On Monday, Canaccord Genuity adjusted its outlook on Nerdy (NYSE: NRDY), reducing the price target to $2.50 from the previous $3.00, while keeping a Hold rating on the stock. This adjustment follows Nerdy's third-quarter earnings report, which delivered a mix of outcomes.
The company surpassed its recently adjusted expectations for revenue and profitability, but faced a decline in consumer revenue due to challenges with its Learning Membership offerings.
Nerdy's management is concentrating efforts on promoting higher frequency memberships, which are designed to establish more consistent weekly tutoring habits.
Despite the consumer revenue dip, Nerdy has expanded its reach by providing free access to Varsity Tutors for Schools for an additional 1.1 million students.
However, the average size of institutional deals declined in the third quarter as the company's new sales team is still in the process of becoming fully operational.
The company's guidance for the fourth quarter indicates revenues and adjusted EBITDA significantly below market expectations. Nerdy anticipates a temporary drop in active Consumer platform members during the fourth quarter, with a recovery expected in the first half of 2025.
Meanwhile, average revenue per member is projected to increase gradually as the influence of lower frequency memberships wanes. Institutional revenue is also expected to remain subdued in the fourth quarter due to earlier lower bookings and the ongoing go-to-market strategy overhaul.
Canaccord anticipates that some of Nerdy's current challenges will continue into the first half of 2025. Nonetheless, the firm foresees an improvement in fundamentals over the next year, laying a solid foundation for growth starting in fiscal year 2026. The Hold rating reflects the expectation that it may take several quarters for Nerdy to return to a growth trajectory.
In other recent news, Nerdy, Inc. has reported mixed results for the third quarter of 2024. The company saw a 7% decline in year-over-year revenue, totaling $37.5 million, despite an increase in active members.
However, Nerdy, Inc.'s strategic shift towards institutional growth is showing promise, with 32% of paid contracts and 22% of total bookings coming from school districts transitioning from free to paid services.
The company's Consumer Learning Memberships generated $31.4 million, which accounted for 84% of total revenue. Institutional business revenue, however, declined by 3% year-over-year to $5.4 million.
Despite these challenges, the company is optimistic about its prospects in the K-12 market and plans to improve customer retention and engagement through product enhancements.
Looking ahead, Nerdy, Inc. anticipates Q4 revenue to be between $44 million and $47 million, with full-year revenue estimates ranging from $186 million to $189 million.
Adjusted EBITDA for Q4 is expected to range from a loss of $7 million to a loss of $10 million. These recent developments indicate the company's commitment to navigating market challenges and focusing on sustainable growth.
InvestingPro Insights
To complement Canaccord Genuity's analysis, InvestingPro data reveals some additional insights into Nerdy's financial situation. The company currently holds more cash than debt on its balance sheet, which could provide some financial flexibility as it navigates its current challenges. This aligns with another InvestingPro Tip indicating that Nerdy's liquid assets exceed its short-term obligations, potentially offering a buffer during this period of strategic adjustment.
However, reflecting the challenges outlined in the article, InvestingPro Tips highlight that Nerdy's stock price has fallen significantly over the last year and has taken a big hit over the last six months. This price movement correlates with the company's recent performance issues and the reduced guidance for the fourth quarter mentioned in the article.
It's worth noting that despite these challenges, Nerdy maintains impressive gross profit margins, according to InvestingPro Tips. This could be a positive factor as the company works to improve its fundamentals and return to a growth trajectory, as anticipated by Canaccord Genuity.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Nerdy, providing a deeper understanding of the company's financial health and market position.
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