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Why Chegg Is Tumbling Today

By Rich Duprey – Oct 27, 2020 at 12:00PM

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The online educator is one of the market's losers today.

What happened

Shares of Chegg (CHGG -17.12%) are tumbling 10% lower in morning trading Tuesday despite the online education technology leader reporting third-quarter earnings that beat analyst expectations on the top and bottom line.

So what

Chegg's revenue surged 54% to $154 million, easily eclipsing the $144 million analysts forecast, as subscribers jumped 69% to 3.7 million. It produced adjusted earnings of $0.17 per share, which was down a penny from the year ago period, but handily beat expectations of $0.10 per share.

Chegg also upped its outlook for the full year. Following its strong third-quarter performance the educator now expects full-year 2020 revenue to be between $626 million and $628 million compared to its prior guidance of $605 million to $615 million.

A businessman gives a thumbs down

Image source: Getty Images.

Now what

With schools continuing to be kept closed in many jurisdictions, meaning distance learning will be the norm, Chegg should be primed for more growth, but the market may be thinking it's not worth it at any price. 

Its stock was trading near its all-time highs and it was at nosebleed valuations across the board. The stock has more than doubled in 2020, and has tripled from the lows it hit in March. Analysts estimate it will grow earnings at a 25% annual clip for the next five years, but it trades at nearly 58 times next year's estimates. 

Chegg is an expensive stock that deserved to be left behind.

Rich Duprey 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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