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Chegg (CHGG) Q3 Earnings & Revenues Top Estimates, Up Y/Y

Zacks Equity Research

Chegg, Inc. CHGG reported third-quarter 2019 non-GAAP earnings of 18 cents per share, which surpassed the Zacks Consensus Estimate by 9 cents. The figure surged 157.1% year over year.

Net revenues of $94.2 million also beat the consensus mark of $89 million, and increased 26.8% from the year-ago quarter, driven by growth in each division.

Following the impressive results shares increased 14.4% to close at $33.54 on Nov 5.

Chegg has returned 18.1% year-to-date compared with Industry’s rally of 13.8%.



Top-Line Details

Chegg Services (73.6% of net revenues) revenues increased 27.9% year over year to $69.3 million driven by 2.2 million new Chegg Services subscribers, up 29%.

Required Writing (26.4% of net revenues) increased 24% year over year to $24.85 million. Growth in this division was primarily driven by Consignment and e-Textbooks (40% of Required Materials units), which require no capital spending.

Operating Details

On a GAAP basis, third-quarter gross margin increased 330 basis points (bps) from the year-ago quarter to 76.5% mainly driven by strong top-line performance.

On a GAAP basis, total operating expenses were $77 million in the reported quarter. As a percentage of revenues, operating expenses declined 540 bps on a year-over-year basis to 81.83%.

Research & development expenses increased 25.5% to $36.4 million. This was primarily attributable to a rise in employee-related expenses and higher technology expenses to support research and development.

Sales and marketing expenses were up 7.2% to $16.8 million. This increase was due to year-over-year higher radio streaming and display advertisement marketing expenses.

General and administrative expenses were up 18.8% to $23.8 million in the quarter mainly due to higher employee-related expenses.

On a non-GAAP basis, operating income came in at $17.1 million, up 103.9% from the year-ago quarter. Non-GAAP operating margin increased 690 bps to 18.2%.

Chegg, Inc. Price, Consensus and EPS Surprise

Chegg, Inc. Price, Consensus and EPS Surprise

Chegg, Inc. price-consensus-eps-surprise-chart | Chegg, Inc. Quote

Balance Sheet

As of Sep 30, 2019 the company exited the third quarter with $450.5 million in cash and cash equivalents compared with $555.8 million on Jun 30, 2019.

Guidance

For 2019, Chegg has slightly revised its revenue guidance upward from $398 million to $402 million to $407-$409 million.

Management believes that its venture into the skill-based learning space with the acquisition of Thinkful will further aid Chegg’s growth in the next few months.

The Zacks Consensus Estimate for revenues for the ongoing year is currently pegged at $402.1 million, indicating growth of 25.2% from the year-ago reported number.

Gross margin is expected between 76% and 77% for full-year 2019.

The consensus estimate for 2019 earnings is currently pegged at 76 cents per share.

Zacks Rank & Other Stocks to Consider

Currently, Chegg carries a Zacks Rank #2 (Buy).

Advanced Energy AEIS, The Meet Group MEET and Dropbox DBX are some other top-ranked stocks in the broader computer & technology sector. Advanced Energy sports a Zacks Rank #1 (Strong Buy) while Meet Group and Dropbox carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Meet Group and Dropbox are set to report quarterly earnings on Nov 7 while Advanced Energy is scheduled to report on Nov 12.

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