Chegg (NYSE:CHGG), the leading provider of an online direct-to-student platform that helps students receive additional help with their courses 24/7, reports earnings on Oct. 26. Management is expecting to deliver fantastic numbers as the company benefited from college courses moving online at an increasing rate, thanks to the COVID-19 pandemic.
The rising number of coronavirus cases led cities and states to issue stay-at-home orders in March, and in most parts of the U.S., this coincided with the spring semester in colleges and universities. As a result, schools shifted the remainder of the semester from in-person learning to remote learning, and that move was immensely beneficial to Chegg. Here are three crucial metrics to keep an eye on when the Santa Clara, California-based company announces its third quarter results.
Chegg sees growth as long-lasting and accelerates investments
To begin, investors should consider overall revenue growth. In the most recent quarter, Chegg reported sales growth of 63% over the prior-year period. Simultaneously, the company increased its subscriber base by 67%. With many college campuses continuing to keep classes online, the surge in customer interest is likely to continue.
Next, those interested in Chegg should look at operating income. A major strength of the company is its ability to grow profits faster than revenue. For instance, in its most recent quarter, where revenue increased by 63%, operating income tripled. Interestingly, in the U.S., the company has 87% brand recognition among college students, allowing it to grow without increasing marketing spending.
Lastly, shareholders will be interested in looking at the development of the company's growth initiatives. In the most recent quarter's conference call, CEO Dan Rosensweig highlighted the four growth areas Chegg is focused on:
"First, we're increasing our investments in international growth and development. Second, we continue to invest in the Chegg study pack with future enhancements like the addition of Mathway to provide overwhelming value to our subscribers. Third, we are implementing systems to address account sharing and investing in device management control. Fourth, we have increased our investment in skill-based learning by expanding the curriculum to cover more in-demand skills and by significantly reducing the price because we know skills-based learning needs to map to the most in-demand job and be affordable and acceptable to students."
As of June 30, the company had over $700 million of cash and short-term investments on its balance sheet. Moreover, on Aug. 21, Chegg raised $1 billion in a sale of convertible notes that will more than double the amount of cash on hand. That should give the company plenty of ammunition to fund those growth initiatives.
Chegg continues to thrive as colleges and universities are finding it difficult to resume in-person classes. Furthermore, coronavirus cases are surging in some regions, signaling that the pandemic's end is not near.
In its guidance for the third quarter, the company forecasts it would bring in revenue in the range of $140 million and $145 million, and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $22 million. The stock is already up over 110% year to date, which might lead to a pullback in this consumer discretionary stock price if it disappoints investors by reporting numbers below guidance.