Morgan Stanley Raises Chegg's Target On Expectations Of Continues Momentum In Online Learning

The online learning environment has been a tailwind for Chegg Inc CHGG, and the current trend is likely to extend through the entire upcoming academic school year, according to Morgan Stanley.

The Chegg Analyst: Josh Baer maintained an Overweight rating for Chegg, raising the price target from $56 to $83.

The Chegg Thesis: The education technology company is likely to generate higher growth in average revenue per user (ARPU) than was earlier anticipated, driven by its new offerings, significant international expansions and progress with monetizing shared accounts, Baer said in the note.

He expects these trends could continue in the near- and medium-term, resulting in accelerating and durable growth. The analyst added that an increased mix of Services revenue will boost Chegg’s margins and cash flow.

See Also: Chegg's Biggest Challenge: How To Clamp Down On Cheating And Account Sharing

Baer enumerated the key drivers of Services revenue as:

• Accelerated adoption of Chegg’s new study pack bundle, which could result in 5% compounded annual growth in ARPUs over the next five years.
• Solid momentum in Canada, the UK and Australia, which could lead to the international market becoming double the size of the domestic addressable market.
• Monetizing opportunities in shared accounts, with engaged users of the platform representing a source of subscriber growth.

The analyst raised the revenue estimates for fiscal 2020 and 2021 from $547 million to $557 million and from $676 million to $701 million, respectively.

CHGG Price Action: Shares of Chegg traded around $74.52 at the time of publication.