Q3 2024 Summary
Published Jan 22, 2025, 2:35 AM UTC- Nerdy's platform access strategy is gaining traction in the Institutional segment, with 32% of paid contracts and 22% of total bookings value in the third quarter coming from school districts that initially partnered via free platform access and subsequently converted to paid offerings. This demonstrates the effectiveness of their approach in building long-term relationships and increasing market share in the K-12 market.
- Average Revenue per Member (ARPM) increased from $281 at the end of Q2 to $302 at the end of Q3, and is expected to reach around $310 by the end of Q4 and continue to grow into 2025. This growth is driven by a focus on higher-frequency customers and improved customer retention strategies.
- Customer acquisition costs decreased by about $1.4 million or 8% year-over-year in Q3, and with sales conversion improvements, total CACs were down 14% in Q3. These marketing efficiencies are expected to be durable into 2025, targeting higher lifetime value customers and enhancing profitability.
- Despite significant investments in the Institutional sales team and platform, deal sizes in the Institutional segment were smaller than expected, with only $8.5 million of bookings in the third quarter, which was below expectations. This indicates challenges in monetizing the platform and achieving anticipated growth in this segment.
- The company is experiencing higher churn in older cohorts of Consumer Learning Memberships, particularly those with lower frequency, which is expected to continue through year-end, potentially impacting consumer revenue growth. This suggests challenges in retaining customers and achieving stable consumer revenue.
- The extensive resources allocated to launching the platform access strategy in schools have impacted execution in the consumer business, indicating operational challenges and potential strain on resources which could affect overall performance.
-
Institutional Revenue Decline and Monetization Progress
Q: What's driving the decline in Institutional revenue, and how is progress trending on monetizing offerings for school districts?
A: The decline is partly due to the ESSER deadline not creating the expected urgency at the September 30 deadline. Deal sizes were smaller with the new sales team, but the platform access strategy is generating deals and building trust with school districts. 32% of paid contracts and 22% of total bookings value came from school districts that initially partnered via free platform access and converted to paid tutoring offerings. Management is confident this strategy will lead to sustainable long-term growth in 2025 and beyond. -
Active Member Growth and ARPM Dynamics
Q: Expectations for active member growth versus ARPM dynamics in Q4 and any changes between them?
A: Management expects to end the year with about 36,000 active members. ARPM improved from $281 at the end of Q2 to $302 at the end of Q3 as they focus on higher-frequency customers. This trend will continue in Q4, with ARPM expected to be around $310 and to further increase into 2025. -
Lower Customer Acquisition Costs and Marketing Efficiency
Q: What's driving the lower customer acquisition costs and where are you seeing marketing success?
A: Customer acquisition costs decreased by about $1.4 million or 8% year-over-year in Q3. Combined with improved consumer sales conversions, CACs were down 14%. This efficiency is due to targeting marketing investments toward higher LTV customers and segments with quicker paybacks, and management expects these improvements to be durable moving into 2025. -
Consumer Retention Strategies and Engagement
Q: How are you improving engagement and retention on the consumer side?
A: Shifting focus to weekly tutoring memberships led to higher retention among customers engaged in regular sessions. Product enhancements improved first 30-day activation by reducing friction and making it easier to schedule and replace tutors. Negative year-over-year retention trends have reversed in recent cohorts, returning to parity, with expectations for material improvements going forward.