Thank you for standing by, and welcome to NerdWallet, Inc.’s Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] As a reminder, today’s program is being recorded. And now, I’d like to introduce your host for today’s program, Caitlin MacNamee, Head of Investor Relations. Please go ahead.

Thank you, operator. Welcome to the NerdWallet Q3 2024 earnings call. Joining us today are Co-Founder and Chief Executive Officer, Tim Chen; and Chief Financial Officer, Lauren StClair. Our press release and shareholder letter are available on our Investor Relations website and a replay of this update will also be available following the conclusion of today’s call. We intend to use our Investor Relations website as a means of disclosing certain material information and complying with disclosure obligations under SEC Regulation FD from time to time. As a reminder, today’s call is being webcast live and recorded. Before we begin today’s remarks and question-and-answer session, I would like to remind you that the certain statements made during this call may relate to future events and expectations and, as such, constitute forward-looking statements. Actual results and performance may differ from those expressed or implied by these forward-looking statements as a result of various risks and uncertainties, including the risk factors discussed in reports filed or to be filed with the SEC. We urge you to consider these risk factors and remind you that we undertake no obligation to update the information provided on this call to reflect subsequent events or circumstances. You should be aware that these statements should not be considered a guarantee of future performance. Furthermore, during this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today’s earnings press release, except where we are unable without reasonable efforts to calculate certain reconciling items with confidence. With that, I will now turn it over to Tim Chen, our Co-Founder and CEO. Tim?

Thanks, Caitlin. In Q3, we exceeded our outlook for both revenue and non-GAAP operating income, despite continued headwinds in organic search and an anemic loans end market. Our business is cyclical, but headwinds and tailwinds will offset each other over time, so our priority is growing from cycle to cycle. To that end, I am especially proud of the share gains we have made cycle over cycle in insurance and small- and medium-sized businesses, which are more than offsetting lending headwinds. Our insurance business has grown 6x versus the 2021 peak pretty hard market. While this is partly due to higher than normal levels of re-shopping happening as premiums have increased, we have also made significant investments to improve our insurance shopping experience. These efforts have enabled us to scale performance marketing in the category more efficiently as both carrier and consumer demand have increased. At the same time, premiums have increased dramatically since 2021, increasing the size of the end market. Similarly, in Q3, our SMB vertical saw double-digit year-over-year growth driven by our renewals business and SMB products categories in spite of a tough macro environment in SMB loans. With these strong results in insurance and SMB, we grew revenue 25% year-over-year. However, credit cards revenue declined 16% year-over-year. We attribute this to both underwriting constraints, and pressure, and organic traffic in certain subcategories. After a stronger start of the quarter, we saw some additional deterioration in our search visibility in mid-Q3. While traffic to our monetizing shopping-oriented content started to rebound as we exited the quarter, traffic to our non-monetizing learning-oriented content did not. As a result, Monthly Unique Users were down 7% year-over-year in Q3. Looking forward, we expect to see a full quarter of impact from search headwinds to our higher volume learning-oriented content in…

Thanks, Tim. It’s been an incredible journey. And since I will be here for a little while longer, we’ll have time for goodbye’s next earnings call. For now, we’re focused on closing the year out strong. To that end, let’s get into our Q3 results. We ended the quarter above our revenue guidance range, delivering Q3 revenue of $191 million, up 25% year-over-year. Our revenue growth was primarily driven by the resurgence we have seen in our insurance vertical as well as SMB, though, we continue to face a cyclically depressed lending environment. Let’s take a deeper look at the revenue performance during the quarter within each category. Credit cards delivered Q3 revenue of $45 million, declining 16% year-over-year. Growth decelerated versus Q2, as underwriting tightened a bit, combined with the pressures in organic search traffic that have been a bit more pronounced within credit cards. While we’ve seen a recovery in Other verticals, we still have room to improve in some areas of credit cards. Conversely, on the issuer side, we believe we are seeing some early signals of issuer appetite returning and have made some headway in improving areas of the organic search experience that we believe will help provide tailwinds to our credit cards vertical in the long run. Loans generated Q3 revenue of $24 million, declining 28% year-over-year. Our personal loans vertical declined 49% year-over-year and down 8% sequentially as the end market remains challenging. Despite the recent rate cuts, we still believe that there is a backlog of consumer demand and personal loans as high loan rates continue to dampen consumer appetite to refinance credit card debt, while elevated delinquency rates have kept underwriting standards tight. Partially offsetting the decline in personal loans was growth in mortgages. Q3 saw accelerating mortgage revenue growth as we…

Certainly. And our first question comes from the line of Michael Infante from Morgan Stanley. Your question, please.

