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Chegg stock crashes amid 'issues of enrollment, the economy, and now inflation'

·Anchor, Editor-at-Large
·3 min read
In this article:
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The inflation fight has people shunning school and going all in on finding a high-paying job that could help meet ends meet, which continues to pressure educational services leader Chegg.

Shares of the educational platform crashed more than 35% in pre-market trading on a slashed full year profit outlook in earnings reported after the bell Monday. The company sees full year adjusted operating profits of $220 million to $235 million compared to $260 million to $270 million previously.

"As noted in our fourth quarter call, we entered the year with momentum, however this trend has not continued at the level we expected," Chegg CEO Dan Rosensweig said on Monday evening earnings call. "The issues of enrollment, the economy, and now inflation have all impacted our industry. Students continue to take fewer classes and those they do take are often less rigorous, with fewer or more limited assignments. With higher wages and increased cost of living, more people are shifting their priorities towards earning over learning, resulting in a lower course load, or delaying enrollment in school at this time."

Rosensweig added that in the U.S. "we have seen approximately 1 million students forgo or postpone higher education over the last two years. The impact of these factors is evident in the reduced traffic to higher education support services. This has made forecasting at this time challenging, and while we expect many of these trends to be temporary, we are reducing our guidance to better reflect the current market conditions."

The stock reaction — which comes not too far removed from a 50% earnings related plunge in November 2021 —overshadowed a decent quarter from Chegg all things being considered.

Net sales rose 2% from a year ago. Total subscribers rose 12% from last year to 5.4 million. Adjusted operating profits clocked in at $62.2 million.

Here is how Chegg performed compared to Wall Street estimates:

  • Net Sales: $202.2 million vs. $203.1 million

  • Diluted EPS: $0.32 vs. $0.24

Wall Street didn't have much good to say on Chegg post results, but there were still believers that cited the company's profitability and market share gains in a tough market as important wins.

Chegg EVP of Marketing Services Mitch Spolan speaks on stage during Advertising Week New York 2016 - D&AD Impact at PlayStation Theater on September 27, 2016 in New York City.  (Photo by Andrew Toth/Getty Images for Advertising Week New York)
Chegg EVP of Marketing Services Mitch Spolan speaks on stage during Advertising Week New York 2016 - D&AD Impact at PlayStation Theater on September 27, 2016 in New York City. (Photo by Andrew Toth/Getty Images for Advertising Week New York)

"We continue to view the slowdown in growth as a broad industry trend, and do not believe Chegg is being adversely impacted by competitive factors," Jefferies analyst Brent Thill wrote in a note titled "Not Making Dean's List This Year."

Thill maintained a buy rating on Chegg's stock but lowered his price target to $30 from $55.

"We believe when the time is right, Chegg will be able to pass along price increases to U.S. subs with minimal churn, providing a future growth catalyst," Thill added.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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