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Chegg stock plummets despite Q1 earnings beat

Yahoo Finance Live anchors discuss the plunge in Chegg stock amid first quarter earnings.

Video Transcript

- Chegg saw a beat in its Q1 earnings, though notes of issues of enrollment, and then, the economy. They're also noting inflation impacting the industry. Shares of Chegg, they were deep in decline coming into the start of today's trading session. 35% down, here, as we begin the trading session. And I mean, of course, I've been out of the book rental market for quite some time.

[LAUGHTER]

But I think at the end of the day, too, it does come back to what enrollment looks like on campuses, as well. As we've been monitoring some of those enrollment rates, that also hits on the number of students out there that are also relying on a service like Chegg at this time.

- I encourage everyone, if you want to learn about what's happening in the economy, go onto the Yahoo Finance platform. Read the transcript from Chegg's earnings call, because it's absolutely fascinating. You had Chegg CEO, Dan Rosensweig, really talk about how inflation is putting more people back into the job market. And because of that, they're looking for ways to pay for higher prices of Clorox bleach and Fresh Pet cat litter here. They're not going back to school.

And it was, I would say, an alarming quarter from Chegg. Another one. Keep in mind, this company warned to almost the same extent back in November of last year, the stock finished that session down 50%. There's just structural issues that continue in the education market.

- Yeah. And that's what most analysts are saying this morning. They're saying, it's not Chegg specific. It has to do with the industry. I want to look at a one year chart because of the drop that you're talking about. Take a look at that. It has not recovered from that drop. Also notably, right? Sometimes you get a stock that drops like that in a single session, and you do get it to, sort of, claw it back. There has been no clawing back for Chegg.

So yes, indeed. That was when the company reported its third quarter numbers in early November, dropped that 48, 49% in a single session, and now is seeing a repeat of that today. So you know, it's funny. We talk about the likes of Netflix, for example, and a re-rating of their business. This-- I mean, this is a re-rating.

- I can't believe the stock's $16.

- This is on a whole other level.

- Right.

- Is this company's business just fundamentally melting away?

- Well, the business is going more digital over time. So as you're looking at the service that they do provide-- sure. Physical textbooks, one thing. The digital textbooks, a whole other opportunity for them to continually have those updates that need to be made to textbooks. Whether that's because you've got a disgruntled professor that needs to make a little bit more money, so they issue an update.

Or whether that's because of some of the other Fintech plays that are out there that Chegg is competing with, too. That could definitely lead to the re-rating here, when you look at all those Edtech, excuse me, companies that went public in 2017, 2018. International companies that came public here in the U.S.-- we'll still see if they are still public here in the U.S. after this year. But I think that, particularly, is a hit on their overall growth potential at this point in time, too.

- At least they added subscribers, unlike Netflix, in the most recent quarters. If there was anything positive regarding this quarter, sales were up by close to 14%, and they added subscribers. That was--

- OK.

- --good to see. I'm looking for some positive here. It can't all be Clorox. I can't rip all these guys.