On Friday, Goldman Sachs adjusted its outlook on Nerdy (NYSE: NRDY), reducing the stock's price target to $1.00 from the previous $1.50, while retaining a Neutral rating. This change comes in the wake of Nerdy's third-quarter earnings report for 2024, which showed revenues and adjusted EBITDA losses largely in line with or better than anticipated. However, the company's guidance for the fourth quarter indicated revenues approximately 20% below Goldman Sachs and Wall Street estimates at the midpoint and an adjusted EBITDA significantly below expectations.
The company's management attributed the subdued fourth-quarter guidance to two main factors. Firstly, there was a noticeable softness in consumer revenue as the quarter approached, primarily due to a decline in learning membership subscribers, with older cohorts exhibiting a higher rate of cancellations. Secondly, institutional bookings were lower than expected, which is anticipated to affect Q4 revenues and extend into early 2025.
Nerdy's strategic decisions during the quarter were highlighted, including the focus on the institutional opportunity. The company onboarded a new sales team and concentrated on the upcoming ESSER funding deadline. Additionally, the complexity of integrating free platform access for school district partners was cited as a reason for reallocating resources, which consequently led to delays in certain product initiatives that were planned for the fourth quarter. These delays are expected to impact both consumer and institutional business segments.
In response to these developments, Goldman Sachs has revised its operating estimates for Nerdy based on the latest earnings report and forward-looking statements from the company's management. The firm's decision to decrease the 12-month price target to $1.00 reflects the adjustments made following the Q3 results and the provided guidance for the upcoming quarter.
In other recent news, Nerdy Inc. has seen significant changes following its recent quarterly reports. The company reported a year-over-year revenue growth of 4% to $51 million, despite a non-GAAP adjusted EBITDA loss of $2.1 million. Analysts at Cantor Fitzgerald and JMP Securities have both downgraded Nerdy's stock, citing concerns over the company's future revenue prospects and increasing losses. The downgrades follow a second consecutive downward revision of Nerdy's 2024 revenue and adjusted EBITDA forecasts.
In response to these developments, Nerdy Inc. has made strategic adjustments, including a pivot towards premium learning memberships and a partnership with Digital Ready to provide free access to the Varsity Tutors for Schools platform. This initiative aims to enhance customer retention and value by offering comprehensive academic assistance to students nationwide.
Despite the challenges, analysts from both Cantor Fitzgerald and JMP Securities anticipate that Nerdy's growth could potentially reaccelerate in the latter half of 2025. The company's third-quarter revenue guidance is between $35 million and $38 million, with full-year revenue projected at $196 million to $204 million. These recent developments reflect Nerdy Inc.'s commitment to focusing on high-value customer segments and leveraging its enhanced product offerings.
InvestingPro Insights
Nerdy's recent financial performance and market position are further illuminated by data from InvestingPro. The company's market capitalization stands at $158.46 million, reflecting its current valuation in the market. Despite the challenges highlighted in Goldman Sachs' report, Nerdy maintains impressive gross profit margins, with the latest data showing a 69.2% gross profit margin for the last twelve months as of Q2 2024. This strength in profitability at the gross level suggests that Nerdy's core service offering remains financially viable.
However, the company faces significant headwinds, as evidenced by its operating income margin of -31.07% over the same period. This aligns with the InvestingPro Tip that Nerdy is not profitable over the last twelve months, a factor likely contributing to Goldman Sachs' decision to lower the price target.
The stock's performance has been notably weak, with InvestingPro data showing a 63.22% price decline over the past six months. This substantial drop correlates with another InvestingPro Tip indicating that the stock price has fallen significantly over the last year, providing context to the current market sentiment surrounding Nerdy.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips on Nerdy, providing a deeper understanding of the company's financial health and market position.
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