What Happened?

Shares of online learning platform Udemy (NASDAQ:UDMY) fell 7.4% in the morning session after Morgan Stanley analyst Josh Baer downgraded the stock's rating from Overweight (Buy) to Equal-Weight (Hold) and lowered the price target from $10 to $7.5. Baer called out decelerating growth, as he observed "weak web traffic, lead conversion, and tighter enterprise budgets." 

Notably, Udemy's revenue growth slipped into the single-digit territory in Q2'24. This observation suggests that the business is facing pressure in its key operating segments (Consumer & Enterprise). Given these headwinds, the analyst also highlighted concerns regarding Udemy's ability to hit its profitability target of $130-150 million in EBITDA by 2026. Overall, the downgrade revealed potential challenges as management intensifies efforts to turnaround the business.

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What The Market Is Telling Us

Udemy’s shares are somewhat volatile and have had 10 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was about 2 months ago when the stock dropped 22.9% on the news that the company reported second-quarter earnings results. Udemy not only lowered its full-year revenue guidance but also missed Wall Street's EPS estimates. Sales were impacted by FX headwinds and a decline in consumer revenue. Also, there were challenges with upsells, which took longer than historical trends and pressured the reported retention rate. Overall, this was a bad quarter for Udemy.

Udemy is down 44.9% since the beginning of the year, and at $7.68 per share, it is trading 51.9% below its 52-week high of $15.96 from December 2023. Investors who bought $1,000 worth of Udemy’s shares at the IPO in October 2021 would now be looking at an investment worth $279.13.

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