What Pulled Chegg Stock Down 32% on Monday?

Shares of Chegg, Inc. (NYSE: CHGG) collapsed 32% in the extended trading session on Monday to close at $17, the lowest level seen since 2018. The stock price movement comes despite upbeat first-quarter 2022 results posted by the education technology company.

Perhaps, investors are unhappy about the cut in guidance announced by the company citing “issues of enrollment, the economy, and now inflation.” These were provided by management during their earnings call as reasons behind the declines in enrolled students. By press time, the stock was down more than 35% before market open on Tuesday.

CEO & President of Chegg, Dan Rosensweig, said, “We had a solid first quarter, and Chegg is executing well against our strategic objectives, despite continued industry headwinds. We expect these challenges to be temporary and when they subside, our operating model, balance sheet, and leading brand, put us in a strong position to accelerate our growth.”

Results in Detail 

Chegg registered net revenues of $202.2 million, topping the Street’s estimate of $201.3 million, and grew 2% from the same quarter last year. Chegg Services revenues rose 14% year-over-year to $184.8 million.

Also, Q1 adjusted earnings of $0.32 per share surpassed analysts’ expectations of $0.24 per share. The company reported adjusted earnings of $0.28 per share in the last year’s quarter.

Over the course of the quarter, Chegg Services subscribers increased 12% year-over-year to 5.4 million, bolstered by the company’s absorption of language-learning platform Busuu.

Meanwhile, adjusted EBITDA came in at $62.2 million, up 8.8% year-over-year. 

Revised Guidance 

On the back of challenging operating conditions, Chegg lowered its guidance for the full-year 2022. The company now expects total revenue between $740 million and $770 million, compared with $830 million and $850 million previously guided. The consensus estimate is pegged at $843.4 million.

Chegg Services revenue is anticipated to be in the range of $710 to $740 million, down from prior outlook of $770 million to $790 million.

The company also provided guidance for the second quarter of 2022. Chegg expects total revenues between $188 million and $192 million, compared with the consensus estimate of $210.6 million. Additionally, it anticipates Chegg Services revenues to be in the range of $183 million to $187 million.

Analyst Recommendations 

The Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on five Buys and six Holds. The Chegg average price target of $41.78 implies 67.25% upside potential.

Hedge Fund Trading Activity

TipRanks’ Hedge Fund Trading Activity tool shows that confidence of hedge funds in Chegg is currently Very Positive, as the cumulative change in holdings across all nine hedge funds that were active in the last quarter was an increase of three million shares.

Conclusion

The company’s lower guidance more than wiped off all the positive sentiments that may have risen out of its decent quarterly performance. However, the recent price correction makes CHGG a probable pick. Bullish sentiments of hedge funds and bloggers resonate the thought.

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