Hey, guys. Thanks for taking my question. Tim, I just wanted to follow-up on some of your organic traffic comments. Like, if I just generally think about how your share of a particular query has evolved over time? How are you sort of thinking about some of the key initiatives that you have in place to sort of mitigate the impact of some of the things that we’re seeing in terms of both AI overviews, Reddit, et cetera? I know you’re obviously in the process of mix shifting your revenue composition towards the existing installed base over time, but I’m curious your views in terms of how you anticipate some of the medium-term dynamics to play out. Thanks.

Thanks for the question. So, yeah, just as a reminder for everyone, we’ve historically talked about learn and shop traffic as it pertains to organic search visibility. So I’ll just provide a little bit more color there and then dive-in to the rest of the question. Our learn bucket is not as commercial and includes things like, how much should I save for retirement? Our shop traffic is highly commercial and includes things like best mortgage rate comparison. So, during our Q2 call, our search visibility was broadly stabilizing and actually starting to rebound a little bit. And then soon after our Q2 call, things took a turn for the worse. So with our shopping traffic, things got worse in August and September. But then going into October, rebounded back to a level that was a bit better even than where we were when we did the Q2 call. We think we did some things on our end to clean up the user experience that were net positive. Now, there were some exceptions, so for example, parts of credit cards and personal loans are still lagging. But, overall, we got a pretty good place – we got to a pretty good place on shopping pages and feel like we’ve figured out what to improve. Conversely, for that far bigger bucket of education-oriented traffic that is less commercial in nature, things got progressively worse throughout the quarter and recently stabilized at a lower level. So, what’s happening there is a renewed push by search engines to incorporate their own answers directly into the search results, like you mentioned AI overviews as an example. So, for those of you who have been following search over the years, this isn’t really anything new. So, for example, at one point when you search for…

I appreciate that, Tim. I just wanted to follow-up on some of the insurance strength, obviously, really impressive growth. You sort of alluded to the fact that you’re expecting that to persist into 4Q. Do you think that will persist in terms of at least into the first half of 2025 as well? I’m just trying to parse some of your commentary on some of the organic traffic and MUU deceleration, which is being offset – more than offset by some of the insurance strength as well as some of the more interest rate sensitive verticals. Thanks.

Short answer is yes. So what I’d say is our insurance revenue, right, up 10x year-over-year, and there’s almost a binary impact of the insurance carriers being able to reset their pricing and return to profitability. So, we’re back on now, right? And there’s, for sure, share gains happening and a super cycle happening at the same time. So, I’ll try to disaggregate that a little bit. In terms of the share gains, I compare us back to 1Q 2021 right before that hard market. We’re up 6x there. We think we’ve really gained share due to product improvements. And that comes from better matching customers with the most relevant products. And, yeah, we continue to see benefits from that roll-in in Q3. It allows us to do, for example, paid marketing more profitably. Now, in terms of the super cycle, there’s a double tailwind and some puts and takes, right? So, the double tailwind is as carriers finally get approval to raise those prices, they suddenly, one, want new customers again, but two, consumers are also re-shopping as they see premiums go up. But the offsetting factor to consider is that the end market is growing too. So as the rising actuarial risk from climate change, for example, is a huge tailwind on overall premiums. So premiums are up a lot since 2021, and we think that’s more structural in nature. And also, lastly, I’d say in terms of diversification, today our insurance category is heavily weighted towards auto and heavily indexed towards the digital channel. So looking forward, we’re investing and diversifying in things like human-assisted integrations in home and life, as well as our insurance assist product in NerdWallet+, where we monitor your policies and let you know when there’s a better deal.

That’s great. Thanks, Tim.

Thank you. [Operator Instructions] Our next question comes from the line of Justin Patterson from KeyBanc. Your question, please.

Great. Thank you very much. Two, if I can. First, just on performance marketing, I know you’ve talked about it in the past, but could you talk a little bit about just about the guardrails you have on there, how much of that’s really incremental in nature versus responding to some of the traffic headlines, and how do you plan on managing that going forward? And then, secondly, we’d love to hear more about just how some of the new products like NerdWallet+, NerdUp, and Nerd AI are resonating. Thank you.

Thanks, Justin. I’ll cover the first one on performance marketing, and then Tim will take the question around new products. And so, in terms of performance marketing, despite the recent challenges, we still see that over 70% of our traffic comes through organic or unpaid channels, and that’s allowed us to reinvest in more acquisition channels like brand and performance marketing. I just want to reiterate and be incredibly clear, our approach on how we operate performance marketing hasn’t changed. We do so in a disciplined way, aiming to be in quarter profitable, and adding incremental non-GAAP OI dollars. And keep in mind that performance marketing is a variable expense from our perspective, and will dial up or down depending on the returns. And we also view this as a means to an end as part of our registration and engagement initiatives. We see increased spend as a positive as performance marketing is a flexible lever to add incremental non-GAAP OI dollars, get more folks the opportunity to register and to continue taking share.

