Wealthfront Corporation - NASDAQ:WLTH
Self-Driving Money
You can buy shares of a capital-light investment management business growing ~20% for ~6-7x EV/FCF.
Wealthfront’s stock has declined >40% since its IPO in December 2025. The company has about ⅓ of its market cap in cash, no debt, and trades at a discount to the valuation UBS agreed to acquire it in 2022.
Total platform assets have tripled since the $1.4 billion UBS acquisition was mutually terminated.
What is Wealthfront?
Wealthfront is a next generation banking and investment management service that helps customers with their short and long-term financial needs. I think of it as a sort of Vanguard 2.0.
The company’s whole ethos is “use software to automate investment services, share cost-savings with customers, reinvest profits to further automate services...”
Andy Rachleff, one of Benchmark Capital’s original partners (the eBoys), founded Wealthfront in 2008. The company was originally called kaChing before pivoting to Wealthfront in late-2010. Andy had two multiyear stints as CEO and is now chairman of the board.
Today, Wealthfront has only ~400 full-time employees and total platform assets of ~$93 billion across ~1.8 million customer accounts. Total platform assets are split down the middle between Cash and Investment Accounts.
Wealthfront’s typical customer is a 38-year-old that would prefer not to deal with a traditional financial advisor or wealth manager.
It began as a popular service among twenty-something software engineers at Silicon Valley-based technology companies.
At one point, Wealthfront supposedly offered a program for Twitter and Facebook employees to manage their post-IPO equity. The company has primarily relied on customer referrals / word of mouth to grow since its founding.
Efficient, low-cost customer acquisition through word of mouth and scale (~$200m AUM/employee) allows Wealthfront to routinely develop and ship new, low-cost investment services at a remarkable pace.
Below is a great example from David Fortunato on the Q3 Earnings call:
“Wealthfront’s Nasdaq-100 Direct is available for 12 basis points annual advisory fee, a fee lower than leading exchange-traded product offerings in the space with the added benefit of automated tax-loss harvesting. This product went from idea to launch in less than 8 weeks, highlighting the accelerating pace of product velocity exhibited by our talented engineering team.”
David Fortunato is Wealthfront’s CEO. He joined in 2009 as the company’s first CTO.
For its automated investing and direct indexing products, Wealthfront offers tax-loss harvesting. Tax-loss harvesting boosts after-tax returns, saving customers millions in taxes annually. The best part? The customer doesn’t have to do anything, it’s entirely automated.
By comparison, sponsors of largest and most popular index ETFs in the world cannot and do not provide tax-loss harvesting as a service - it’s incumbent on the investor.
Some of these ETFs may offer lower headline fees, but Wealthfront’s direct indexing products are generally more tax efficient1.
Cash Accounts
About 75% of Wealthfront’s revenue comes from its Cash Accounts.
The Cash Account was introduced in early-2019, and attracted ~$8 billion of deposits in its first 8 months of existence, a strong signal of product/market fit2.
Because Wealthfront isn’t a chartered bank, it can’t directly hold deposits or call these “bank accounts.” Instead, Wealthfront sweeps customer deposits to a network of 32 banks.
Customers earn a competitive yield and benefit from the security of pass-through FDIC insurance: customers are eligible to receive up to $8 million in FDIC insurance for individual accounts (i.e., 32x the standard $250k FDIC deposit insurance) and $16 million for joint accounts.
Wealthfront currently earns about a 0.60% net interest margin (NIM) on Cash Accounts.
If interest rate cuts continue, two potential headwinds could occur: 1) deposits could flee as customers seek higher-yielding alternatives, and 2) lower interest rates could squeeze Wealthfront’s net interest margin.
I’m not going to try to predict the Fed’s interest rate policy. However, unless interest rates revert back to covid-era lows, I don’t expect meaningful NIM compression. Wealthfront should be able to maintain its small spread.
Even if Cash Account assets migrate, a decent chunk might remain within the Wealthfront ecosystem. In other words, customers may move their deposits into Wealthfront’s automated equity or fixed income products rather than exiting the platform entirely.
IPO Selling
Similar to spinoffs, IPOs of venture-backed companies can bring about technical or forced selling.
Limited partners in venture funds want liquidity, and venture capitalists want to realize their carried interest. As a result, VCs and their LPs tend to sell shares either directly in the IPO or shortly thereafter in the open market.
Wealthfront raised a dozen or so private financing rounds since 2008. Employees were also given the opportunity to sell shares in the IPO.
I suspect many venture fund LPs, UBS3, and other early investors headed for the exits shortly after the bell rang on the NASDAQ floor.
The recent “Saaspocalpse” has only exaggerated the stock’s selloff, and WLTH shares traded down nearly 50% from its $14 IPO price.
What’s it worth?
In a 2014 blog post titled “The $7 Trillion Opportunity,” Wealthfront argued it was growing at more than twice the rate Charles Schwab achieved in its early years:
Fast forward to today: Charles Schwab trades at roughly 16x NTM earnings, and client assets have grown to approximately $11.6 trillion.
Is 16x a fair multiple for a similar business model, earlier in its lifecycle? Wealthfront is growing 10–20% annually, generating >40% EBITDA margins, converting more than 90% of EBITDA to free cash flow, and has a long growth runway ahead.
I don’t know if 16x is the right multiple for WLTH, but the current price doesn’t strike me as demanding.
Andy Rachleff owns about 11.5% of the company and didn’t sell a single share in the IPO. I think he sees substantial long-term growth ahead, and I’m inclined to agree.
Disclosure: Long WLTH
Andy Rachleff, founder of Wealthfront, is credited with coining the term “product/market fit”
UBS purchased a ~$70 million convertible note in 2022 when the acquisition was terminated due to uncertainty around regulatory approvals. https://www.ubs.com/global/en/media/display-page-ndp/en-20220902-wealthfront.html
Good idea and write up; I love direct indexing and do it for most of my PA.
Very interesting write-up, thanks for sharing it! It seems like a great thesis you've presented, and given the rate of growth the valuation is obviously compelling. I do have a couple of questions.
The first is that EBIT margins were the same in the first 3 quarters of 2024 as they were in the most recent quarter, even though revenue grew significantly. I would have expected some operating leverage, or do you think that's just due to IPO expenses? If they can continue growing at their current pace and add operating leverage this is a home-run. I'd also push back a bit on the 'growing by word of mouth' bit, as their marketing expenses have pretty consistently been >10% of revenue. Given the growth in clients (20% y/y) that seems like it was a good spend.
There was also this line in most recent quarterly report:
"As of October 31, 2025, unrecognized stock-based compensation expense related to unvested RSUs was $338.5 million, which is expected to be recognized over a weighted-average period of 1.6 years."
That will eliminate more than 100% of earnings during the upcoming period. Which is fine and the market would look past that I think. But they also issued $85MM of new RSU's in Jan 2025. It looks to me like they haven't previously been expensing those because they didn't vest until the IPO. But if they have $90 MM of yearly RSU expense against $120 MM in income before that expense I think that'll be a problem for their valuation.