Chegg Inc: Tech Stock Soars 30% In November, Provides Strong Guidance

Chegg Inc Soars on Strong Q3 Results, Raises Guidance Again

Chegg Inc (NYSE:CHGG) is a digital education company that saw its share price soar approximately 30% in November to around $39.00.

What’s behind the massive jump in Chegg stock? In early November, Chegg Inc announced strong third-quarter financial results and raised its full-year guidance.

The company also recently announced its biggest acquisition ever: online tech career school Thinkful, Inc. This should help juice Chegg’s revenue growth over the long run.

CHGG Stock Overview

Chegg Inc is an education company that helps students in high school and college learn more, in less time, at a lower cost. The company’s services include online textbook rentals, online tutoring, homework/study help, and test preparation. (Source: “Overview,” Chegg Inc, last accessed December 3, 2019.)

Some of the most popular tutoring subjects are accounting, algebra, calculus, chemistry, economics, finance, and English. (Source: “Chegg,” Chegg Inc, last accessed December 3, 2019.)

The company’s online tutorials cost anywhere from $6.95 per lesson (algebra and calculus only) to $30.00 per month for 60 minutes per month (any subject).  (Source: “Pricing,” Chegg Inc, last accessed December 3, 2019.)

The company also has an upgraded bundle called “Chegg Study Pack.”

(Source: “Chegg, Inc. (CHGG),” Yahoo! Finance, last accessed December 3, 2019.)

Acquisition of Online Learning Platform Thinkful

On September 4, Chegg Inc announced plans to acquire Thinkful, an online learning platform company that offers professional courses to students across the country. (Source: “Chegg to Acquire Online Skills-Based Learning Platform Thinkful to Help Students Accelerate their Path from Learning to Earning,” Chegg Inc, September 4, 2019.)

The $80.0-million acquisition is expected to close early in the fourth quarter of 2019.

Thinkful has delivered strong revenue growth in excess of 30% year-over-year. For the fourth quarter, Chegg expects the deal to add approximately $2.0 million in revenue to its bottom line.

As for profitability, Chegg expects the adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) from Thinkful to break even in 2020 and contribute to adjusted EBITDA after that.

Q3 Revenue Up 27%

On November 4, Chegg Inc announced that its revenue for the third quarter advanced 27% year-over-year to $94.2 million. (Source: “Chegg Reports Strong Q3 2019 Financial Results and Raises Full Year 2019 Guidance,” Chegg Inc, November 4, 2019.)

This strong revenue growth was driven by the company’s 2.2 million subscribers, up 29% year-over-year.

The company reported a net loss of $11.5 million ($0.10 per share), an improvement from the net loss of $13.7 million ($0.12 per share) in the same period last year.

Adjusted net income was $23.8 million, a 175% increase from the $8.6 million recorded in the third quarter of 2018.

Adjusted EBITDA was $23.1 million, an 84% increase from the $12.5 million recorded in the same prior-year period.

Chegg Raises Full-Year Guidance

Based on its strong third-quarter results, Chegg has raised its guidance for the fourth quarter and full-year 2019. (Source: Ibid.)

For the fourth quarter, Chegg now expects total revenue between $122.0 and $124.0 million. At the midpoint, this represents a 28.5% increase from the $95.7 million recorded in the fourth quarter of 2018. (Source: Chegg Reports Q4 and Full Year 2018 Financial Results and Raises 2019 Guidance,” Chegg Inc, February 11, 2019.)

Management also expects adjusted EBITDA between $43.0 and $45.0 million. This includes a $4.0 million loss related to the Thinkful acquisition. In the fourth quarter of 2018, Chegg reported adjusted EBITDA of $34.8 million.

For full-year 2019, Chegg Inc expects total revenue between $407.0 and $409.0 million. At the midpoint, that would be a 27% increase from the $321.1 million recorded in 2018.

Also for full-year 2019, the company expects adjusted EBITDA between $121.0 and $123.0 million. At the midpoint, this represents year-over-year growth of 46.5% from $83.3 million in full-year 2018.

For 2020, Chegg Inc expects its total revenue to be approximately $520.0 million. The company also expects its adjusted EBITDA to expand to $163.0 million.

Analyst Take

Chegg Inc has had incredible financial results in full-year 2018 and the first three quarters of 2019.

In the most recent quarter, the company’s finances came in above the high end of its expectations. That gave management the confidence to raise their fourth-quarter and full-year 2019 guidance. It also helped Chegg provide a strong outlook for fiscal 2020.

All that should help the price of Chegg stock.