Key Points
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NerdWallet consumer revenue grew a solid 12% in Q3.
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Costs were up nearly twice that — 22%.
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In Q4, the company won’t even be able to rely on growing revenue to offset costs.
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NerdWallet (NASDAQ:NRDS) stock imploded after missing badly on earnings Friday, tumbling 30.2% through 1 p.m. ET.
Analysts had forecast the financial advisory company would earn $0.34 per share on $251.9 million in sales, but the most the company could manage was $0.23 per share on $239.6 million.
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And then they lowered guidance. Oof.
Image source: Getty Images.
NerdWallet Q3 earnings
Before we get to the bad guidance news, though, let’s review the bad earnings news. Despite growing sales a respectable 11% year over year, NerdWallet’s operating profit fell 44%, and its net income collapsed 43%, resulting in a 32% reduction in earnings per share.
NerdWallet makes most of its money from collecting referral fees from readers who click through its publications to secure credit cards, student loans, car insurance, and similar financial services. In Q3, the student loans business performed well, but was offset by declines in auto insurance, resulting in 12% growth in the company’s overall consumer business.
Problem was, even as revenue grew, NerdWallet’s costs grew even faster — up 22% year over year — causing profits to decline.
What’s next for NerdWallet
Cutting costs is probably going to be key to NerdWallet getting out of this hole it’s dug for itself — especially in Q4.
Turning to guidance, you see, management warned of a steep slowdown in revenue coming this current quarter, with revenue expected to decline to about $197 million — a 13% drop. Operating profit on this revenue could be as little as $5 million (at the midpoint of guidance), a 74% sequential decline.
With revenue now shrinking rather than expanding, one shudders to think what might happen if NerdWallet cannot find a way to cut its costs.
Should you buy stock in NerdWallet right now?
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
