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Chegg (CHGG) Hits New 52-Week High, Can the Run Continue?

Zacks Equity Research

Chegg, Inc. CHGG hit a new 52-week high of $33.25 on Jan 10. The stock pulled back to end the trading session at $32.52, gaining 0.2% in the trading session.

In fact, shares of Chegg have gained 92.1% over a year, broadly outperforming the Zacks Internet - Software industry’s growth of 5.8%. Focus on high-quality and low-cost educational services, along with acquisitions will drive the stock’s performance in the upcoming quarters as well. Importantly, the industry has portrayed a bull run in a year’s time, as is evident from the stock’s rally against the S&P 500 index’s fall of 6%. Impressively, the industry ranks in the top 19% (47 out of 256) of the Zacks classified industries.

Its earnings estimates for 2018 and 2019 have remained stable over the past 60 days, with an expected year-over-year growth rate of 78.6% and 26.6%, respectively.

What’s Driving the Stock?

Chegg’s strategy of delivering high-quality and low-cost educational services through its direct-to-student learning platform is poised to gain traction among students. Since the popularity of online as well as on-demand human help is at the peak, Chegg Services and Required Materials are likely to help the company to drive growth.

The company’s core strategy is to utilize Chegg Services for increasing student engagement within its e-learning platform. Chegg Services primarily include Chegg Study, Chegg Writing, Chegg Tutors and Chegg Math Solver.

The company conjugates with leading service providers that offer students with discounts, promotions and various useful products. Along with these additional supports, the company provides internships, Chegg CareerMatch programs along with Test Prep services. Chegg Services revenues, which increased 38% year over year during the first nine months of 2018, accounted for 76% of net revenues compared with 69% in the prior-year period.

After performing well in the past three quarters, the company has raised its full-year 2018 revenue guidance to the range of $315-$318 million from $306-$311 million expected earlier. Chegg Services revenues are now anticipated within $250-$252 million (up from prior expectation of $248-$251 million). Gross margins are likely to grow between 74% and 75%.

Chegg earns revenues from Ingram and other partners, on the rental and sale of print textbooks as well as eTextbooks. These course materials are more attractive to students than the campus bookstores. Importantly, its content views in the third quarter were up 51% on a year-over-year basis.

Meanwhile, Chegg launched its Chegg CareerMatch program in the third quarter. The program is focused on attracting those students who are trying to save money and improve their grades.

The company keeps on investing in different businesses to strengthen existing services, and add new features, functionality as well as content. On Jul 2, 2018, the company acquired StudyBlue, Inc. or StudyBlue in order to add a significant number of subject categories and contents to its existing learning platform. Also, on May 15, 2018, it acquired WriteLab, Inc. or WriteLab, an AI-enhanced writing platform, in Berkeley, CA. The buyout will enhance its existing Chegg Writing service, as well as add new tools, features, and functionality.

The company is planning to invest more in technology in the upcoming quarters, in order to empower long-term growth prospects. Technology will improve its existing learning platform along with develop additional products and services. Notably, in third quarter of 2018, the company’s subscribers grew an impressive 45% from a year ago.

Zacks Rank & Other Key Picks

Currently, Chegg carries a Zacks Rank #2 (Buy). Other top-ranked stocks from the same industry include AudioEye, Inc. AEYE, BlackLine, Inc. BL and Coupa Software Incorporated COUP, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AudioEye’s earnings are expected to grow 56.8% in 2018.

BlackLine’s 2018 earnings are expected to grow 250%.

Coupa Software’s earnings for fiscal 2019 are expected to increase 157.1%.

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