Chegg Stock Is Surging: What's Going On?

Chegg Inc CHGG shares are trading higher Tuesday after the company reported strong second-quarter results and highlighted an increased focus on generative AI tools.

• Q2 Revenue: $182.9 million beat estimates of $176.19 million
• Q2 EPS: 28 cents in line with estimates

Chegg said it saw customer acquisition and retention rates improve during the quarter on a year-over-year basis. 

"We launched the beta version of our initial generative AI experience in May and feedback has been very positive. We believe we are in an unrivaled position to deliver a unique, personalized learning experience for students because we have the assets, the vision, and the balance sheet that no one else has," said Dan Rosensweig, resident and CEO of Chegg.

Chegg sees third-quarter revenue in the range of $151 million to $153 million versus estimates of $152.37 million. Subscription service revenues are expected to be between $135 million and $137 million, compared to second-quarter subscription service revenues of $165.9 million. 

Gross margin is expected to be between 68% and 69% in the third quarter. Adjusted EBITDA is expected to be between $34 million and $36 million.

On the conference call, Rosensweig said students view ChatGPT and Chegg as complementary tools with very different use cases. Chegg is leaning into generative AI and plans to deliver a "new Chegg experience" for students starting in the fall.

"The new Chegg will combine the best of generative AI with Chegg's proprietary high-quality solutions and demonstrated ability to improve student outcomes," Rosensweig said. 

"We expect the development of AI will allow Chegg to embrace a much larger opportunity over time."

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Following the print, Piper Sandler analyst Arvind Ramnani maintained Chegg with a Neutral rating and raised the price target from $11 to $13. JPMorgan analyst Doug Anmuth also maintained a Neutral rating and raised the price target from $12 to $14.

CHGG Price Action: Chegg shares were up 25.8% at $12.61 at the time of publication, according to Benzinga Pro.

Photo: Alexa from Pixabay.