Chegg (CHGG 2.70%) is coming off of arguably its best year ever in 2020. The online platform, which helps students with their coursework for a monthly subscription fee starting at $15 per month, saw revenue skyrocket as colleges shifted to remote learning at the onset of the pandemic.
As the company is set to report first-quarter earnings on May 3, colleges are preparing to return to in-person learning for the second half of 2021. It will thus be interesting to observe how Chegg's student subscribers respond to the changing landscape. That's why the one metric you'll want to know when the company reports earnings is the total subscriber count.
Why subscribers are so important to Chegg
In the fourth quarter, subscribers grew by a whopping 67% to reach 6.6 million. For many college students worldwide, the coronavirus pandemic changed the learning experience. It meant that instead of going to campus for a lecture, you got the lecture delivered to your laptop. Sometimes lecture was eliminated and replaced with self-paced learning. Changes varied among colleges, states, and countries, but the consistent theme was that students got less help with their work and less access to campus resources.
It's no surprise then that millions turned to Chegg for additional help with their coursework. And revenue for the company surged 57% in 2020, by far its best year of growth going back at least a decade. Investors are trying to figure out: Can this growth last when students return to campus?
Over 90% of students who use Chegg say that the service helped them get better grades, but more importantly, they also say that it helps them better understand their coursework.
Moreover, Chegg's learning service now has a library of 53 million pieces of content. As part of the benefits of a subscription to Chegg, students can ask questions, usually 20 per month, that subject matter experts then answer. Those questions and answers are then indexed on the website so that the rest of the subscribers get access to them.
Subscribers not only pay a monthly subscription fee to Chegg, but they also help it increase the power of its network effect by asking questions that build its database. For those reasons, the total subscriber metric is the one you will want to know when the company reports results.
What this could mean for investors
Analysts on Wall Street expect Chegg to report revenue of $184.6 million and earnings per share of $0.30, which would represent increases of 40.3% and 36.4%, respectively, from last year. If the results come in as expected, they would show a slow down from Chegg's growth rates in 2020.
But that will be no surprise to those following the stock. 2020 was a record year for Chegg that packed in multiple years of growth into one. Still, it's not too late for investors to start a position in the online learning services company. Even before the onset of the pandemic, the long-term trend was shifting more learning toward online and on-demand. That's a trend that Chegg can capitalize on for years to come.