After a challenging year last year, stocks are snapping back in 2023, with the S&P 500 up 4.2%, while the tech-heavy Nasdaq Composite is up 10.8% year to date.
One stock that is absolutely crushing the market right now is NerdWallet (NRDS -4.66%). Year to date, NerdWallet's stock price surged higher, gaining 119% since the start of the year. Investors are optimistic about the personal finance company, which posted stellar growth last year and has now put up back-to-back profitable quarters. Consumers' interest in credit cards perked up, and its other product lines saw steady demand too.
NerdWallet is an intriguing company, and its rapid price appreciation has earned it a spot on my watch list. Here's what you need to know about NerdWallet, how it makes money, and what I want to see going forward.
How this personal finance company makes money
NerdWallet runs a personal finance website that guides consumers and small- to mid-sized businesses (SMBs). It helps people by providing them with content, tools, and a platform to compare various financial products like credit cards, mortgage loans, insurance policies, personal loans, and other products.
What makes it appealing is its large customer base of over 20 million monthly unique active users, making NerdWallet a place where financial service providers want to get their products listed to generate more sales.
The company operates a referral-based business, collecting fees from its financial services partners when users click on or buy a product. It has become a trusted platform for people to go to and get unbiased recommendations, helping consumers sift through the countless financial products that fintechs and banks have introduced in recent years.
Image source: Getty Images.
NerdWallet's growth was driven by these two things
NerdWallet is a rapidly growing company. Last year, it grew its revenue by 42%, while its net loss of $10.2 million was an improvement when compared to its $42.5 million loss the year before. Fourth-quarter revenue was up 43% year over year, and it posted a net income of $8.9 million, its second consecutive quarter of positive earnings.
A couple of factors drove growth in the quarter. One, demand for credit cards was through the roof, and referral fees from credit card products jumped 52% year over year. The company cited growing brand awareness and increased customer demand for credit card products as key drivers of this growth.
Credit card usage skyrocketed last year. According to the Federal Reserve Bank of New York, credit card balances in the U.S. hit $986 billion in Q4, the highest on record since it began tracking this measure in 1999. These balances jumped $61 billion from Q3 totals, the largest quarterly increase (by amount) since the Fed began tracking in 1999. This jump in credit card usage surely benefited NerdWallet, which allows consumers to compare credit cards based on fees, rewards, travel perks, and other factors.
US Credit Card Debt data by YCharts.
The other driver of growth for NerdWallet was in its "other verticals," which include insurance, banking, investing, and SMB products. This segment saw revenue grow 90% year over year, primarily driven by SMB products.
Investments in Fundera and On the Barrelhead expanded its offerings to SMBs and were the primary driver of growth here. Fundera connects SMBs with lenders and other financial resources, while On the Barrelhead is a data-driven platform that provides SMBs with credit-driven product recommendations.
There are still a few questions that need answers
NerdWallet put up solid numbers and closed out 2022 with a strong performance. It has become a go-to website with over 14 million registered users on its platform, up from 10 million the year before. It continues to expand its product offerings, which should help it grow even more.
One thing that has me cautious is that the growth in credit card revenue may not be sustainable. Credit card usage exploded as consumers charge more to their cards amid the inflationary environment. If consumers struggle to keep up with payments, it could set the stage for a pullback in spending and new credit card accounts, especially if we see a recession sometime in the next couple of years.
While I'm not buying NerdWallet stock today, its impressive growth is something to watch. I'm interested to see if its non-credit card offerings can continue growing. If it can sustain earnings growth over the next few quarters, it'll be a stock worthy of serious consideration.
