Nerdy Faces Execution Risks Despite Strong Q4 Results, Says Analyst

J.P. Morgan analyst Bryan M. Smilek reiterated an Underweight rating on the shares of online learning platform Nerdy Inc NRDY.

Nerdy exceeded expectations with its fourth-quarter results, surpassing the high end of its guidance. Meanwhile, the first-quarter outlook fell short of both JPM and consensus estimates.

The company has refocused its consumer strategy toward higher-frequency offerings, while AI-driven optimizations led to a 26% year-over-year improvement in engagement and better retention in the fourth quarter.

Additionally, Nerdy raised its subscription product ARPM by 15-20%, with February ARPM tracking over $400. This, along with AI-driven engagement improvements and price hikes, is expected to foster a return to consumer revenue growth in 2025, noted the analyst.

On the institutional side, Nerdy has adjusted its investments to align with a more stable sales cycle after ESSER and N-T funding uncertainties.

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VTS secured 91 paid contracts, resulting in $4.6 million in bookings, and has extended platform access to over 5 million students across roughly 1,100 school districts.

Around 43% of paid contracts and 36% of bookings in the fourth quarter came from school districts that upgraded to paid offerings.

The company plans to integrate AI across VTS offerings and expects these product upgrades, along with a unified platform and streamlined operations, to drive institutional revenue growth in the second half of the year.

While the analyst is optimistic about improved trends across consumer, institutional, and adjusted EBITDA, visibility remains uncertain.

Also, though key growth initiatives like Learning Memberships and VTS show potential for scaling and profitability, challenges and execution risks remain.

Stronger execution and scalability across active members and VTS, along with positive adjusted EBITDA and free cash flow generation, could materialize in 2025, said the analyst.

Price Action: NRDY shares are trading higher by 7.24% at $1.63 at last check Monday.

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