its new share buyback program.
Elevator Pitch
I rate NerdWallet, Inc. ( NRDS ) shares as a Hold.
With my prior initiation article for NRDS published on September 5, 2022, I highlighted my view that NerdWallet will "struggle to generate strong revenue growth (as it did in the past) in tough times like these." NRDS' recently disclosed quarterly results and forward-looking guidance as detailed in this latest article suggest that I was right about the company's top line outlook.
I have a Neutral view of NerdWallet that justifies a Hold rating for the stock. On one hand, NerdWallet's disappointing Q2 2023 sales guidance indicates that the company is expected to continue witnessing top line growth deceleration in the foreseeable future. On the other hand, NerdWallet is currently valued by the market at just slightly above an EV/EBITDA multiple of 1 times, and the company has a new share buyback plan in place to enhance shareholder value by repurchasing its undervalued shares.
NerdWallet's Revenue Growth Continued To Slow Despite Achieving Above-Expectations Top Line
NerdWallet announced the company's financial results for Q1 2023 on May 2, 2023 after the market closed.
The company's actual first quarter revenue of $169.6 million was +1.5% higher than the Wall Street analysts' consensus Q1 top line estimate of $167.1 million. However, NRDS' top line performance wasn't as good as what the company's headline revenue beat seemed to suggest.
One thing to note is that NerdWallet's degree of revenue beat had become narrower in recent quarters. NRDS delivered top line beats of +13.4%, +4.4%, +5.1% and +5.9% for Q4 2021, Q1 2022, Q2 2022, and Q3 2022, respectively. But NerdWallet's Q4 2022 and Q1 2023 revenue beats were marginal at 1.7% and +1.5%, respectively.
Another thing to note is that NRDS' top line expansion had moderated from +43.4% in Q1 2022 and +42.7% in Q4 2022 to +31.4% for Q1 2023. NerdWallet's significant slower revenue growth for the recent quarter is consistent with my prediction in the September 2022 initiation article that NRDS' "near-term outlook will remain challenging."
In the next section, I touch on NerdWallet's financial guidance.
NerdWallet's Second Quarter Guidance Fell Short Of Expectations
As part of NRDS' Q1 results release, NerdWallet also revealed the company's guidance for the upcoming quarter.
NRDS expects its revenue to decrease by -19% QoQ from $169.6 million for Q1 2023 to $137.5 million as per the mid-point of its guidance. This is also equivalent to a +10% YoY increase in top line for the company, which implies NerdWallet's revenue expansion would have moderated substantially as compared to its Q1 2023 sales growth of +31.4%. NerdWallet's actual Q2 2023 revenue guidance also came in -15% lower than the consensus of $161.6 million .
Moreover, NerdWallet declined to offer specific quantitative guidance for full-year FY 2023. NRDS explained at the company's Q1 2023 results call that it made this decision considering that "uncertainty remains for many of our verticals and the broader macro environment for financial services." But NerdWallet did note at its most recent quarterly results briefing that it sees "slower growth for the rest of 2023."
Specifically, the Wall Street's consensus financial projections point to NRDS' top line growth slowing from +42.0% for fiscal 2022 to +12.5% in FY 2023. As an operator of a personal finance platform, NerdWallet had stressed in its 10-K filing that "our financial performance is dependent on our ability to successfully refer users to financial services partners." As NRDS' partners become less aggressive in rolling out new products and services in view of the current weak economic environment, it is inevitable that NerdWallet will find it extremely challenging to register strong sales growth going forward.
Share Buybacks And Valuations
NerdWallet announced a new $20 million share buyback program together with its Q1 2023 financial performance disclosure.
NRDS emphasized at the company's Q1 2023 results call that the new share repurchase plan gives it the "optionality to be opportunistic during the right conditions" and noted that "price is a key factor in any decision we make." It is reasonable to assume that NerdWallet had anticipated that the market might react negatively to the company's Q2 2023 guidance, which would have thrown up opportunities for value-accretive share buybacks.
The company's shares plunged by -22% to close at $9.70 at the end of the May 3, 2023 trading day, a day after NRDS released its most recent quarterly results. NerdWallet's stock price has more than halved as compared to its 52-week share price peak of $21.74 recorded just two months ago on March 2, 2023. With regards to valuations, NRDS trades at 1.1 times consensus forward next twelve months' EV/EBITDA and 6.1 times consensus forward next twelve months' Enterprise Value-to-Revenue now according to valuation data taken from S&P Capital IQ . In contrast, NerdWallet's peak forward EV/EBITDA and Enterprise Value-to-Revenue valuation multiples for the past one year were 2.3 times and 20.1 times, respectively.
In a nutshell, NerdWallet's initiation of a new share buyback program sends a clear message that the company views its stock as undervalued.
Concluding Thoughts
A Hold rating for NerdWallet, Inc. is warranted taking into account both the favorable and unfavorable factors associated with the company. On the positive side of things, NerdWallet, Inc.'s valuations have become attractive, which is validated by the company's decision to put a new share buyback authorization in place. On the negative side of things, NerdWallet, Inc.'s shares are cheap for good reasons, considering its revenue outlook.
For further details see:
NerdWallet: Spotlight On Disappointing Guidance, New Share Buyback Program