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.