On Friday, JPMorgan issued a rating downgrade for Nerdy (NYSE: NRDY) stock, moving from Overweight to Neutral.
The firm cited a series of investments that Nerdy is making to enhance its Learning Membership platform, which includes improvements to the scheduling experience, match quality, onboarding, self-serve tools, personalization, and content discovery. These enhancements are aimed at increasing user engagement beyond tutoring services.
Despite these efforts, Nerdy has experienced a deceleration in Institutional revenue growth, with a 33% year-over-year increase in the second quarter, down from 39% in the first quarter.
Additionally, the company faced softer summer Bookings due to a slower-than-anticipated integration of the VTS sales team. Although Nerdy has successfully transitioned VTS customers to a unified student platform and provided free access to 3.3 million students, which may potentially lead to paid VTS contracts and Consumer conversions, the slower growth has impacted revenue projections.
As a result of the lower revenue expectations and continuous investments in product development, Nerdy does not anticipate achieving full-year adjusted EBITDA profitability until 2025.
JPMorgan's revised stance reflects a wait-and-see approach, looking for stronger execution and scale across Active Members, which stood at approximately 35,500 in the second quarter, and VTS, with an estimated $36.2 million in 2024 Institutional Revenue, before reconsidering the rating. The firm will be monitoring for signs of profitability and execution improvements, some of which may emerge in 2025.
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