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Loss-Making Chegg, Inc. (NYSE:CHGG) Expected To Breakeven

Simply Wall St

Chegg, Inc.'s (NYSE:CHGG): Chegg, Inc. operates direct-to-student learning platform that supports students on their journey from high school to college and into their career with tools designed to help them pass their test, pass their class, and save money on required materials. The US$5.2b market-cap posted a loss in its most recent financial year of -US$14.9m and a latest trailing-twelve-month loss of -US$12.5m shrinking the gap between loss and breakeven. As path to profitability is the topic on CHGG’s investors mind, I’ve decided to gauge market sentiment. In this article, I will touch on the expectations for CHGG’s growth and when analysts expect the company to become profitable.

View our latest analysis for Chegg

CHGG is bordering on breakeven, according to the 13 Consumer Services analysts. They expect the company to post a final loss in 2020, before turning a profit of US$34m in 2021. CHGG is therefore projected to breakeven around a few months from now. What rate will CHGG have to grow year-on-year in order to breakeven on this date? Using a line of best fit, I calculated an average annual growth rate of 78%, which signals high confidence from analysts. If this rate turns out to be too aggressive, CHGG may become profitable much later than analysts predict.

NYSE:CHGG Past and Future Earnings, February 9th 2020

I’m not going to go through company-specific developments for CHGG given that this is a high-level summary, though, bear in mind that typically a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before I wrap up, there’s one issue worth mentioning. CHGG currently has a debt-to-equity ratio of 189%. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, and CHGG has considerably exceeded this. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

There are key fundamentals of CHGG which are not covered in this article, but I must stress again that this is merely a basic overview. For a more comprehensive look at CHGG, take a look at CHGG’s company page on Simply Wall St. I’ve also compiled a list of essential aspects you should look at:

  1. Valuation: What is CHGG worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether CHGG is currently mispriced by the market.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Chegg’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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