By Andrew Welsch

Wealthfront's stock has gotten walloped, plunging 36% since it went public at $14 a share last December. The stock price is likely to recover some of those losses, but it could take a while. A turnaround will depend on the company's ability to diversify its revenue beyond cash management, which has been its main profit engine.

Wall Street analysts are generally bullish on Wealthfront, with five of seven analysts covering the stock rate it a Buy, according to FactSet. The other two rate it a Hold. Analysts' average target price is $16.17 as of Feb. 3, according to FactSet.

That is a big potential upside, but investors may want to take a wait-and-see approach. It will take time for Wealthfront to grow new business lines, such as mortgages. And lower interest rates are creating headwinds. The direction of rates are clearly out of Wealthfront's hands -- and where they go next will have an impact on its bottom line.

Wealthfront's post-IPO slump isn't unique. Many new stocks popped on their first day of trading last year only to fizzle in subsequent weeks.

Cash cow. Wealthfront's road to becoming a publicly traded company was a long one; the company was founded in 2008. The Palo Alto, Calif.-based company was a pioneer of the robo-advisor sector, offering individual investors professionally managed portfolios at a fraction of the cost of a traditional human advisor. But it was Wealthfront's cash management offering that turbocharged growth, as customers piled into the company's high-yield savings accounts after interest rates soared in 2022.

Of the company's $92.8 billion in total platform assets as of Oct. 31, just over half ($47 billion) were in its cash management offering. That is up from $2.4 billion in cash in April 2022, according to the company. Wealthfront had $45.8 billion in investment advisory assets as of Oct. 31.

Cash management brings in the bulk of revenue for Wealthfront. The company posted total revenue of $93.2 million for the quarter ending Oct. 31. Cash management generated $68.8 million, or about 74%, of total revenue.

The company earns a gross fee from banks that hold the cash Wealthfront attracts as part of its cash management program, according to a December filing with the Securities and Exchange Commission. (Wealthfront isn't a bank itself.) Wealthfront has added other features to its cash management offering to boost its appeal, such as free instant wire transfers.

"Because of our business model we can operate profitably while passing on a higher rate to customers than other firms can do," CFO Alan Imberman says.

The concern for investors is that if interest rates continue to come down, as is expected, then Wealthfront's cash management offering will become less attractive to customers, who will either pull money from their accounts or, at the very least, stop adding new funds. Clients, seeking higher yields, may also move their cash into the advisory side of Wealthfront's business, which is less profitable than cash management.

As Goldman Sachs analyst James Yaro puts it, interest-rate sensitivity cuts two ways. "A falling rate environment presents risk to both the cash management fee rate that Wealthfront earns, and to cash management balances, as clients rotate assets into Wealthfront's investment advisory platform, or pull cash assets from Wealthfront entirely," Yaro wrote in a Jan. 6 research note. He rates Wealthfront's stock Neutral.

December data, posted in January, included a data point that gave investors reason for caution. Total net deposits across Wealthfront's platform turned negative that month, with the company reporting $208 million in outflows compared with $874 million in positive flows for the same month a year earlier, according to the company's monthly activity report.

Wealthfront executives said on the company's third-quarter earnings call, held in January, that they expect customers to transfer at least a portion of their cash savings to investment accounts, thus keeping some assets on the company's platform. The third quarter was the best yet for net cross account transfers from cash management to investment advisory, according to the company's earnings release.

The company didn't provide a figure for net cross account transfers for the third quarter. CEO David Fortunato said during the January earnings call that Wealthfront has been driving cross-product adoption via the introduction of new features and services, and that the company surpassed $94 billion in assets in early January.

Cross-product adoption is a good natural hedge -- but an imperfect one, according to Goldman's Yaro, because Wealthfront earns lower fees in investment advisory than it does in cash management. A dollar-for-dollar shift of assets from cash to investment advisory would result in a net revenue decline for the company, according to Yaro.

Mortgage hopes. Wealthfront's nascent mortgage business may help it boost revenue. The company closed its first home mortgage loan in the third quarter. It currently offers mortgages to customers in California, Colorado, and Texas, with plans to expand the offering soon. It is licensed to do business in 24 states, covering 60% of its client base and 54% of the general population, according to a spokesman.

Citizens analyst Devin Ryan writes in a Jan. 6 research note that mortgages are an underappreciated catalyst and that they can give Wealthfront a countercyclical revenue stream as well as address a major leakage point, where customers withdraw large lump sums for down payments for homes. Ryan estimates that mortgage fee revenue can ramp up from near zero to about $20 million for the full year 2027 and about $81 million in full year 2028. Ryan rates shares a Buy.

Wealthfront may benefit from demographic tailwinds because its 1.4 million customers skew younger and are beginning to buy homes for the first time. Ryan writes that Wealthfront's customers have an average age of 38 and average annual earnings of $165,000. The company also has good insights into the financial health and goals of its clientele, including the nest eggs that are destined to be down payments for a future home. If mortgage rates come down, that could help thaw what has been a frozen housing market, and Wealthfront would have more opportunities to offer customers lower-cost mortgages.

Economic transitions. Wealthfront's strategy has been to build products and services before they're needed, says Imberman, noting it launched its cash management offering well before interest rates spiked. "The idea was to always lead with what works when transition environments happen," he says. "We want to keep clients in the ecosystem, share savings with them, and help them get predictable outcomes and diversification, and all while being very profitable."

In recent years, Wealthfront has added automated bond portfolios, a securities lending program, and an S&P 500 direct indexing offering. Wealthfront's ability to adapt and its longevity are both good reasons not to bet against it. But, for now at least, investors may want to stay on the sidelines to see how it navigates the changing interest-rate environment.

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

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February 05, 2026 09:45 ET (14:45 GMT)

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