Wealthfront IPO: Stock Gets a Bump, but Not a Pop in Trading Debut

Wealthfront will list on the Nasdaq under the ticker WLTH when the stock begins trading today. (Gabby Jones/Bloomberg)

Key Points

• Wealthfront priced its initial public offering at $14 per share, becoming the first publicly traded robo-advisor.
• Cash management accounts for 76% of Wealthfront’s revenue, with investment advisory making up 24%.
• Wealthfront reported $339 million in revenue and $123 million in net income for the 12 months ending July 31.

Wealthfront just became the first publicly traded robo-advisor.

Shares of the wealth management company opened at $14 and moved higher in Friday afternoon trading, ending the day at $14.19 per share, a 1.36% increase. Wealthfront priced its initial public offering at $14 a share. It’s valued at about $2.7 billion based on today’s closing price.

Wealthfront shares rose despite a selloff in the broader stock market. The S&P 500 ended the day down 1.1%, while the Nasdaq Composite fell 1.7%.

Wealthfront, which has experienced explosive growth in its cash savings offering, anticipated its stock to price between $12 to $14 per share, according to a filing earlier this month. Wealthfront applied to list its stock on the Nasdaq Stock Market under the symbol WLTH.

The company is going public amid an uptick in IPOs, some of which have fizzled after their debut. High-profile offerings such as StubHub and Klarna Group are trading below their IPO prices.

Created with Highcharts 9.0.1WealthfrontStock ticker: WLTHSource: FactSetAs of Dec. 16, 4 p.m. ET

Created with Highcharts 9.0.1IPO price10 a.m.11 a.m.noon1 p.m.2 p.m.3 p.m.4 p.m.12.612.813.013.213.413.613.814.0$14.2

Wealthfront operates in the growing wealth management industry, which has benefited from more Americans seeking out financial advice and help managing their portfolios. Founded in 2008, Palo Alto, Calif.-based Wealthfront caters primarily to Millennial and Gen Z investors, offering professionally managed portfolios at low cost. It charges 0.25% annually on assets under management for its investment advisory service; traditional human advisors typically charge about 1%.

Wealthfront almost didn’t go public. In 2022, Swiss bank UBS announced it would acquire Wealthfront for $1.4 billion in a deal that was later canceled. Wealthfront CFO Alan Imberman tells Barron’s that the company regrouped and zeroed in on executing its growth strategy. “The UBS deal not happening was the best thing to happen to the company,” he says. “We got focused on outcompeting our peers. Sometimes things happen for a reason.”

Although best known for its automated investment portfolios, Wealthfront’s major source of revenue comes from its high-yield cash savings offering, which soared in popularity in recent years because of high interest rates. Just over half of Wealthfront’s $90 billion in platform assets as of Oct. 31 were in its cash management offering.

For the six months ending July 31, Wealthfront had $176 million in revenue, according to a filing with the Securities and Exchange Commission. Cash management accounted for 76% of revenue while investment advisory made up 24%. Shifts in the interest-rate environment could negatively affect Wealthfront’s revenue. “In the past, during periods of low interest rates, we have at times experienced declines in revenue from cash account fees received as clients move their assets out of their cash accounts,” the company’s S-1 Form states. “Additionally, if prevailing interest rates offered by our program banks decline more quickly than the interest rates we offer to our clients, our revenues from cash account fees will decline.”

The direction of interest rates will be something Wealthfront shareholders want to keep tabs on. The Federal Reserve cut its benchmark rate this week, and its latest projections show only one additional cut next year.

“While Wealthfront has found its path to profitability, falling interest rates may equate to falling interest in high-yield savings accounts,” says David Goldstone, manager of investment research at Condor Capital Wealth Management and author of a report on robo-advisors.

Wealthfront is profitable. It generated $339 million in revenue and $123 million in net income for the 12 months ending July 31, according to the company. It had a net income margin of 36%.

The company says it is well-positioned to take advantage of trends in wealth management. Millennials and Gen Z Americans are due to inherit trillions of dollars in the coming years from their baby boomer and Gen X parents. Those generations are digital natives who gravitate toward tech-savvy companies like Wealthfront, the company says.

Wealthfront lands new clients through marketing and referrals from existing clients. It has also been steadily adding new products and features for its roughly 1.3 million customers. In recent years, it has launched a socially responsible investing portfolio, automated bond portfolios, and securities lending. And the company intends to offer more lending products to its clients, including mortgages.

“Wealthfront is first and foremost a technology company,” CEO David Fortunato said in a letter to investors that was included in a securities filing. “We think the best way to deliver financial products at scale is through automated infrastructure. It lowers our costs, allowing us to share the savings with our clients, and improves the client experience.”

Write to Andrew Welsch at andrew.welsch@barrons.com