Chegg Stock Is Quietly Blowing Markets Away
Chegg Inc (NYSE:CHGG) is an excellent tech stock we’ve been keeping an eye on. It’s not a flashy stock that hogs the limelight. Chegg stock has, however, blown the markets away with strong financials. And because of that, investors have been rewarding this digital education company with a significantly higher share price.
In early January, when the stock was trading near $32.35, I made a 2019 forecast of $48.00, which was $3.00 higher than even the most optimistic predictions. It turns out that my forecast may have actually been a little conservative.
CHGG stock has soared by about 44% since the start of 2019, and its outlook for the year remains stellar. The company reported strong fourth-quarter and full-year results and has raised its outlook for 2019.
Chegg Inc Overview
Chegg is a digital education company that helps American students in high school and college learn more in less time and at a lower cost. The Santa Clara, California-based company specializes in online textbook rentals, homework help, online tutoring, test prepping, scholarships, and internship matching.
The most popular tutoring subjects at Chegg include algebra, calculus, economics, finance, chemistry, English, computer science, mechanical engineering, math, and physics.
|Chegg Stock Information|
|Market Cap||$4.6 billion|
|Shares Outstanding||115.9 million|
|50-Day Moving Average||$36.08|
|200-Day Moving Average||$30.38|
(Source: “Chegg, Inc. (CHGG),” Yahoo! Finance, last accessed March 5, 2019.)
No company is recession-proof, but Chegg has benefited from the fact that there are always students in school—and there will always be some of them looking for extra help, no matter what shape the economy is in.
This helps explain why the company’s subscription numbers (and share price) have ballooned.
Chegg stock has been on a tear over the last two years, advancing 119% in 2017 and 73.8% in 2018. By comparison, the Nasdaq only increased by 27% in 2017 and finished 2018 4.3% in the red.
True to technical form, the stock has been bullish since a golden crossover appeared at the beginning of 2019, with the company’s 50-day moving average crossing over the 200-day moving average.
Over the first two months of 2019, CHGG stock has increased by about 43.8%. Over the same time frame, the tech-heavy Nasdaq is up a respectable 16.6%.
Chart courtesy of StockCharts.com
Chegg Inc Reports Yet Another Strong Quarter and Record Year
Chegg stock investors must be getting used to winning. The company reported strong double-digit revenue growth in the first, second, and third quarters of 2018. The fourth quarter was no different.
On February 11, 2019, Chegg reported strong fourth-quarter and full-year 2018 results and raised its guidance for 2019. Fourth-quarter revenue increased 30% year-over-year to $95.7 million. (Source: “Chegg Reports Q4 and Full Year 2018 Financial Results and Raises 2019 Guidance,” Chegg Inc, February 11, 2019.)
“Chegg Services” revenue in the fourth quarter grew 35% year-over-year to $81.7 million, coming from 1.9 million subscribers. This revenue accounted for 85% of total net revenue, compared to 82% of total net revenue in the fourth quarter of 2017.
Fourth-quarter net income was up 46.1% at $5.3 million, or $0.04 per diluted share. In the fourth quarter of 2017, Chegg reported net income of $3.7 million, or $0.03 per diluted share.
Full-year 2018 revenue grew 26% year-over-year to a record $321.1 million. Chegg Services revenue was up 37% at $254.0 million. Also in 2018, there were a record 3.1 million subscribers, a net increase of 850,000 (38%) over 2017.
The company reported a full-year net loss of $14.9 million, or $0.13 per share. That was an improvement over the 2017 net loss of $20.3 million, or $0.20 per share.
Non-generally accepted accounting principles (GAAP) net income for 2018 was $68.8 million, which was more than double the $31.3 million recorded in 2017.
“It was another incredible year for Chegg, as we exceeded all of our expectations, realizing the benefits of being a high growth, high margin business – with increasing leverage as we scale,” said CEO Dan Rosensweig.
“We enter the year with strong momentum, giving us the confidence to raise 2019 guidance as we focus on our mission of helping students improve their outcomes.” (Source: Ibid.)
To that end, Chegg is forecasting total revenue for the first quarter of 2019 to be in the range of $93.5–$95.5 million. At the mid-point, that would be a year-over-year increase of approximately 23%.
The company is also forecasting Chegg Services revenue in the range of $72.5–$74.5 million for the first quarter. At the mid-point, this would be a year-over-year gain of 30.5%.
Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) is projected to be in a range of $22.0–$23.0 million for the quarter, a 35% increase from the $16.7 million recorded in the first quarter of 2018.
For 2019, total revenue is expected to be in the range of $390.0–$395.0 million. At the mid-point, that’s a 22.2% increase over 2018’s record $321.0 million. Chegg Services revenue is expected to be in the range of $327.0–$331.0 million, a 29.5% increase over the $254.0 million recorded in 2018.
Adjusted EBITDA for 2019 is forecast to be in the range of $115.0–$118.0 million. At the midpoint, this would be an approximate 40% increase over the $83.3 million in adjusted EBITDA in 2018.
The broader markets have been strong in 2019, but not as bullish as Chegg stock. The company reported fantastic financial results every quarter last year, finishing 2018 with record revenue and exceeding all of its expectations.
It looks like 2019 will be another great year for Chegg Inc. This doesn’t mean CHGG stock won’t experience some volatility, but its outlook for 2019 looks solid.