By Senad Karaahmetovic
Shares of Chegg (NYSE:CHGG) are trading about 23% lower in pre-open Tuesday after the EdTech company offered weaker-than-expected guidance.
For the fourth quarter, Chegg reported EPS of $0.40 on revenue of $205.2 million, beating the analyst consensus for earnings of $0.36 on sales of $202.12M. Overall, net revenue fell just over 1% year-over-year.
For this quarter, Chegg sees adjusted Ebitda at $54M (up or down $1M) on revenue of $185M (up or down $1M), a miss compared to the consensus for adjusted Ebitda of $61.4M on revenue of $199.9M.
On a full-year basis, Chegg expects revenue in the range of $745-760M, well below the consensus of $820.5M. The adjusted Ebitda is seen between $240M and $250M while analysts were looking for $275.6M. Finally, the gross margin is seen at 72% (up or down 1%), again below the 74.8% consensus.
In the aftermath of the Q4 earnings report, KeyBanc analysts downgraded the CHGG stock to Sector Weight from Overweight.
“We are downgrading Chegg to Sector Weight as our prior upgrade thesis around EBITDA margin upside does not look like it will play out, at least over the NT. Guidance for 2023 revenue and EBITDA came in much worse than feared. For comparison purposes, 2023 guidance under the prior definition of Services revenue implies 1.8% growth, below even the whisper, in our view,” analysts said in a note.
“With the lack of top-line leverage, EBITDA margin guidance calls for 70 bps of compression, below our previewed hope of 200 bps of expansion. With heightened execution risk, we believe shares may remain in the penalty box for an extended period of time, hence our downgrade.”
The analysts also highlighted that competition from artificial intelligence (AI) products, like ChatGPT, could pose a “meaningful threat” to Chegg.
Goldman Sachs analysts cut the price target by $6 per share to $18 and reiterated a Neutral rating.
“We now see a fair bit of negativity about the next 12-18 months priced into the shares from current levels,” they said.