Morgan Stanley analyst Josh Baer downgraded Udemy, Inc. (NASDAQ:UDMY) to Underweight from Equal Weight, lowering the price forecast to $7.50 from $10.

The analyst suggests that Udemy's strategic shift may indicate weakening demand, contrasting with earlier expectations for near-term growth. Profitability targets depend on substantial operating leverage, which conflicts with lower top-line growth, Baer wrote.

Additionally, a negative third-party data and overly optimistic consensus estimates present an unfavorable risk/reward profile for the stock, the analyst said.

In Udemy's case, the company already has a well-established Enterprise sales force targeting that market segment, making this shift more incremental.

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The analyst noted that the appointment of new CRO leadership in June 2024 and a significant reduction of about 280 employees (roughly 20% of the workforce) highlight substantial changes.

Plans to rehire half of those positions in lower-cost regions, alongside efforts to achieve 17% EBITDA margin expansion from CY24 to CY27, suggest a shift in personnel, investments and strategic focus, which could lead to disruptions in the upcoming quarters.

While Udemy's strategy may ultimately succeed, the analyst views the current transition as carrying a more negative risk/reward profile.

UDMY Price Action: Udemy shares closed down 5.90% to $7.65 on Friday.

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This article was created using artificial intelligence and was reviewed by Benzinga editors.