Chegg (NYSE:CHGG) Beats Q4 Sales Targets But Stock Drops

Adam Hejl /
2024/02/05 4:14 pm EST

Online study and academic help platform Chegg (NYSE:CHGG) reported results ahead of analysts' expectations in Q4 FY2023, with revenue down 8.4% year on year to $188 million. On the other hand, next quarter's revenue guidance of $174 million was less impressive, coming in 3.4% below analysts' estimates. It made a non-GAAP profit of $0.36 per share, down from its profit of $0.40 per share in the same quarter last year.

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Chegg (CHGG) Q4 FY2023 Highlights:

  • Revenue: $188 million vs analyst estimates of $186 million (1.1% beat)
  • EPS (non-GAAP): $0.36 vs analyst expectations of $0.36 (small miss)
  • Revenue Guidance for Q1 2024 is $174 million at the midpoint, below analyst estimates of $180.1 million
  • Free Cash Flow of $51.73 million, up from $9.37 million in the previous quarter
  • Gross Margin (GAAP): 75.6%, in line with the same quarter last year
  • Services Subscribers: 4.6 million, down 400,000 year on year
  • Market Capitalization: $1.11 billion

“It’s an exciting time at Chegg and I am proud of the team, and how they have navigated through last year, as we completely reinvented the company by leveraging the advancements in artificial intelligence,” said Dan Rosensweig, CEO and President of Chegg.

Started as a physical textbook rental service, Chegg (NYSE:CHGG) is now a digital platform addressing student pain points by providing study and academic assistance.

Consumer Subscription

Consumers today expect goods and services to be hyper-personalized and on demand. Whether it be what music they listen to, what movie they watch, or even finding a date, online consumer businesses are expected to delight their customers with simple user interfaces that magically fulfill demand. Subscription models have further increased usage and stickiness of many online consumer services.

Sales Growth

Chegg's revenue growth over the last three years has been unimpressive, averaging 5.2% annually. This quarter, Chegg beat analysts' estimates but reported a year on year revenue decline of 8.4%.

Chegg Total Revenue

Chegg is expecting next quarter's revenue to decline 7.2% year on year to $174 million, a further deceleration of the 7.2% year-on-year decrease it recorded in the same quarter last year.

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Usage Growth

As a subscription-based app, Chegg generates revenue growth by expanding both its subscriber base and the amount each subscriber spends over time.

Over the last two years, Chegg's users, a key performance metric for the company, grew 0.9% annually to 4.6 million. This is one of the lowest rates of growth in the consumer internet sector.

Chegg Services Subscribers

Unfortunately, Chegg's users decreased by 400,000 in Q4, a 8% drop since last year.

Revenue Per User

Average revenue per user (ARPU) is a critical metric to track for consumer internet businesses like Chegg because it measures how much the average user spends. ARPU is also a key indicator of how valuable its users are (and can be over time). Chegg ARPU

Chegg's ARPU has declined over the last two years, averaging 4.2%. Although the company's users have continued to grow, it's lost its pricing power and will have to make improvements soon. This quarter, ARPU declined 0.4% year on year to $40.87 per user.

Key Takeaways from Chegg's Q4 Results

It was good to see Chegg narrowly top analysts' revenue expectations this quarter. But that's where the good news ends. Its revenue and EBITDA guidance missed estimates as its subscribers fell short of estimates. That's on top of its subscribers shrinking this quarter. David Longo, who has been with the company since 2021 as its Chief Accounting Officer, was also promoted to CFO following the retirement of Andy Brown. Brown was a long-time executive, having joined the company in October 2011. Overall, this was a mediocre quarter for Chegg. The company is down 6.9% on the results and currently trades at $8.65 per share.

Chegg may not have had the best quarter, but does that create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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