Why Chegg Shares Are Plummeting Today

Chegg, Inc. CHGG shares are trading lower today. Several analysts cut the price target after it released first-quarter FY24 financial results and issued second-quarter net revenue guidance below estimates.

Yesterday, Chegg posted adjusted earnings of 26 cents per share, beating market estimates of 25 cents per share. The company’s quarterly sales came in at $174.40 million versus expectations of $174.10 million.

The company said it sees total net revenues of $159 million to $161 million for the second quarter, versus market estimates of $173.58 million.

Chegg also announced the appointment of Nathan Schultz as Chief Executive Officer, effective June 1.

Piper Sandler analyst Arvind Ramnani cut the price target to $6 (from $8.5) and maintained an Underweight rating.

The analyst says that Chegg faces secular challenges that will likely remain in place and could intensify with broader advances with GenAI. 

The analyst trimmed the CY25 revenue estimate to $660 million (from $716 million) and expects a revenue decline of -6.1% in FY24 and -1.9% in FY25.

Goldman Sachs analyst Eric Sheridan maintained Sell rating and price target of $7 but cut estimates for the company.

The analyst writes that the company’s second-quarter guidance was below estimates due to a lower subscriber count Y/Y at the beginning of the quarter and no clear timeline on an expected return to subscriber or revenue growth, among others.

Sheridan estimates EPS estimates of $1.18 (vs. $1.21 prior) for FY25 and $1.16 (vs. $1.19 prior) for FY26.

J.P. Morgan analyst Bryan M. Smilek cut the price target to $8 (from $9) while maintaining a Neutral rating.

The analyst says that Chegg’s second-quarter outlook is pressured by continued Y/Y subscriber declines (JPM est. -10% Y/Y) & ARPU pressures from pricing tests (JPM est. -3% Y/Y), & return to growth remains a priority.

The analyst believes a broader rollout is likely ahead of the Fall 2024 semester, which should aid improved subscriber trends ahead of back to school. 

Smilek cut the 2024 revenue & adj. EBITDA estimates by 5% and 9% for the company.

KeyBanc Capital Markets analyst Devin Au maintained a Sector Weight rating but lowered the 2024 estimates to reflect the weak second-quarter outlook, with implied Subscription Services growth at -12.5% (vs. consensus -5.6%). 

The analyst cut the revenue estimate to $657.8 million (from $670.0 million) for FY24 and $665.9 million (from $685.6 million) for FY25.

Barrington Research analyst Alexander Paris maintained the Market Perform rating but lowered estimates for FY24 net revenues to $646.4 million (from $687.0 million) and non-GAAP EPS to $1.00 (from $1.20). 

For FY25, the analyst trimmed estimates for net revenues to $660.0 million (from $695.0 million) and non-GAAP EPS to $1.15 (from $1.30).

The analyst believes that embracing generative AI aggressively and immediately is the right call for the company and will likely result in a bigger market opportunity and a better user experience over time, but the reduced near-term visibility is keeping them on the sidelines.

Price Action: CHGG shares are down 26.75% at $5.25 at the last check Tuesday.

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