If you make some software and sell it online, you can make lots of money. Thanks to low-cost distribution, it’s possible to write one bit of code and sell it many times, generating fat margins in the process. Throw in a larger industry trend toward recurring pricing as opposed to single-shot sales, and you have the foundation for rich software company valuations in hand.
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Writing was supposed to be the same, but it mostly didn’t work out. The internet allows you to write once and distribute those words to anyone at incredibly low costs, but the economics wound up being pretty tough. The real way to make money writing online, it turned out, was to treat words as code to a degree and release them under a subscription aegis, allowing media companies to look quite a lot more like modern software companies than we expected in the earlier days of the internet.
The New York Times — 68% subscription revenues in Q2 2021 — is a good example of how this can work. TechCrunch+ is another example of the model, though we’re about a zillion times smaller.
The model of writing and distributing it for free online was predicated on advertising rates translating from older businesses like television and print to the web. They mostly didn’t, even if certain publication niches can command reasonable ad rates at the moment.
Then there’s NerdWallet, a business that has proven that you can not only make a lot of money with writing on the internet while not charging for it, but also that if you manage the feat, you can generate huge amounts of value at the same time. We love a counterexample here at TechCrunch.
The company’s IPO dropped pricing details this week, giving us a window into its expected public-market valuation, and the good news for fans of making words appear for others to consume is that NerdWallet is set to command a unicorn price when it does begin to trade.
Who would have thought!
What’s NerdWallet worth?
Naturally, what NerdWallet does is different from pure journalism. But the firm does make noise — as we noted in both an earlier piece on the company and on a writing-focused episode of Equity — about its writing team being editorially independent.
In theory, then, the company’s writing teams are working for the reader and not for the near-term goals of the company’s revenue and marketing functions.
NerdWallet even noted in its IPO filing that it will avoid sugar-high, near-term revenue hits to preserve long-term credibility, i.e., it doesn’t intend to take extra checks from folks to recommend lesser products. NerdWallet’s business model is built around trust — that it will recommend the best products regardless of how much they pay in commission for sending users their direction.
As something of a personal finance Wirecutter, trust and the work the company does to preserve it are key foundations of NerdWallet’s relationship with end users.
Back to valuations: When we consider that NerdWallet expects to sell stock in its IPO at $17 to $19 per share, against a non-diluted share count of 64,747,341, or 65,834,841 inclusive of shares reserved for its underwriting banks, we can put a value on its business of as much as $1.25 billion. That must be more than $1 per word that NerdWallet has published, implying a pretty good return on scribbling.
My favorite group of IPO heads, Renaissance Capital, peg the company’s fully diluted valuation at the midpoint of its IPO price range as $1.3 billion. At $19 per share, that figure rises to $1.37 billion. Again, not bad for a company predicated on being able to extract dollars from words.
How does that figure compare to the company’s final private price? Crunchbase and PitchBook data are a little bit patchwork when it comes to NerdWallet’s capital history in that neither has the full set of numbers that we need. Sadly, the company’s final investment was done as a continuation of its Series A, with a number of conversion rights that make it irksome to value.
It appears that the company’s “Series A redeemable convertible preferred stock” is worth $17.9592 per share (2x its Series A per-share price), or roughly the midpoint of its IPO range. Squinting at the numbers, that all looks pretty fine, given that investors in its final private round are going to roughly double their money.
Is that a lot?
Do the valuations noted above make sense?
NerdWallet generated $98.5 million worth of top line during its Q3. That works out to a run rate of $394 million, giving the company a max run rate multiple of about 3.5x. To which we reply, what the fuck?
NerdWallet had gross margins of 92% in its most recent quarter, though as the company puts its writing team into its marketing budget instead of COGS — a mistake, in my view — we aren’t getting a clear view of what NerdWallet really spends to generate its business results.
The company claims more than 100 editorial staffers, which would put a dent in its gross margins, but nothing lethal. Sadly, we can’t really tell more from our read of its S-1 than what we’ve shared. It does feel, regardless, that NerdWallet is getting a somewhat slack revenue multiple when compared to its 48.5% growth rate during the first nine months of 2021 when compared to 2020.
If Rent the Runway can command a multiple that is, well, a multiple of this particular multiple, I don’t get why NerdWallet is getting such little market respect. Perhaps Wall Street doesn’t hold the written word in precisely the same reverence as I do, despite the company’s numbers looking pretty good? It’s all a bit confusing.
Given our head-scratching, we wouldn’t be utterly shocked if NerdWallet wound up pricing a bit higher than it is currently targeting. More when we have it.