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Chegg (CHGG) Tops Q3 Earnings Estimates, Raises '19 View

Zacks Equity Research

Chegg, Inc. CHGG reported better-than-expected results in third-quarter 2019. Both the top and bottom lines surpassed the respective Zacks Consensus Estimate and improved year over year, given strong contribution from Chegg Services. Resultantly, this educational technology company lifted its guidance for 2019. Notably, Chegg’s shares jumped almost 14% in the after-hour trading session, post its earnings release.

During the quarter, the company reported adjusted earnings of 18 cents per share, surpassing analysts’ expectation of 9 cents by 100%. Also, the reported figure increased more than 150% from the year-ago profit level of 7 cents. The upside can be attributed to solid top-line growth.

Chegg, Inc. Price, Consensus and EPS Surprise

Chegg, Inc. Price, Consensus and EPS Surprise

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

Revenues & Subscription Details

Net revenues of $94.2 million also surpassed the consensus mark of $89.4 million by 5.3% and rose 26.8% year over year. The uptrend was primarily backed by 2.2 million Chegg Services subscribers during the quarter.

Chegg Services revenues — accounting for 74% of total net revenues — totaled $69.3 million, up approximately 28% year over year. Chegg Services subscribers also increased 29% year over year. During the quarter, Chegg Study content views grew 25.5% year over year to 138 million.

Operating Highlights

Gross profit of $72 million in the quarter increased 32.5% from the year-ago level. Gross margin of 76.5% was up 330 basis points (bps) from the prior-year quarter’s 73.2%. Adjusted operating expenses, as a percentage of net revenues, fell 360 bps to 58.4%.

Adjusted EBITDA of $23.1 million reflects a substantial improvement of 84% from the year-ago level of $21.1 million.

Balance Sheet

As of Sep 30, 2019, Chegg had cash and cash equivalents of $450.5 million compared with $374.7 million on Dec 31, 2018. Net cash provided by operations at the end of the third quarter was $86.6 million, up from $44.7 million a year ago.

Fouth-Quarter 2019 Guidance

The company expects net revenues in the range of $122-$124 million, indicating a significant increase from $95.68 million reported a year ago. Chegg Services revenues are anticipated in the band of $107-$108 million ($81.7 million reported in the comparable prior-year period). Gross margin is expected between 77% and 78%, and adjusted EBITDA is projected within $43-$45 million.

2019 Guidance Raised

The company now expects net revenues in the range of $407-$409 million, higher than previous expectation of $398-$402 million. Chegg Services revenues are projected in the range of $332-$333 million, up from previous projection of $330-$332 million.

It has maintained its gross margin projection of 76-77%. However, it has narrowed the adjusted EBITDA expectation to $121-$123 million from previous projection of $121-$124 million.

Capital expenditure is expected within $40-$50 million.

2020 View

For full-year 2020, Chegg projects revenues of approximately $520 million, with a quarterly contribution of nearly 23% in the first quarter, 25% in the second quarter, 22% in the third quarter and 30% in the fourth quarter of 2020.

It anticipates Chegg Services revenues to be around $437 million, with a quarterly contribution of approximately 23%, 25%, 21% and 31% in the first, second, third and fourth quarters of 2019, respectively.

Gross margin is expected to be nearly 72%. Adjusted EBITDA is projected to be approximately $163 million, contributing almost 17%, 28%, 11% and 44% in the first, second, third and fourth quarters of 2020, respectively.

Zacks Rank

Chegg — which share space with Alteryx, Inc. AYX, Domo, Inc. DOMO and Smartsheet Inc. SMAR in the Zacks Internet - Software industry — currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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