Why NerdWallet Stock Crashed Today

NerdWallet's stock plummeted following a disappointing earnings report on Friday, dropping 30.2% by 1 p.m. ET. The company had been expected to earn $0.34 per share on $251.9 million in sales, but it managed only $0.23 per share on $239.6 million. Despite an 11% increase in sales year-over-year, NerdWallet's operating profit dropped by 44%, and its net income plummeted by 43%, leading to a 32% decrease in earnings per share.

Most of NerdWallet's revenue comes from referral fees generated when readers click through its publications to obtain financial services such as credit cards, student loans, and car insurance. In Q3, the company's student loans division performed well, but this was offset by a decline in auto insurance, resulting in a 12% growth in overall consumer business. However, the company's costs grew even faster, up 22% year-over-year, causing profits to decline.

NerdWallet's management warned of a significant slowdown in revenue in the current quarter, with revenue expected to decline to approximately $197 million, a 13% decrease. Operating profit on this revenue could be as low as $5 million (at the midpoint of guidance), a 74% decrease compared to the previous quarter. As revenue shrinks instead of expanding, the company's ability to cut costs becomes crucial for reversing its current decline.