Chegg (CHGG 1.83%) is a direct-to-student, connected learning platform. The company generates revenue by selling subscriptions that give students access to resources on its website.

Those resources are the No. 1 reason I am bullish on this stock. The value of its resources is not only in its quantity but also in its durability. Similar to a company like Netflix (NFLX -0.83%), it is Chegg's content that attracts customers and keeps them as customers.

## Content is king for Chegg

Just so we're clear, Chegg's content is a lot different from Netflix's. As part of a subscription to Chegg, students get the right to ask 20 questions per month regarding the online tutorials it produces and those questions get answered by subject matter experts. For instance, in a business tutorial on financial spreadsheets, a question might arise like, "how do you calculate a net profit margin?" The question and answer (Net income divided by sales) then become viewable for all subscribers to Chegg now and in the future.

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As investors can imagine, there could be many finance students this piece of content would serve. What's more, next semester, there will be an entirely new group of introductory finance students taking the course who might find the answer useful. And so on, for several years and maybe decades. However, Chegg only pays for the material once and gets a long lifetime of benefits in return. The calculation for net profit margin will never change.

Chegg already has 53 million pieces of this type of content. This figure is up by 22 million from last year's 31 million total, as students increased their usage of Chegg during the pandemic. In contrast to Netflix, Chegg doesn't have to guess what type of content its subscribers value. Students tell Chegg exactly what they need, and the content is created on the same day, usually within a couple of hours. In that way, Chegg's spending on content is hyper-efficient.

Indeed, students find its services valuable. Subscribers to Chegg's services increased 67% year over year in 2020.

## Chegg's growth has been profitable

Moreover, the content allows Chegg to acquire subscribers at a low cost. A student types an inquiry into a search engine, and if Chegg has help on the concept, it will show up in the results. With a few clicks and a payment method, the student can have access to the help. No expensive marketing campaign is needed.

That is, in part, what is allowing Chegg to scale profitably. Between 2016 and 2020, Chegg increased adjusted EBITDA by a compounded annual growth rate of 78%. It doesn't cost Chegg much more if an additional 2 million subscribers are viewing its content.

In another contrast to Netflix, whereas Netflix needs to spend billions on new content annually for the same customers, Chegg's content remains relevant as students cycle through courses over time.

Chegg's resources provide students with the supplemental help that makes learning less intimidating. At less than \$20 per month, it's a relative bargain for students who pay thousands for a college education.

## Investor takeaway

The proprietary content allows Chegg to keep customer acquisition costs low, remains relevant for several years, and can be translated and used internationally. For those reasons, Chegg's content is why I am bullish on this supercharged growth stock