Chegg Stock Rating Downgraded to Hold by Needham on Slower-Than-Expected Growth Trends
January 30, 2023
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Chegg ($NYSE:CHGG) is an education technology company based in California, USA. It provides digital and physical textbook rentals, online tutoring, and other student services. Its stock is traded on the New York Stock Exchange. On Wednesday, Needham’s Ryan Macdonald and team downgraded Chegg’s stock rating to a Hold from Buy. This decision was based on their analysis of Chegg’s FY22 growth trends on Services subs, ARPU, and Busuu. The analysts looked into the company’s Services revenue, excluding the contribution from Busuu, which is likely to grow around 20% year-over-year. This is a significant decrease from the consensus forecast of 25% year-over-year growth. This drop in growth is attributed to several factors such as lower-than-expected ARPU on Busuu, and an overall decline in Services subs growth.
In addition, Needham cited that Chegg’s potential growth in the US market had been limited due to the already saturated market. The analysts also noted that Chegg’s international expansion efforts have yet to show any meaningful impact on the company’s overall performance. These factors are likely to put a damper on Chegg’s ability to meet consensus estimates for FY22. Overall, Needham feels that Chegg’s stock is currently trading at a premium, and the analysts believe that investors should be cautious about investing in the stock until there is more clarity about the company’s future growth trajectory.
Price History
The news sentiment for the stock has been mostly negative, and the stock opened at $22.0 and closed at $20.4, plunging by 16.6% from its last closing price of 24.4. This downgrade was based on the fact that Chegg’s growth is not as strong as analysts had predicted. As a result, Needham has reduced its expectations for the company’s performance and advised investors to hold the stock instead of buying it. The recent downturn in Chegg’s stock has been attributed to a lack of positive news surrounding the company. Analysts have noted that despite the release of several new products and services, Chegg’s user base has not seen the expected growth. This has caused investor confidence to decline as they question whether Chegg will be able to continue its growth trajectory. Chegg’s management team is working hard to turn their fortunes around and are hopeful that the recent changes they are making will help the company get back on track.
However, analysts are concerned that these efforts may not be enough to reverse the current trend of declining stock prices. Investors are advised to keep an eye on the stock and wait for positive news before considering buying it. As of now, the news sentiment for Chegg is mostly negative and the stock continues to decline. Live Quote…
About the Company
Income Snapshot
Below shows the total revenue, net income and net margin for Chegg. More…
| Total Revenues | Net Income | Net Margin |
| 769.17 | 289.09 | 24.2% |
Cash Flow Snapshot
Below shows the cash from operations, investing and financing for Chegg. More…
| Operations | Investing | Financing |
| 246.82 | 138.99 | -1.03k |
Balance Sheet Snapshot
Below shows the total assets, liabilities and book value per share for Chegg. More…
| Total Assets | Total Liabilities | Book Value Per Share |
| 2.4k | 1.35k | 8.34 |
Key Ratios Snapshot
Some of the financial key ratios for Chegg are shown below. More…
| 3Y Rev Growth | 3Y Operating Profit Growth | Operating Margin |
| 26.4% | 46.7% | 17.4% |
| FCF Margin | ROE | ROA |
| 18.3% | 9.0% | 3.5% |
VI Analysis
Investors looking for a long-term, stable growth opportunity may be interested in CHEGG, as indicated by its strong fundamentals. According to the VI Star Chart, CHEGG is strong in growth and profitability, medium in assets, and weak in dividend. It has a high health score of 9/10, due to its ability to cover its cashflows and debt in a safe manner, which allows it to ride out any crisis without the risk of bankruptcy. CHEGG is classified as a ‘gorilla’ company, meaning it has achieved stable and high revenue or earnings growth due to its strong competitive advantage. This type of company makes an attractive long-term investment for those seeking a portfolio that can provide steady returns over time. CHEGG has proven to be a reliable and stable company, as evidenced by its strong fundamentals. It is well-equipped to handle any crisis situation and has consistently demonstrated high growth and profitability over time. It is an attractive option for those looking for a dependable long-term investment. More…
VI Peers
Chegg Inc is an American education technology company based in Santa Clara, California. The company offers digital and physical textbook rentals, online tutoring, and other student services. Chegg is one of the largest online textbook rental companies in the United States. The company has been criticized for its business model, which has been likened to textbook flipping, and for its environmental impact.
Chegg’s competitors include: CognaEducacao SA, Perdoceo Education Corp, Wah Fu Education Group Ltd.
– CognaEducacao SA ($OTCPK:COGNY)
Cogna Educacao SA is a publicly traded company with a market capitalization of 1.07 billion as of 2022. The company operates in the education sector and provides educational services and products in Brazil and internationally. The company has a return on equity of 2.54%.
– Perdoceo Education Corp ($NASDAQ:PRDO)
Perdoceo Education Corporation is a provider of higher education operating primarily through its two universities, Colorado Technical University and American InterContinental University. The company offers bachelor’s and master’s degrees in a variety of disciplines, including business, computer science, engineering, nursing, and more. Perdoceo Education Corporation is headquartered in Colorado Springs, Colorado.
– Wah Fu Education Group Ltd ($NASDAQ:WAFU)
Wah Fu Education Group Ltd. is a provider of educational services in Mainland China. The Company operates its business through four segments. The Pre-school Education segment offers educational programs and services for children aged three to six. The K-12 Education segment provides educational programs and services for students aged six to 18. The Adult and Other Education segment offers educational programs and services for adults. The International Education segment provides international education programs and services. The Company operates a number of schools, including Wah Fu Kindergarten, Wah Fu Bilingual School, Wah Fu International School and others.
Summary
Investors should consider the recent Needham downgrade of Chegg stock to ‘Hold’ due to slower-than-expected growth trends. While sentiment towards the stock has been mostly negative, the stock price has remained relatively unchanged so far. Investors should take into account any potential risks associated with buying Chegg stock, and make sure to research the company before investing.
It is important to note that past performance is not necessarily indicative of future returns. As such, investors should take into account current market conditions and any changes in the company’s business fundamentals before making an investment decision.
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