The market stumbled as Chegg IncCHGG shares slipped in early trading on Tuesday, following a more than 8% decrease in the premarket session.
As the company disclosed its fourth-quarter results amid an electric earnings season, analysts have been engrossed in dissecting the implications. Let’s take a closer look at key observations from the release.
- Piper Sandler analyst Arvind Ramnani downgraded the rating from Neutral to Underweight, while reducing the price target from $9.00 to $8.50.
- KeyBanc Capital Markets analyst Jason Celino maintained a Sector Weight rating on the stock.
- William Blair analyst Stephen Sheldon reiterated a Market Perform rating.
- Needham analyst Ryan MacDonald reiterated a Hold rating on the stock.
Explore additional analyst stock ratings.
Piper Sandler: Despite “muted” fourth-quarter expectations, Chegg’s modest upside marked the culmination of a year punctuated by persistent revenue headwinds, as remarked by Ramnani in the downgrade note.
“Subscription Services revenues declined 4.7% in FY23, with domestic/US subscribers constituting ~74% and international ~26%,” the analyst notes. However, he commended the company’s disciplined expense management for cushioning revenue pressure on margins.
KeyBanc: Celino observed a “modest” revenue beat, mainly attributed to improved Subscription Services revenues. He notes, “The slightly higher revenue, along with expense management, drove EBITDA to $66.2M (35.2% margin), ahead of consensus of $63.1M (33.9% margin).”
However, first-quarter guidance was tepid, with Celino expressing concerns over subdued new subscriber growth, particularly in the U.S.
William Blair: Sheldon acknowledged Chegg’s fourth-quarter results as slightly surpassing estimates, but expressed disappointment in subscriber trends. The first-quarter guidance was deemed lackluster on both the top and bottom line.
Despite overall weak subscriber trends and a 9% year-over-year decline in unique subscribers, Sheldon highlighted a positive, as the company’s international subscriber count exhibited growth for the first time in two years.
Needham: MacDonald emphasized Chegg’s persisting dedication to AI, primarily noting the successful rollout of automated answers in the first quarter. This initiative led to a “material Y/Y increase in the amount of Q&A on the platform at a roughly 75% lower cost.”
However, MacDonald pointed out the disconcerting discrepancy between the investment in AI and its yet-to-be-seen fundamental benefits, as seen in the downtrend of GM and the compression of adj. EBITDA margin at a lower revenue run-rate.
CHGG Price Action: As of the time of publication on Tuesday, Chegg’s shares had declined by 3.23% to $9.00.
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