Chegg Stock Plunges 45% As Revenue Takes A Hit From Schools Reopening

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Shares of online education company Chegg plunged nearly 50% Tuesday, wiping billions from its market value after the company’s latest earnings showed revenue will continue to be affected by lower demand as students return to the classroom.

key facts

Chegg’s stock is down 45% to about $34 a share so far on Tuesday, slashing more than $4 billion from the company’s market value, which stood at more than $9 billion the day before.

On Monday afternoon, the company reported third-quarter revenue of $171.9 million — up 12% from a year ago but just below analysts’ expectations of $174.5 million.

And while earnings per share of 20 cents were in line with expectations, Chegg’s total subscribers fell to 4.4 million, an unexpected drop from 4.86 million in the previous quarter.

Another issue was Chegg’s forward guidance: The company warned that fourth-quarter results would take a big hit amid a sudden slowdown in the education industry.

Chegg emphasized that with fewer enrollments and lower course loads as students return to school after the pandemic, demand for online education services is resetting faster than expected.

The company now expects sales of about $195 million for the fourth quarter, which is usually a busy time for final exams, well below the $241 million Wall Street analysts had forecast.

Critical quote:

“In late September, it became apparent to us that the education industry was experiencing a slowdown that we believe is temporary and is a direct result of the COVID-19 pandemic,” Chegg CEO Dan Rosensweg said in a statement. “A combination of variables, increased employment and compensation, combined with burnout, has resulted in far fewer records than anticipated this semester,” he added during the company’s earnings call. Rosensweg argued that the post-pandemic impact would affect the current academic year, but was “unsustainable for higher education in the long term”.

basic background:

Chegg’s inventory more than tripled in 2020, as demand skyrocketed among students learning remotely during the pandemic. Shares of the online education company are down significantly from their peak of $110 earlier this year, however: The stock is down nearly 60% so far in 2021.

What to watch:

Analysts at Morgan Stanley lowered their target price for Chegg shares to $53 from $88, warning that the impact of lower demand raises questions about the company’s ability to bounce back. “In addition to our significant negative discretionary revisions, broader uncertainty around the various contributions to demand headwinds makes us more cautious, and we see stock in the near-term sanctions box,” the analyst note said.

In-depth reading:

This $12 Billion Company Enriches Students Cheating Their Way Through Covid (Forbes)

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