What Happened?
Shares of online study and academic help platform Chegg (NYSE: CHGG) jumped 5.1% in the afternoon session after the company reported decent first quarter 2025 results, which blew past analysts' EBITDA expectations, aided by aggressive cost-cutting from the previous year's restructuring plans. In addition, its revenue outperformed Wall Street's estimates. Yet, sales shrank 30%, and subscriber numbers plunged 31%, making it clear that fewer students are turning to the platform.
Management maintained a cautious tone, adding "Despite these promising developments, we believe the trends impacting our business will worsen before they get better. We are taking steps to further align costs with our outlook, including an additional restructuring of our business." Overall, this quarter could have been better, but expectations for this company are quite low.
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What The Market Is Telling Us
Chegg’s shares are extremely volatile and have had 86 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 3 months ago when the stock dropped 32.1% on the news that the company reported weak fourth-quarter 2024 results, as both its number of users and services subscribers fell short of Wall Street's estimates, which is never a good look. Revenue plunged 24%, with subscription sales down 23%, highlighting the struggle to keep and attract customers. Despite aggressive cost-cutting, adjusted EBITDA dropped 45% year-on-year. The swing from a profit last year to a $6.1 million net loss this quarter added to the concerns. Management pointed to Google's AI Overviews feature as a major issue, saying it's pulling traffic away from Chegg and hurting sales. The company planned to take legal action. And the outlook for Q1 2025? Not great, as lower-than-expected sales and EBITDA guidance suggested the pain wasn't over yet. Overall, this quarter was mediocre, and with the market fearing that this company is toast due to AI, a big move makes sense.
Chegg is down 56.9% since the beginning of the year, and at $0.72 per share, it is trading 84.5% below its 52-week high of $4.68 from May 2024. Investors who bought $1,000 worth of Chegg’s shares 5 years ago would now be looking at an investment worth $11.70.
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