Chegg up after Galloway says share price ‘substantial disconnect’ from value

Bruce Galloway, Chief Investment Officer of Galloway Capital stated in a letter sent to Dan Rosensweig, President and Chief Executive Officer of Chegg (CHGG), that was disclosed in a regulatory filing: “We are writing as a significant shareholder of Chegg, currently holding approximately 5.44% of the outstanding shares. We commend your return as CEO this past Fall and the actions taken to reposition the Company. Following our analysis, we believe Chegg’s current share price reflects a substantial disconnect from intrinsic value. At present levels, the market appears to be incorrectly pricing the business as though it is in financial distress. The Company maintains a strong balance sheet, is expected to exit the year with net cash and no debt, and, in our view, has no credible risk of financial distress. We believe the most effective path to unlocking shareholder value is as you have presented, a strategic separation of the business units. The Skilling segment is already generating approximately $72 million in annualized revenue and, given a ~$40 billion addressable market, has the potential to grow at a sustained double-digit rate. As a standalone business, we believe it would command a materially higher technology valuation multiple reflective of its growth profile. At the same time, the legacy Academic Services business is likely to generate meaningful cash flow over the next several years. This cash generation is not reflected in the current valuation and represents an additional source of value. We are encouraged by the Company’s efforts to align its cost structure and invest in areas of future demand, including AI-enabled learning and workforce development… We would welcome the opportunity to engage constructively with management and the Board to discuss these ideas further.”