NerdWallet Faces Headwinds in SMB Lending, but Renewal Growth and Vertical Integration Show Promise

NerdWallet continues to face challenges in small and medium-sized business (SMB) loan originations, with interest rates remaining high and tight underwriting standards. "We continue to see pressure in SMB loan originations, with rates remaining elevated and underwriting remaining tight," said Lauren StClair, NerdWallet CFO, during the Q3 earnings call. "However, this was more than offset by growth in our renewals portfolio, showcasing the benefit of our vertical integration strategy and the recurring nature of the vertical when we pursue a higher-touch experience."

NerdWallet CEO Tim Chen echoed StClair’s comments, noting that the macroeconomic environment for SMB loans remains difficult. Despite the headwinds, NerdWallet's overall SMB business performed well in Q3, generating double-digit year-over-year growth, with revenue totaling $27.8 million.

Challenges in Search Engine Traffic and Impact on NerdWallet's Business

NerdWallet also provided commentary on its search engine traffic and how it affected the business. "After a stronger start to the quarter, we saw some additional deterioration in our search visibility in mid-Q3," Chen said. "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 (MUU) were down 7% year-over-year in Q3."

In August, FundScope highlighted concerns regarding NerdWallet's organic search visibility. Chen elaborated on these challenges during the Q3 call, emphasizing that changes in search result rankings were impacting how effectively business owners could access loans. He addressed these fluctuations, saying:

"During our Q2 call, our search visibility was stabilizing and even rebounding slightly. However, after the call, things worsened—especially in August and September. By October, we began to see improvements, particularly in our shopping-related content, and we felt we had taken some positive steps to enhance the user experience. Some exceptions remain, with parts of credit cards and personal loans still lagging behind."

Chen added that while search visibility for their commercial content improved, educational content saw progressive declines throughout Q3 and eventually stabilized at a lower level. He attributed this decline to a renewed push by search engines to incorporate their own direct answers into search results, mentioning features like AI-generated overviews.

"This trend isn’t new," Chen explained. "Over the years, we’ve seen search engines add direct answers to simple queries—like weather searches—which reduces the need for users to click external links. This current wave has impacted us, and we’ve seen a re-baselining in our traffic. Historically, these changes come in cycles, with eventual recovery. We believe focusing on consumer value will help us navigate these headwinds, even as we expect continued Monthly Unique User deceleration in Q4 due to the full impact of these challenges."

Despite the headwinds, Chen remains optimistic, stating that an improved search experience will benefit the overall ecosystem in the long term. He also emphasized that achieving a 12% NGOI margin in Q3, despite the difficulties in organic search, reflects the company's progress in building a strong brand and increasing competitiveness across multiple channels. "Q3 was brutal with the headwinds we faced, but our ability to achieve this margin is a testament to the work we’ve done to enhance our brand and our relationship with users," Chen said.