Specialty Capital News and Views Oct 2023

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In today’s write up, we wanted to highlight Nerdwallet’s earnings call and release last week. As our readers know, Nerdwallet acquired Fundera in October of 2020. Fundera is one of the largest and comprehensive market places for the small to medium sized businesses in the country.

Nerdwallet announced topline revenue of $153mm, up 7% YoY. More remarkably, they had 24mm average monthly unique users (up 22% YoY) and very high engagement rates. What Nerdwallet (and Fundera) is able to do is have high unpaid organic traffic (~70%) to their site due to the quality of the content and personalization to users.

We wanted to highlight two snippets from the Q3 and earnings call that we believe to be useful for our readers:

Other vertical revenue (which includes SMB products was up 16% YoY and was the largest revenue generator for the company at 65.9mm. Other vertical revenue includes banking and SMB products. Breaking it down deeper, SMB was up 12% comparing first 9m for 2023 vs 2022.

In our view, SMB and Banking will be a main focus for Nerdwallet as banks have tightened up and more SMBs will be looking for a trusted partner for financing.

Additionally, CEO Tim Chen, mentioned on the earnings call that while SMB was up 6% from last year, “they are seeing some conservative underwriting for SMBs” which means conversions are down slightly as funders have tightened up. As our readers know, we have been singing this song all year. Tier one players have been tightening up as defaults from 2022 vintages have shown higher charge offs and delinquency rates.

We believe this to get worse going into 2024 and there will be more credit tightening. However, it is very likely that bankable customers will be looking for working capital so deal flow and quality should increase.

We also wanted to reflect on the new product offering that Nerdwallet is trying to leverage, which is the “secured” credit card. This card allows customers to build good credit behavior with no annual fees. This has no fico check and will allow Nerdwallet to cross sell unsecured credit cards down the line – this is another great way to keep their customers sticky.

Happy Funding!

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