Chegg Analysts Bullish After Q1 Report: 'Balanced Subscriber Beat'

Chegg Inc CHGG shares traded lower Tuesday after the company reported mixed first-quarter earnings numbers.

For the first quarter, Chegg reported adjusted EPS of 28 cents, missing consensus analyst estimates of 31 cents. First-quarter revenue was $198.3 million, beating Wall Street expectations of $184.59 million. Revenue was up 50.8% from a year ago.

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Chegg also said its Chegg Services subscriber count was up 64% in the first quarter to 4.8 million.

Looking ahead, Chegg guided for second-quarter revenue of between $188 million and $190 million and adjusted EBITDA of between $72 million and $$74 million.

For the full fiscal 2021 year, Chegg guided for revenue of between $790 million and $800 million and adjusted EBITDA of between $275 million and $280 million. The company also projected full-year gross margins of between 68% and 69%.

Analysts Impressed By Chegg's Growth: Morgan Stanley analyst Josh Baer said Chegg’s guidance was better than some investors had feared, and the company’s long-term growth outlook is not fully reflected in its share price.

“We think Chegg can sustain a high 20's Services Revenue CAGR and mid-30%'s EBITDA CAGR through 2023,” the analyst said. 

Raymond James analyst Brian Peterson said the 60%-plus growth in Chegg Services revenue is particularly impressive.

“While services growth and subscriber trends continue to benefit from the current pandemic, developments should support the notion that trends look more structural in nature, particularly the company's success in international markets,” the analyst said. 

Chegg Shows Strength Across The Board: KeyBanc analyst Jason Celino said Mathway contributed about 350,000 subscribers in the quarter.

“Given the acceleration in Mathway (which is lower ARPU than core-Chegg), we come away with a better understanding of Mathway's drag on ARPU, and maintain our view that ARPU headwinds could lessen once lapped in 2H21,” the analyst said. 

Needham analyst Ryan MacDonald said Chegg’s U.S. business, International business and Mathway combined to produce “a balanced subscriber beat.

“Despite concerns around post-COVID retention, our survey work suggests strong retention once in-person learning returns, and we believe the current outlook for 2H21 remains conservative for both subscriber count and ARPU,” he said. 

Chegg Ratings, Price Targets:

• Morgan Stanley has an Overweight rating and $115 target.
• Raymond James has an Outperform rating and lowered the price target from $120 to $100. 
• KeyBanc has an Overweight rating and lowered the price target from $124 to $115. 
• Needham has a Buy rating and $120 target.

CHGG Price Action: Chegg shares were trading down 0.18% at $83.06 ahead of the close Tuesday.