Chegg stock plunges 40% on FY22 guidance cut, ratings downgrades

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Chegg (NYSE:CHGG) shares continue to down above 25% in response to the edu-tech company’s Q1 earnings announcement yesterday that was followed by a string of ratings downgrades.

The firm generated better-than-expected adjusted EPS of $0.32 on revenues of $202.24M (+1.9% Y/Y), which failed to meet Wall Street estimates. Chegg Services revenues grew 14% Y/Y to $184.8M with 5.4M (+12% Y/Y) subscribers.

Gross margin came in slightly higher than expected resulting in adjusted EBITDA margin of 31% or $62M.

However, Chegg (CHGG) lowered its FY22 guidance citing issues of enrollment, economy and inflation that have led to “reduced traffic to higher education support services.”

Dan Rosensweig, CEO & President of Chegg, stated: “We expect these challenges to be temporary and when they subside, our operating model, balance sheet, and leading brand, put us in a strong position to accelerate our growth.”

FY22 net revenues is now expected to be $740M to $770M vs. $843.41M consensus (prior guidance: $830M to $850M); Chegg Services Revenues is seen at $710M to $740M (prior guidance: $770M to $790M); gross margin between 73% and 74% (vs. 70 to 72% earlier); and adj. EBITDA between $220M and $235M (vs. $260 to $270M earlier).

The company also issued downside guidance for Q2, expecting revenue between $188M-192M vs. $210.60M consensus.

Piper Sandler and William Blair downgraded the stock to neutral and market perform, respectively, from their earlier calls of outperform, following the significantly reduced 2022 guidance.

William Blair’s analysts said: “The reduced guidance for 2022 is clearly disappointing, and management seems to have minimal visibility into near-term trends. We […] are much less optimistic about the growth outlook from here with growing questions about the factors driving the slowdown.”