Chegg Inc: Best-in-Class Cloud Tech Stock Soars 142% in 3 Months

Cloud-Based Education Stock’s Rise Just Getting Started

Chegg Inc (NYSE:CHGG), a leading provider of cloud-based education, is a tech stock we have been bullish on for years. And for good reason: the company has a long history of reporting strong financial results, raising its guidance, and making strategic acquisitions. Those features make CHGG stock one of the best tech stocks out there.

Chegg recently reported strong first-quarter results, in which the company’s revenues, adjusted net income, and number of “Chegg Services” subscribers  surged.

Keep in mind, the COVID-19 outbreak only shut down big parts of the U.S. economy and resulted in social distancing in the closing weeks of the first quarter. So you can’t pin the pandemic on those stellar results.

That said, the company’s second-quarter results are expected to see Chegg Inc experience a big boost in revenue subscriber growth on the heels of the coronavirus.

And that momentum is expected to continue over the next two years.

Chegg Stock Overview

Chegg Inc and Amazon.com, Inc. (NASDAQ:AMZN) sort of started out the same: one sold books online and the other sold textbooks to college students. The two companies have since expanded their offerings.

Chegg is now an educational tech company that helps students in high school and college learn more, in less time, at a lower cost. The company’s on-demand, adaptive, and personalized learning platform is taught by a network of actual educators, not an interface pretending to be human. Source: “Overview,” Chegg Inc, last accessed June 19, 2020.)

In addition to selling and renting discounted textbooks, the company provides online tutoring, help with homework and studying, test prepping,  internships, and scholarships.

Chegg Inc Acquires Mathway for $100 Million

On June 4, Chegg announced that it acquired Mathway, an online math solver with subscribers in about 100 countries and available in 13 languages. (Source: “Chegg Acquires Mathway to Expand Its Math Offerings Globally,” Chegg, Inc., June 4, 2020.)

One of the highest-rated education mobile apps, Mathway offers a wide range of subjects, with 400+ different topics, including algebra, trigonometry, and calculus.

Last year, Mathway helped its subscribers solve more than 1.3 billion math problems.

In 2019, Mathway had net revenue of about $13.0 million. Chegg expects Mathway to start contributing to its bottom line in the second quarter. That’s good news for CHGG stock investors.

Strong Q1 Revenue Growth

On May 4, Chegg Inc announced that its revenue for the first quarter, ended March 31, increased 35% year-over-year to $131.6 million. Chegg Services revenue advanced 33% to $100.4 million, or 76% of total net revenue. (Source: “Chegg Reports First Quarter 2020 Financial Results,” Chegg Inc, May 4, 2020.)

The company reported a first-quarter net loss of $5.7 million, or $0.05 per share. In the first quarter of 2019, it reported a net loss of $4.3 million, or $0.04 per share. (Source: “Chegg Reports Q1 2019 Financial Results and Raises Full Year 2019 Guidance,” Chegg Inc, April 29, 2019.)

Chegg reported adjusted net income of $29.0 million, a 48% increase over the adjusted net income recorded in the same prior-year period. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) was $31.8 million, a 33.1% increase over the adjusted EBITDA recorded in the first quarter of 2019.

CEO Dan Rosensweig commented, “In these difficult times Chegg performed ahead of our expectations and we are grateful to have helped so many students.”

Looking ahead to the second quarter, Chegg expects to report:

• Total net revenue in the range of $135.0 to $137.0 million. At the midpoint, that represents year-over-year growth of 45%.
• Chegg Services revenue in the range of $115.0 to $117.0 million, for year-over-year growth of 45% at the midpoint.
• Adjusted EBITDA in the range of $48.0 to $50.0 million, which would be year-over-year growth of 58% at the midpoint.

Chart courtesy of StockCharts.com

Analyst Take

Chegg Inc’s online education platform was in high demand even before the coronavirus shut down schools and forced us to adopt strict social distancing rules. The company reported strong fourth-quarter and year-end results, exceeded its own profitability expectations, and raised its full-year guidance for 2020.

The coronavirus has given Chegg a second wind, but the company’s long-term success isn’t contingent upon COVID-19. The company has been experiencing dramatic growth and, thanks to its popular platform and the strength of its balance sheet, Chegg Inc has been able to meet the increased demands of its business and make important investments in its future.

All of that bodes well for Chegg stock over the coming years.