Yeah, and in terms of the newer products, like our third growth pillar is registration and data-driven engagement. So with products like NerdWallet+ and NerdUp and NerdWallet Advisors, it all really falls into that camp, right? We’re trying to build deeper, reoccurring relationships with our consumers and small businesses. So, I guess, broadly saying, I’d say it’s pretty early days across the board, but the cohort data is looking positive. I mean, people are engaging beyond that 5x that we see on the typical registered user. And so we think that trend is good. It’s really about continuing to iterate and improve on those products and drive more people and to those experiences.

Great. Thank you.

Thank you. And our next question comes from the line of Peter Christiansen from Citi. Your question, please.

Thank you for the question here. And best of luck to Lauren. It’s been great working with you. If I look back to, I think, you call that 2021 as the previous cycle that you were seeing on the insurance side, in fact that you’re indexed high to auto which is typically like a 6-month renewal period, I think. Does that suggest – can you talk to – I’m sorry, outside of the auto sector, can you talk a little bit about the strength that you’re seeing in non-auto and how much of a component that was to the search revenue that you saw this quarter.

For all intents and purposes, I’d say the strength came from auto, I mean, it’s the biggest end market by far for us. Yeah, so I’d really index there. I do think home is going to be a bit of a longer delay in recovery. I know there’s more premiums working there, increases working their way through the system there, and it’s also just a smaller end market. We are investing there as well as in life and Medicare, but those are still relatively nascent for us.

That’s helpful. And then as you think about strength in that particular vertical, did you see any noticeable contribution to your registered user growth in the quarter stemming from what you kind of saw in insurance as a call out there?

So, we really focused on increasing the personalization around the insurance shopping experience. And so, it naturally leads to registrations and getting to know more about the consumer. And so, strength in growing our auto business does actually drive more registrations for us as well. And, yeah, the end game there, I mean, clearly the more we know about people, the more helpful we can be. And so, we try to leverage that to breadcrumb our consumers into a deeper relationship with us just by being helpful where we can.

No, that totally makes sense. Clearly an opportunity to cross sell into other verticals there. And the last one for me on the banking side, I know that I think you’ve called that weakness in balance transfer for last couple of quarters. Just curious if you’re still seeing that particular trend within banking and perhaps maybe that being a signal for the overall lending segment as well, just on a timing perspective, just any views there.

So what I’d say there is underwriting is still tight in pretty much all credit card categories. But, yeah, on the flip side, we’re seeing more normal balance sheet appetite where issuers have gone from capping the amount of lending they want to take on to really opening up the taps when it comes to taking qualified borrowers. They’ll take all we can give them. It’s getting back in that direction. So that’s a net positive macro backdrop. However, yeah, like in our credit card business, there’s still parts of it where organic search hasn’t bounced back. And that’s creating headwinds in terms of us being able to capitalize on that improving issuer backdrop. But, yeah, bigger picture. We think we’ve got a lot of room to grow there. We’re still only single-digit market share in cards. And then, I guess on the banking, on the call it the banking side, the depository accounts, our ability to forecast trajectory banking is admittedly a bit weaker, given we haven’t been through this type of interest rate cycle before. And just a quick context reminder, the Fed funds rate target increased by about 450 bps between March of 2022 and March of 2023, which drove a lot of deposit shopping. And the rate hikes ended in the first quarter of 2023. So not too surprising, we’re seeing year-over-year declines there as consumers have a little less interest in searching for savings accounts. So our revenue is down 26% year-over-year in the third quarter, and it’s just a tougher comp going into declining rate environment. For us, the big question is how much re-shopping are consumers going to do on the way down? As your savings rate gets less competitive, do you pick your head up and look around for a new savings account? If so, things could turn out better than we anticipate. We think big picture though, if rates stay above zero, we’d expect to see a higher new normal in banking. And to highlight this point, Q3 remains about 3 times higher than in 4Q 2021 before the rate hikes started. So, essentially, any non-zero rate means deposits are valuable to banks and it also provides incentive for consumers to comparison shop.

Thank you very much. Super helpful.

Thank you. [Operator Instructions] Our next question comes from the line of Ralph Schackart from William Blair. Your question, please. Ralph, you might have your phone on mute.

Thank you for taking the question. In the prepared remarks, you talked about seeing some issues returned within the credit card segments. Just kind of curious if you could provide some more color on that. Was that something that occurred in Q3 and extended to where we are today? Just anything you could provide in terms of more detail on that and then I have a follow-up.

