Why Chegg, Inc. Shares Crashed

Is Chegg's drop meaningful? Or just another movement?

Feb 14, 2014 at 5:54PM

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chegg, (NYSE:CHGG) fell more than 22% Friday after the connected education platform specialist turned in better-than-expected fourth-quarter results, but followed with disappointing forward margin guidance.

So what: Quarterly revenue rose 13% year over year, to $77.1 million, which translated to adjusted net income of $0.40 per diluted share. Analysts, on average, were looking for adjusted earnings of just $0.22 per share on sales of $75.02 million.

Going forward, Chegg expects first quarter and full year 2014 revenue in the ranges of $70 million to $72 million, and $310 million to $320 million, respectively. The midpoint of both ranges stands slightly above analysts' estimates for first quarter and full-year sales of $70 million and $313.3 million, respectively.

However, Chegg also anticipates adjusted gross margin for the current quarter between 7% and 9%, and for the full-year between 25% to 27%. By comparison, adjusted gross margin has remained steady at around 32% for each of the past two years.

Now what: Investors are understandably upset knowing that means Chegg's GAAP net losses are set to increase considerably, and that's after they already widened from a loss of $49 million in 2012 to $55.9 million in 2013. As it stands, and with just $76.9 million in cash remaining on its balance sheet at year end, Chegg needs to prove it can at least keep margins steady as it continues growing revenue. Until then, I'm perfectly happy watching from the sidelines.

Consider the six incredible growth stocks in this free report
In the meantime, there are plenty of other great growth stocks out there. But where should you look?

Consider the investing expertise of Motley Fool co-founder David Gardner, who has proved skeptics wrong, time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently, one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market, and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information