Why Chegg (CHGG) Stock Is Trading Lower Today
What Happened:
Shares of online study and academic help platform Chegg (NYSE:CHGG) fell 6.99% in the pre-market session after the company reported third quarter results, which revealed challenges, including a decreasing user base and sluggish revenue growth. During the earnings call, the company discussed its ongoing investments in new AI capabilities to remain competitive in the face of emerging generative AI solutions like Chat GPT. However, the market is still quite worried that AI is a net negative to Chegg rather than a long-term tailwind. On the other hand, revenue and adjusted EBITDA exceeded expectations this quarter. Guidance for next quarter for revenue and adjusted EBITDA were also in line to slightly above. Overall, it was a mixed quarter, with the soft guidance likely unconvincing given growing competition in the AI space.
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What is the market telling us:
Chegg's shares are not very volatile than the market average and over the last year have had only 17 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was six months ago, when the stock dropped 22.9% on the news that the company reported first quarter revenue that narrowly beat analyst's revenue estimates. EPS also beat. However the number of subscribers fell by 5.5% year on year, and revenue guidance for the next quarter came in below Consensus. Perhaps more importantly, full year guidance, given last quarter, was pulled. Management noted that beginning in March, it saw a significant spike in student interest in ChatGPT, with the AI technology impacting new customer growth. As we advance, Chegg may face an upsurge in competition from conversational AI platforms like ChatGPT, particularly for certain products in its lineup, including Chegg Study, which permits students to digitally ask questions and receive expert explanations, and Chegg Writing, which provides services such as expert writing feedback.
Chegg is down 69.8% since the beginning of the year, and at $7.65 per share it is trading 74.4% below its 52-week high of $29.84 from November 2022. Investors who bought $1,000 worth of Chegg's shares 5 years ago would now be looking at an investment worth $280.98.
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