Yeah. So, I guess, what we were saying in prior quarters, sometimes issuers were walking away from qualified borrowers. Our read on that was that they may have been a little bit conservative with managing their balance sheet in terms of coming post-SVB, right, and just maybe a bit of a weaker capital markets environment. So, we think a lot of that is a reverse course and is starting to look a little more normal.

Great. And then maybe one for Lauren. Last quarter, I think, for Q3 with a lot of the uncertainty that you saw with organic traffic. You talked about higher level of conservatism implied in the guide for Q3. Just curious, in terms of Q4, what level of conservatism did you apply there? Was it sort of the same as Q3? Did that sort of stance change? Just any color you could add on that would be great. Thank you.

Yeah, maybe I’ll take the opportunity to talk a little bit more about the revenue guide in total, and then I’ll address your specific question about conservatism as part of that. So just as a reminder, the Q4 revenue guide was $164 million to $172 million, which at the midpoint would be a 26% year-over-year growth rate, but down 12% quarter-over-quarter. And some additional context, from Q3 to Q4, we tend to see a low double-digit decline due to seasonality in areas such as credit cards, student loans, and mortgages. Our guidance for Q4 assumes normal seasonality for the business overall, as well as most of our verticals, but we expect slightly worse than seasonal Q3 to Q4 in credit cards as a result of a full quarter of the commercial search traffic pressure, but a better than seasonal Q4 and insurance as we see success in scaling and taking share. So we’ve been pleased that we’ve been able to continue to drive revenue growth, despite some of these organic search traffic challenges. We do not expect to see any major impact from rate decreases in the short-term, but we are confident in our readiness to take advantage of a lower rate environment should rates come down. And so, I would say that our conservatism is the same in terms of our assumptions around Q3 and Q4, and the impact of the organic search trends being offset by some of the strength that we’ve talked about in insurance.

That’s really helpful. Thank you.

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to management for any further remarks. We did get a last minute questioner just popped up in the queue, and our final question then for today comes from the line of Jed Kelly from Oppenheimer. Your question, please.

Thanks for squeezing me in. I thought I had my hand raised. Just two questions. One on insurance and scaling the performance marketing. Can you talk about how your performance marketing benefits as you start to deliver more volume to carriers? And then just around mortgages, can you talk about the strategy of leading more into a brokerage versus partnering with a variety of lenders that might give you a little more breadth in terms of lending partnerships? Thank you.

Sure. Why don’t I take the first one on performance marketing, scaling and insurance, and then, Tim, you can talk a little bit more about the acquisition and brokerage. So as we’ve talked about, our approach to performance marketing has not changed. We’ll continue to do it in a disciplined way. And our goal is to be in-quarter profitable, adding incremental non-GAAP OI dollars. And so that applies to all of our verticals, especially in areas where we see incredibly fast-paced growth, and we see a robust end market. And so, you’ll expect us to continue to lean in where we see good returns. And if we’re not seeing those returns, we can very quickly and easily pull back as well. But we also, I’ll just remind everyone again, see performance marketing as a way to get more folks registered and then reengage with them over time as we continue to expand and develop our growth pillar around registration and data-driven re-engagement.

Yeah, I’d probably just tack on two thoughts there. Yeah, clearly personalization is helpful. When we know more about the audience, we can better match them with people who are well-suited – or carriers who are well-suited to serve that. And then the second thing is, the insurance is a growing area for us, and our insurance carrier partners are quite quantitative, right? So if they look at the quality of referrals that are coming through, that can have a positive feedback loop over time on, saying, like, hey, NerdWallet has customers who really understand the insurance product, who really understand why we’re the best carrier for them, and that can create a positive feedback loop as well. On the mortgage-brokering side, we really try to provide choice there on the broker experience. You get access to a lot of wholesale vendors there when you work through a broker, and that can be really helpful in terms of shopping around on rates. Like, if my mom called me and told me she needed a mortgage, I’d tell her to call Doug and Jonathon. I mean, during our diligence process, we found that they have great rates and great customer service, so letting NDL shop around for you amongst a bunch of lenders is, I think, a really great option, whether you’re buying or refinancing.

Thank you. This does conclude the question-and-answer session. I’d now like to hand the program back to management for any further remarks.

Thanks all for your questions. Our results this quarter speak not only to NerdWallet’s diversification and durability, but also to the Nerd’s resilience. After a tough decision coming out of Q2, I’m incredibly proud of the way our team has risen to the occasion. The Nerds have remained committed to relentlessly improving our business on behalf of consumers, partners, and shareholders. Thank you, Nerds. With that, we’ll see you next quarter.

Thank you, ladies and gentlemen, for your participation at today’s conference. This does conclude the program. You may now disconnect. Good day.