AI Search Shift Will Erode Traffic And Squeeze Margins Over Time

Catalysts

About NerdWallet

NerdWallet operates a personal finance platform that connects consumers with financial products and guidance across banking, lending and insurance.

What are the underlying business or industry changes driving this perspective?

• As user discovery shifts toward AI powered search and LLM driven overviews, NerdWallet’s historical dependence on search visibility risks being structurally diluted by intermediated answers. This could cap traffic growth and constrain top line expansion over time, pressuring revenue.
• The rapid pivot to performance marketing and paid acquisition to offset organic search headwinds heightens exposure to auction based channels where costs tend to rise faster than yield. This could erode the efficiency gains seen in 2025 and compress net margins.
• Banking and personal loans are currently driving outsized growth, but these categories are highly sensitive to the credit cycle and funding costs. A normalization in partner demand or tighter underwriting could sharply slow volume growth and weigh on earnings.
• Efforts to broaden the marketplace to below prime consumers may increase credit and compliance risk for partners and lower average unit economics. This may create pressure to offer richer incentives and potentially reduce contribution margin even if headline revenue continues to rise.
• Plans to resume heavier brand marketing and invest behind vertical integration and data driven engagement come after a period of unusually high profitability. As cost comparisons normalize, these incremental expenses may outpace incremental monetization and limit future operating margin expansion.

Assumptions

This narrative explores a more pessimistic perspective on NerdWallet compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming NerdWallet's revenue will grow by 6.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will shrink from 9.2% today to 8.4% in 3 years time.
• The bearish analysts expect earnings to reach $80.3 million (and earnings per share of $0.98) by about December 2028, up from $73.3 million today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as $110.7 million.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 14.0x on those 2028 earnings, down from 14.6x today. This future PE is greater than the current PE for the US Consumer Finance industry at 9.2x.
• The bearish analysts expect the number of shares outstanding to decline by 1.88% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.86%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Traffic from large language models and AI overviews in search is growing and converts at higher rates than traditional organic search. This could structurally replace lost SEO traffic and support sustained revenue growth and resilient earnings.
• Expansion into below prime consumers broadens NerdWallet's addressable market and makes performance marketing more competitive. This can drive incremental volume and improve marketing efficiency, supporting revenue growth and stabilizing net margins.
• Banking and personal loans are delivering very strong growth, with banking revenue up 96 percent year over year and personal loans up 91 percent year over year. If partner demand remains robust, this mix shift could support double digit top line growth and expanding earnings.
• Disciplined capital allocation, including $19 million of share repurchases and a track record of growing adjusted free cash flow, can enhance per share earnings and investor confidence. This may support a higher valuation multiple and mitigate downside in the share price.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for NerdWallet is $13.0, which represents up to two standard deviations below the consensus price target of $16.17. This valuation is based on what can be assumed as the expectations of NerdWallet's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $19.0, and the most bearish reporting a price target of just $13.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $955.0 million, earnings will come to $80.3 million, and it would be trading on a PE ratio of 14.0x, assuming you use a discount rate of 7.9%.
  
• Given the current share price of $14.76, the analyst price target of $13.0 is 13.5% lower.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.