What Happened:
Shares of online study and academic help platform Chegg (NYSE:CHGG) fell 24.1% in the morning session after the company reported second-quarter results. Chegg narrowly topped analysts' revenue expectations.
On the other hand, its number of users declined, and its revenue growth was quite weak. Both revenue and adjusted EBITDA guidance for the next quarter missed expectations. Overall, this was a bad quarter for Chegg, which is unfortunate because the market is quite skeptical about this company with the rise of AI.
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What is the market telling us:
Chegg's shares are not very volatile than the market average and over the last year have had only 30 moves greater than 5%. Moves this big are very rare for Chegg and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move we wrote about was 21 days ago, when the company gained 18% on the news that Morgan Stanley analyst upgraded the stock from Underweight (Sell) to Equal Weight (Hold). The analyst believes the company has a reasonable potential to deliver "solid free cash flow generation" given a 2x EBITDA multiple, which is considered "a more balanced risk/reward ratio."
Chegg is down 80.1% since the beginning of the year, and at $2.24 per share it is trading 80.4% below its 52-week high of $11.41 from December 2023. Investors who bought $1,000 worth of Chegg's shares 5 years ago would now be looking at an investment worth $51.49.
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