Chegg's 2Q23 Financial Performance Surpasses Analyst's Estimates: Focus Shifts To Subscriber Trends

Needham analyst Ryan MacDonald reiterated a Hold rating on the shares of Chegg Inc CHGG.

Chegg's 2Q23 revenue/EPS of $182.9 million/$0.28 came in above the analyst's $176.5 million/$0.27 estimates. 

According to the analyst, Chegg Services subscriber counts were below investor expectations at 4.81 million versus the consensus of 4.83 million.

While Chegg expressed concerns around subscriber trends related to ChatGPT on the 1Q call in May, management provided an update on the 2Q call as the company saw y/y customer acquisition and retention rates improve in 2Q.

Prior to the earnings call, Chegg announced a partnership with Scale AI to develop their own large language models (LLMs) to power Chegg's personalized learning assistant, noted the analyst.

Under this new partnership, Scale AI will develop subject specific LLMs that are unique to Chegg and will be rolled over the course of the next two semesters, with the expectation that all subjects will be built out by Spring 2024. 

This represents a pivot from Chegg's prior strategy, which would leverage GPT 4.0 for a new offering called CheggMate, added the analyst.

While the analyst likes this new strategy, particularly from a cost perspective, too many variables remain in terms of enrollment & student adoption of the new offering to give visibility into a return to growth.

Price Action: CHGG shares are trading higher by 4.5% at $10.48 on the last check Tuesday.