Canaccord Genuity has adjusted its position on Nerdy (NYSE: NRDY), moving from a Buy to a Hold rating and reducing the price target to $3.00 from the previous $5.00.
The downgrade follows Nerdy's mixed second-quarter results, which revealed a slight miss in revenue compared to Canaccord Genuity's estimates (CGe).
Although Nerdy experienced a year-over-year increase of approximately 15% in Active Members, there was a sequential quarterly decline of over 10,000. Additionally, the Average Revenue Per Member (ARPM) fell by around 20% year-over-year.
The company's Consumer revenue saw a decline of about 1% year-over-year, influenced by a shift towards lower frequency, non-premium Memberships.
On the other hand, Institutional revenue presented a more positive outcome, growing 33% year-over-year, with 56 new contracts contributing to $4 million in bookings. Despite facing gross margin pressure, Nerdy reported an adjusted EBITDA loss that was slightly better than Canaccord Genuity's expectations.
However, the outlook provided by Nerdy was less optimistic, with both revenue and adjusted EBITDA projections for the third quarter falling short of expectations.
The full-year 2024 guidance for revenue has been decreased by approximately $39 million, or 16% at the midpoint, and the adjusted EBITDA forecast has also been significantly lowered, by roughly $30 million.
This downward revision is attributed to increased churn in the Consumer segment, where engagement with lower-tier products has weakened, and delays in onboarding localized Institutional sales personnel.
Canaccord Genuity notes several immediate challenges for Nerdy, including an anticipated year-over-year decline in third-quarter revenue, profitability and cash flow targets that seem several quarters away, and diminished visibility into both Consumer and Institutional segments.
Meanwhile, JPMorgan has downgraded Nerdy's stock, shifting from an Overweight to Neutral rating. The decision comes in the wake of a slowdown in the company's institutional revenue growth, which dropped to a 33% year-over-year increase in the second quarter from 39% in the first quarter.
Despite Nerdy's ongoing investments to enhance its Learning Membership platform, the company has seen softer summer bookings due to slower-than-expected integration of the VTS sales team.
The company has made efforts to mitigate this by transitioning VTS customers to a unified student platform and providing free access to 3.3 million students.
These measures could potentially lead to paid VTS contracts and consumer conversions. However, the slower growth has affected revenue projections.
In light of lower revenue expectations and continuous product development investments, Nerdy does not foresee achieving full-year adjusted EBITDA profitability until 2025.
InvestingPro Insights
Following Canaccord Genuity's recent reassessment of Nerdy (NYSE: NRDY), investors looking for additional context might consider some key metrics and insights from InvestingPro. Nerdy's current market capitalization stands at $279.36 million, reflecting the market's valuation of the company. Despite the challenges highlighted, Nerdy holds more cash than debt on its balance sheet, which could provide some financial flexibility in implementing growth initiatives or weathering market uncertainties.
Moreover, analysts are anticipating sales growth in the current year, suggesting potential for recovery or improvement in the company's financial performance. Nerdy's gross profit margins remain impressive at 70.26% for the last twelve months as of Q1 2024, indicating strong underlying business efficiency despite the reported gross margin pressure. However, it's worth noting that the stock price has experienced significant volatility, trading near its 52-week low and having fallen considerably over the last year.
For investors considering Nerdy's stock, InvestingPro offers additional tips and insights, including 12 more InvestingPro Tips available on their platform, which could provide further guidance on whether Nerdy represents a suitable investment opportunity in light of its current challenges and market position.
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