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.
Thanks for reading. I should have been more clear that the company primarily relied on word of mouth growth in its early years. It still does, but as you correctly pointed it out it spends $ on marketing and ads. Its marketing budget is certainly not zero. There may or may not be some IPO expenses in there. I don’t know. They were supposed to go public in October, but the government shutdown delayed it ~2 months. I imagine transaction advisory expenses were impacted as a result.
I think significant growth capex/new product R&D is and has been expensed through the P&L, and that should normalize in the near-ish term as the only product in the immediate pipeline is home lending, and I’m not aware of any significant app redesigns or overhauls. I don’t have an exact figure or timeline to provide, but I think the recipe for operating leverage is certainly there.
Re SBC this is a tech company, after-all lol. My hope is that they turn on the buyback as soon as possible (unclear if WLTH is still in a restricted period) I hope SBC doesn’t become an overhang / plague the equity. If they keep growing I don’t think it will be viewed as a problem, but it will certainly become an issue if growth stagnates.
I agree expensing new product spend is conservative and I appreciate that. I doubt it declines (probably a lot is employee comp), but that's fine if they keep adding new products/features. The obvious growth play here is to attach more products to each customer. Doesn't take too many mortgages etc to add significant lifetime value to a customer. They could probably add a credit card/insurance/annuities/etc over time, lots of white space there if they own the customer relationship.
Agree re: buyback. If they can offset the stock comp dilution at these prices that would be very welcome, and since they didn't need the IPO proceeds anyway it would be good to take out a bunch of shares. I was surprised to see they raised $300MM after I reviewed the financials - definitely curious what they plan to do with that money...
They have outstanding preferreds, ITM warrants and stock options, and also RSUs, which if you add up amount to almost 100% of the current shares outstanding. The stock isn't particularly cheap if you consider this fact (high single digit FCF yield-ish) + the cash management profit pool is going to be pretty sensitive to any rate decreases from the fed. But it seems to be growing nicely so I'm sure in the long-run none of this matters as long as it manages to thrive.
All the prefs converted to common at 1:1 with the IPO.
I think as long as interest rates stay above their covid lows they'll be able to maintain a spread on the cash business. Sort of reminds me of IBKR that way.
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.
Thanks for reading. I should have been more clear that the company primarily relied on word of mouth growth in its early years. It still does, but as you correctly pointed it out it spends $ on marketing and ads. Its marketing budget is certainly not zero. There may or may not be some IPO expenses in there. I don’t know. They were supposed to go public in October, but the government shutdown delayed it ~2 months. I imagine transaction advisory expenses were impacted as a result.
I think significant growth capex/new product R&D is and has been expensed through the P&L, and that should normalize in the near-ish term as the only product in the immediate pipeline is home lending, and I’m not aware of any significant app redesigns or overhauls. I don’t have an exact figure or timeline to provide, but I think the recipe for operating leverage is certainly there.
Re SBC this is a tech company, after-all lol. My hope is that they turn on the buyback as soon as possible (unclear if WLTH is still in a restricted period) I hope SBC doesn’t become an overhang / plague the equity. If they keep growing I don’t think it will be viewed as a problem, but it will certainly become an issue if growth stagnates.
I agree expensing new product spend is conservative and I appreciate that. I doubt it declines (probably a lot is employee comp), but that's fine if they keep adding new products/features. The obvious growth play here is to attach more products to each customer. Doesn't take too many mortgages etc to add significant lifetime value to a customer. They could probably add a credit card/insurance/annuities/etc over time, lots of white space there if they own the customer relationship.
Agree re: buyback. If they can offset the stock comp dilution at these prices that would be very welcome, and since they didn't need the IPO proceeds anyway it would be good to take out a bunch of shares. I was surprised to see they raised $300MM after I reviewed the financials - definitely curious what they plan to do with that money...
They have outstanding preferreds, ITM warrants and stock options, and also RSUs, which if you add up amount to almost 100% of the current shares outstanding. The stock isn't particularly cheap if you consider this fact (high single digit FCF yield-ish) + the cash management profit pool is going to be pretty sensitive to any rate decreases from the fed. But it seems to be growing nicely so I'm sure in the long-run none of this matters as long as it manages to thrive.
All the prefs converted to common at 1:1 with the IPO.
I think as long as interest rates stay above their covid lows they'll be able to maintain a spread on the cash business. Sort of reminds me of IBKR that way.
Thanks for pointing this out! I'll leave my comment up to the extent it's helpful.
Good idea and write up; I love direct indexing and do it for most of my PA.
I am not sure the cash figure you used is right
Which one?
CFO said they have more than $400m on the conference call.