Chegg Inc: Cloud-Based Education Stock Up 151% YoY; Has Lots of Room to Run

Chegg stockChegg Inc Has Record 2020; Looks Stronger in 2021

Chegg Inc (NYSE:CHGG) is a stock I’ve been bullish on for years. Chegg stock was an excellent stock before the coronavirus pandemic, and it should continue to do exceptionally well in the post-pandemic world.

That’s because online education isn’t going anywhere. If anything, it’s getting more and more popular. And when it comes to cloud-based learning, Chegg is at the head of the class.

The company recently reported stellar financial results for 2020 and raised its guidance for 2021. Chegg has a history of doing that: announcing financials that blow past expectations and upping its guidance. That might explain why the company has provided investors with long-term capital appreciation.

I last wrote about Chegg Inc back in August 2020, when CHGG stock was trading around $79.00 per share. The stock has advanced 17% since then. It’s also up 151% year-over-year and up 255% since bottoming in March 2020.

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Over the last five years, Chegg stock has soared 2,143%, expanding at a compound annual growth rate (CAGR) of 86.6%. It’s tough to argue with those kinds of numbers.

Chart courtesy of StockCharts.com

CHGG Stock Overview

Chegg provides cloud-based educational courses to help high school and college students learn more in less time. To boot, the company says it can do it at a low cost. (Source: “Overview,” Chegg Inc, last accessed February 26, 2021.)

For just $14.95 per month, students can study for admission exams, find colleges, get grades and test scores, and find internships that give them skills to help them enter the workforce after they graduate from college.

The company matches domestic and international students with colleges, universities, and other academic institutions in the U.S. It also offers e-textbooks for rent and sale.

Moreover, Chegg Inc has live tutors on its online learning platform available to students anytime, anywhere, through its “Chegg Tutors” service.

Strong Fourth-Quarter Results

On February 8, Chegg announced that its total revenue for the fourth quarter of 2020 increased 64% year-over-year to $205.7 million. (Source: “Chegg Reports 2020 Financial Results and Raises 2021 Guidance,” Chegg Inc, February 8, 2021.)

The company’s total net revenue includes revenues from two divisions: Chegg Services and Required Materials. Chegg Services primarily includes “Chegg Study,” “Chegg Writing,” “Chegg Tutors,” “Chegg Math Solver,” and “Thinkful.” Required Materials includes rentals and sales of print textbooks and e-textbooks.

Chegg Services revenues grew 64% year-over-year to $176.0 million, or 86% of the company’s total net revenues, which was in line with the fourth quarter of 2019.

Chegg Inc reported fourth-quarter net income of $26.0 million ($0.18 per share), a 217% increase over the fourth-quarter 2019 net income of $8.2 million ($0.07 per share). Its adjusted net income was $77.8 million, a 73% increase over the $44.8 million recorded in the same prior-year period.

During the quarter, the number of Chegg Services subscribers increased by 74% year-over-year to 4.4 million.

The company’s full-year 2020 revenue increased 57% year-over-year to $180.2 million, with Chegg Services revenue growing 57% to $521.2 million, or 81% of the company’s total net revenues, which was in line with full-year 2019.

Chegg Inc reported a full-year 2020 net loss of $6.2 million ($0.05 per share), versus a 2019 net loss of $9.6 million ($0.08 per share). Its 2020 adjusted net income was up 52% year-over-year, at $180.2 million.

In full-year 2020, the number of Chegg Services subscribers increased 67% year-over-year to 6.6 million.

“We are incredibly grateful that, even in the midst of the many challenges of the past year, we outperformed all expectations and were able to continue to support students, in record numbers, around the world,” said Dan Rosensweig, CEO and president. (Source: Ibid.)

“The transition to online and hybrid learning is inevitable and, with the accelerated trends that we are seeing, we have the confidence to raise our guidance for 2021.”

Business Outlook

For the first quarter of 2021, Chegg Inc expects to report:

  • Total revenue between $182.0 and $185.0 million, compared to $125.2 million in Q1 2020
  • Chegg Services revenue between $152.0 and $155.0 million, versus $107.3 million in Q1 2020
  • Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between $48.0 and $50.0 million, compared to $47.0 million in Q1 2020

For full-year 2021, Chegg expects to report:

  • Total revenue between $780.0 and $790.0 million, versus $410.9 million in full-year 2020
  • Chegg Services revenue between $665.0 and $675.0 million, compared to $332.2 million in full-year 2020
  • Adjusted EBITDA between $265.0 and $270.0 million, more than double the $125.0 million recorded for Q1 2020

Analyst Take

The year 2020 will be remembered for the worst health crisis in 100 years and the worst economic crisis since the Great Depression.

Despite those major headwinds, it was a record year for Chegg Inc, with the company far exceeding its initial expectations for revenue, adjusted EBITDA, and all other key operating metrics. Also in 2020, the company was able to raise capital, allowing additional opportunities for growth.

As a result of all that, Chegg stock is on an even stronger footing in 2021.