Nerdy (NRDY 1.08%) went public by merging with a special purpose acquisition company (SPAC) last September, but the online tutoring marketplace quickly lost its luster. Nerdy's stock started trading at $10.96 upon closing its merger, but it's now only worth about $3 per share.
However, the bulls will point out Nerdy's stock now trades at less than two times this year's sales, while its founder and CEO Chuck Cohn recently boosted his personal stake in the company to 35.5%. Does that low valuation and insider confidence make Nerdy a worthy turnaround play?
Image source: Getty Images.
What happened to Nerdy?
Nerdy isn't a traditional online education company like 2U or Coursera, which both provide accredited online classes and degrees. Instead, its core platform, Varsity Tutors, is a freelance marketplace that connects private tutors with students and hosts their live K-12, professional, and adult learning classes in over 3,000 subjects. It also hosts free large-format online classes, which can simultaneously accommodate 500 to 50,000 online students.
In the first quarter of 2022, Varsity Tutors served 74,000 active learners across 748,000 online sessions. Its year-over-year growth rates in active learners and active experts accelerated relative to 2021, which offset its slightly lower revenue per active learner and sessions taught per active expert. Here's a look at the numbers:
|
Metric |
Full-Year 2021 YOY Change |
Q1 2022 YOY Change |
|---|---|---|
|
Active learners |
46% |
56% |
|
Revenue per active learner |
(1%) |
(13%) |
|
Active experts |
17% |
37% |
|
Online sessions |
73% |
57% |
|
Sessions taught per active expert |
19% |
(2%) |
|
Total bookings |
48% |
30% |
|
Total revenue |
35% |
36% |
Data source: Nerdy. YOY = year over year.
However, Nerdy expects revenue to decline sequentially in the second and third quarters as it pivots from à la carte sessions toward various subscription-based memberships. To make matters worse, it expects "heightened summer travel" trends in a post-lockdown market to exacerbate that sequential slowdown.
Nerdy believes its growth will accelerate again by the fourth quarter as more students return to school, but it still only expects revenue to rise about 19% to a range of $160 million to $175 million for the full year.
Prior to completing its SPAC merger last year, Nerdy had told investors that it could grow its revenue to $267 million in 2023. But at this rate, it would need to generate 59% revenue growth next year to hit that lofty target. For now, analysts only expect Nerdy's revenue to rise 20% to $168.5 million in 2022 and grow another 30% to $218.5 million in 2023.
NYSE: NRDY
Key Data Points
By comparison, analysts expect 2U's revenue to rise just 13% this year, and for Coursera's revenue to increase about 31%.
Nerdy still lacks a path toward profitability
Nerdy's stock looks cheap relative to its revenue growth, but its operating, net, and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) losses have only gotten worse since 2020.
|
Metric |
FY 2020 |
FY 2021 |
Q1 2022 |
|---|---|---|---|
|
Revenue |
$104.0 million |
$140.7 million |
$46.9 million |
|
Operating income |
($17.9 million) |
($96.5 million) |
($20.7 million) |
|
Net income |
($24.7 million) |
($30.7 million) |
($31.7 million) |
|
Adjusted EBITDA |
($8.9 million) |
($22.4 million) |
($6.6 million) |
Data source: Nerdy.
During the first-quarter conference call, Cohn said Nerdy would focus on "simply doing more with less and simply slowing the rate of hiring" to cope with a potential macroeconomic slowdown, but the company still had an "eye toward profitability" by the end of 2023.
However, Nerdy still expects its adjusted EBITDA loss to fall between $28 million and $38 million in 2022. That's much gloomier than the guidance the company provided during its pre-merger presentation last year, when it predicted it would only post an adjusted EBITDA loss of $3 million in 2022 before generating a positive EBITDA with a net profit in 2023.
Nerdy ended the first quarter with $141.7 million in cash and equivalents, which gives it some breathing room to achieve its transition toward monthly subscriptions while reining in its expenses. Nerdy has no long-term debt, but it could be challenging to secure fresh funds as interest rates increase.
The wrong stock for this challenging market
Nerdy's track record of overpromising and underdelivering, which many other SPAC-backed companies have also been guilty of doing, makes it difficult to believe management's rosy projections for achieving stable profits by 2023. The company has also told investors to brace for two more quarters of sluggish growth, so its stock could easily stumble further in this volatile market. Instead of buying this beaten-down education stock, investors should stick with more reliable blue chip plays until the macro headwinds wane.
