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3 Key Takeaways From Chegg's Earnings Report

By Parkev Tatevosian, CFA – Aug 7, 2020 at 11:06AM

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The company is benefiting as classrooms are forced to go digital.

Among the significant global disruptions caused by the coronavirus pandemic is a shift in learning away from in-classroom teaching. Chegg (CHGG 1.78%) is uniquely positioned to benefit from this change. Chegg, the leading direct-to-student connected learning platform, offers high school and college students assistance via its online platform, helping them pass their courses and save money on required materials.

The remote learning trend was already in progress at the university level, where an increasing number of institutions have been offering courses online and requiring in-classroom students to complete assignments online. The coronavirus pandemic has accelerated this move to remote learning, as evidenced by Chegg's second-quarter results. Here are three things investors should take away from that release.

A woman sitting at a laptop studying

Chegg is popular among college students. Image source: Getty Images. 

Chegg gets top scores from shareholders for its second-quarter performance 

First, Chegg's revenue increased 63% year over year to reach $163 million, in a quarter that included the shift to remote learning in the middle of the semester. The growth was a significant acceleration from the 26% growth in revenue the prior year. With many universities around the world announcing they will stay with remote learning for the long term, the revenue increase is likely to continue for the rest of the year. Chegg was confident enough in the sustainability of the increase to announce expectations of $607.5 million (midpoint) in revenue for 2020. That would be an increase of 48% from 2019.

Second, Chegg services subscribers increased to 3.9 million, up 29% from the same period a year ago. As students take more courses online, the value proposition is becoming stronger. For example, a student who enrolls in one course online pays a membership fee of roughly $15 a month for help with that online course. If that same student now takes an entire course load of four classes online, that membership fee to Chegg is spread across four classes instead of one.

Third, the company announced it is fast-tracking its solution to the problem of students who are sharing accounts. One of the levers the company can pull is limiting the number of questions that can be sent from one account to Chegg's hundreds of subject-matter experts. As demand for its services is increasing, Chegg will benefit by addressing the account sharing issue.

Students appreciate online learning, but will employers feel the same? 

The shift to online learning is an ongoing trend that was exacerbated by the coronavirus pandemic, and it's not likely to be reversed. Interestingly, Chegg conducted a study that showed a majority of students believe online learning can be as legitimate, effective, and rigorous as in-person instruction. What remains to be seen is if employers will increasingly view online learning in the same light when considering job candidates and making hiring decisions.

Chegg's second-quarter results demonstrate the value it provides to students. The stock is poised for growth along with the shift to online learning as institutions are forced by the pandemic to choose remote instruction. 

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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