Chegg Stock: Is It A Good Buy?
With the COVID-19 pandemic sending millions of students in the U.S. and around the world home for distance learning, the online education business has been quick to respond. Web-accessible books, lessons and research assistance have come to market, with several companies using a subscription model that promises recurring revenues and high profit margins.
With the gradual return of students to the classroom, online learning platforms have continued to attract investor interest. This competitive field has seen a few leaders emerge, among them California-based Chegg, Inc.
Who Does Chegg Target?
Begun by three Iowa State students, Chegg served its first customers as an online market for buying and renting textbooks. The target market was 16- to 25-year-old students in high school and college.
The platform later expanded into course study and homework help. Chegg now offers print and electronic textbooks as well as subscriptions, including Chegg Study.
Users pay about $15 per month for several different learning platforms and services, including the ability to pose 20 questions every month to experts in relevant fields. This personalized service guides the student through problems, and the platform then makes the exchange available to other subscribers for their own review.
Chegg’s Writing and Math Tools
Chegg Writing includes a suite of tools, including grammar and plagiarism checks, which are useful for essays and term papers, as well as personalized feedback from the company’s subject matter experts.
Math Solver provides a calculator and problem-solving methods that take the student step by step through important concepts in high school and college math curricula.
At the professional level, the Thinkful series of courses provides continuing education for engineers, designers, marketers, product managers, data analysts and software designers.
By the end of 2021, this and other services had brought 7.8 million subscribers to the platform, representing a net growth of 18% over the course of that year.
The stock market rewarded Chegg with a dramatic rise in the value of its shares. On the news that fourth-quarter 2021 earnings were better than forecast, Chegg rose from a 52-week low of $23.50 in late January to $33 in early February. As of April 27, 2022, the stock price was $25.56.
Total revenues in the fourth quarter of 2021 reached $207.5 million, a slight improvement of 1% year over year, while net income came in at $24.3 million or $0.38 a share, beating analyst expectations. Over the full year, the company had revenues of $776.3 million, representing 20% growth year over year.
Chegg’s Volatile Shares
It seems no matter the trend in earnings or revenue, Chegg investors will be in for an interesting ride, as the stock is highly volatile. At one point in early 2021 the shares fetched over $100, a valuation that turned out to be unsustainable. When Chegg reported disappointing third-quarter earnings in November 2021, the market took the shares down by nearly half on the day of the report.
On the Chegg Roller Coaster
Chegg has predicted a gain in revenue of 7% to 9% for 2022, with profit margins improving from ongoing products and services. Investment in a language platform known as Busuu, a platform for language learning, however, might bolster Chegg’s market growth.
This rebound in the price has made Chegg stock fairly expensive from a valuation standpoint. The stock has reached high ratios, including 28 times forward earnings, which is higher than the ratio the market has awarded Alphabet (Google) shares.
Is Chegg a Good Buy?
The market for online education has been in a place of growth and optimism since the start of the COVID-19 pandemic in early 2020. But Chegg’s service has also proven controversial. Some teachers and education professionals believe students are leaning on Chegg’s online assistants to avoid doing their own research, work and decision-making.
Chegg also found itself facing a cheating scandal when Texas A&M students used the service to look up online exam questions. If Chegg responds by limiting the assistance it offers, the growth in subscriptions may stall, hitting the company’s revenue and earnings.
Good To Know
Chegg has several strong competitors in the online tutoring field, including Kaplan, Pearson Education and Club Z! Although it complements teaching services with its original business of selling and renting textbooks, it has plenty of rivals in this space as well, including online giant Amazon.
Data is accurate as of April 27, 2022, and is subject to change.
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- Fidelity Investments. "CHGG | Stock Snapshot."
- Yahoo Finance. "Chegg Reports 2021 Financial Results and Gives 2022 Guidance."
- Forbes. 2021. "This $12 Billion Company Is Getting Rich Off Students Cheating Their Way Through Covid."