Chegg Inc Up 247% Since March Lows, Company Raises 2020 Guidance
Chegg Stock Soars on Strong Results and Raised Guidance
Just because you don’t like math homework doesn’t mean you should avoid online education tech stock Chegg Inc (NYSE:CHGG). A provider of online educational tools, CGG stock might be the perfect tech stock for the coronavirus and post-pandemic environment.
Even before COVID-19 forced businesses to change the way they operate and forced people to self-isolate, Chegg stock was a great tech stock. The coronavirus pandemic simply highlighted the need for its products and services, and accelerated its long-term growth prospects.
While many tech stocks have made impressive gains since the market bottomed in March, CHGG stock has been bullish all along. The company’s share price is up 95% year-over-year, 108% year-to-date, and 247% since its March lows. Despite these strong gains, it looks like Chegg stock is just getting warmed up.
Chegg Inc has a long history of reporting strong financial results and raising its guidance. The company currently expects its 2020 revenue growth to exceed 45%. (Source: “Chegg Reports Second Quarter Results and Raises Guidance for 2020,” Chegg Inc, August 3, 2020.)
But if history is any indicator, that could get revised upward. It also has an aggressive acquisition strategy and active stock repurchase program.
Chart courtesy of StockCharts.com
CHGG Stock Overview
Chegg is an educational tech company that helps college and high school students learn more in less time. And perhaps most importantly, at a lower cost.
The Santa Clara, California-based company’ provides textbooks (for rent or sale), online tutoring, homework/study help, test preparation, and assistance with internships and scholarships. Unlike some companies that use bots to help their customers, Chegg’s on-demand, personalized learning platform is taught by actual educators.
$500-Million Securities Repurchase Program
On June 16, Chegg announced that its board of directors authorized the repurchase of up to $500.0 million of Chegg’s common stock and/or convertible notes. (Source: “Chegg Announces $500 Million Securities Repurchase Program,” Chegg Inc, June 16, 2020.)
The timing, volume, and nature of any stock repurchases will be determined by Chegg’s management, based on its evaluation of the capital needs of the business, market conditions, and other factors.
The share repurchase program may extend over a period of about 18 months, ending on December 31, 2021. The company plans to fund the buybacks from its existing cash balance and future cash flows from operations.
Acquisition of Mathway
In early June, at a time when many companies were burying their heads and looking for ways to save money, Chegg dropped about $100.0 million for “Mathway,” a popular math-solving app. Mathway has subscribers in 100 countries and is available in 13 languages. (Source: “Chegg Acquires Mathway to Expand Its Math Offerings Globally,” Chegg Inc, June 4, 2020.)
One of the highest-rated mobile apps, Mathway offers more than 400 different subjects, including algebra, trigonometry, and calculus.
Q2 Revenue Up 63%, Chegg Raises Full-Year Guidance
On August 3, Chegg reported its financial results for the three months ended June 30, 2020.
Second-quarter revenue increased 63% year-over-year to $153.0 million. “Chegg Services” revenue advanced 57% year-over-year to $126.0 million. (Source: Chegg Inc, August 3, 2020, op. cit.)
Second-quarter net income was $10.6 million ($0.08 per share), compared to a second-quarter 2019 net loss of $2.0 million ($0.02 per share).
“Chegg was built with a belief that learning would move increasingly online and we have always bet on that inevitability,” said Dan Rosensweig, CEO.
“The COVID-19 pandemic has accelerated that shift and it is now clear that learning tools and academic support must be available online, affordable, on-demand, tailored to the individual learner, and geared towards the skills needed in the modern workforce.” (Source: Ibid.)
For the third quarter, Chegg Inc expects to report total revenue in the range of $140.0 to $145.0 million. Also in the third quarter, it expects to report adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in the range of $21.0 to $23.0 million.
For fiscal 2020, Chegg expects to report total net revenue in the range of $605.0 to $615.0 million. Also for fiscal-year 2020, the company expects to report adjusted EBITDA in the range of $190.0 to $195.0 million.
What’s not to like about Chegg Inc right now?
It’s a education tech stock that was thriving before the COVID-19 pandemic. Its on-demand educational tools are in even more demand in the current environment, and that growth is expected to continue, as is evidenced by the fact that it, once again, raised its full-year guidance.
This bodes well for Chegg stock investors.