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Why Chegg Stock Is Plunging Today

By Evan Niu, CFA - Sep 26, 2018 at 3:14PM

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The company disclosed a data breach that affects 40 million users.

What happened

Shares of educational platform Chegg ( CHGG -1.35% ) have plunged today, down by 13% as of 2:45 p.m. EDT, after the company disclosed a data breach. Chegg also reaffirmed its guidance for the third quarter, believing that the incident will not affect its financial results for 2018.

So what

A week ago, Chegg discovered that hackers had accessed its databases that contain user data in April, and is currently investigating the incident with the assistance of a third-party forensics company. Chegg says the types of information that may have been compromised include names, email addresses, shipping addresses, usernames, and passwords. Chegg does not believe that Social Security numbers or payment information was obtained by the hackers.

College students graduating

Image source: Getty Images.

The breach is expected to affect approximately 40 million active and inactive registered users, and Chegg says it will initiate password resets for all users.

Now what

Chegg shares had nearly doubled this year before today's trading, as the company continues to grow its subscription business. There are now 1.7 million subscribers to Chegg Services, which has been driving revenue growth and engagement in recent quarters. Data breaches have become increasingly common these days, and Chegg risks tarnishing its brand at a time when it has been building momentum. The company will also have to incur costs related to the investigation.

In terms of the outlook that Chegg is reaffirming, it still expects third-quarter revenue in the range of $68 million to $69.5 million, including Chegg Services revenue of $52 million to $53.5 million. Adjusted EBITDA should be $10 million to $11 million.

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