Chegg’s Q4 Results Get Top Grade From the Market
Chegg (NYSE: CHGG) reported fourth-quarter and fiscal 2021 results after the market closed on Monday, Feb. 7. The education technology company pleasantly surprised the market by delivering better-than-expected figures.
Admittedly, the bar was set low after management highlighted several headwinds coming to the forefront in the third quarter. Still, the market is giving Chegg’s Q4 results top grades; the stock is up more than 12% as of this writing on the day following the announcement.
Chegg removes downside risk that rose following its third-quarter report
In its fourth quarter ended Dec. 31, Chegg reported revenue of $ 207.5 million, a 1% increase from the same quarter the year before. Analysts on Wall Street were expecting revenue to decline by 5.1%. Similarly, Chegg management guided revenue to decline by just over 5%. The pessimistic guidance came after the company noticed a significant decrease in student engagement in Q3.
CEO Dan Rosensweig elaborated on the turnaround in prepared remarks following the Q4 earnings release: “When we reported in early November, there was a great deal of uncertainty around the back-to-the-school season and the continuing impact of COVID-19. Fortunately, while enrollments were lower, we saw that schoolwork did eventually pick-up, so the need for Chegg increased throughout the quarter, helping us exit the year on a higher note. ” He later continued, “Students depend on Chegg as an important part of their learning journey, and the momentum we experienced in Q4 is continuing into Q1.”
The momentum gave Chegg confidence to forecast 2022 revenue of $ 840 million at the midpoint. To put the figure into context, Chegg delivered $ 776 million in revenue in 2021. Revenue surged for Chegg by 56.8% in 2020 as millions of students worldwide were sent home for remote learning. The lack of on-campus resources for college students created an increasing need for assistance, and Chegg capitalized.
The market feared that as students returned to on-campus learning, Chegg would experience a decrease in subscribers and engagement. Therefore, when management highlighted concern in the early November report discussed above, it spooked investors aware of the potential for a sharp slowdown. As a result, Chegg’s stock crashed by over 50% in the weeks and months following the Q3 announcement.
What this could mean for Chegg shareholders
Chegg’s Q4 figures are a sigh of relief for shareholders who are uncertain how the company’s business will evolve as students return to campus. Fortunately, subscriber growth has accelerated, and management is guiding healthy revenue growth in 2022. Management also delivered guidance on adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $ 265 million at the midpoint. The company earned $ 265.9 million in the metric in 2021.
Management attributed the surprising forecast of rising revenue but flat profitability to a recent acquisition. The company purchased language learning company Busuu late last year and expects to invest in growing the business for the next two years. Busuu will be a headwind of $ 15 million to $ 20 million on EBITDA in 2022. The acquisition will go a long way to extend Chegg’s relationship with its customers, which typically ends after they complete a college education.
Overall, the market liked what it saw from Chegg as it removed a good deal of the uncertainty that rose following its Q3 results.
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Parkev Tatevosian owns Chegg. The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.
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