On Monday, JPMorgan assumed coverage on shares of Nerdy (NYSE: NRDY), an education technology company, with an Overweight rating and set a price target of $5.00. The firm highlighted Nerdy's focus on scaling its product, growing its freemium model, and delivering profitable growth as the key priorities for the company in 2024.
The transition to the Learning Membership is complete, and Nerdy is now expanding its reach by introducing a freemium offering across its Consumer and Institutional businesses. This strategy aims to increase brand awareness and act as a conversion funnel.
The initial response to the freemium model has been positive in both Consumer and Varsity Tutors segments, with expectations for continued testing of the model ahead of the back-to-school period later in the year.
Nerdy has not yet factored in the financial benefits of the freemium model into its projections, which could provide potential upside to the estimates over time. The company's institutional execution is reported to be healthy, with the ESSER III's September 30 allocation deadline and tutoring-focused legislation anticipated to drive demand in 2024 and beyond.
The analyst from JPMorgan also noted that increased scale in Varsity Tutors should lead to greater awareness of Nerdy's direct-to-consumer offerings, potentially boosting active member count and consumer revenue growth. The firm expressed optimism regarding Nerdy's GenAI/LLM strategy, which is expected to enhance lifetime value, engagement, retention, and cost efficiencies.
JPMorgan projects that Nerdy will see revenue growth acceleration, a 590 basis points year-over-year adjusted EBITDA margin expansion, and free cash flow generation in 2024. The December 2024 price target of $5 is based on approximately 4 times Nerdy's projected 2025 gross profit of $206 million, which is equivalent to around 25 times the firm's estimated 2026 adjusted EBITDA of $30 million.
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