What happened
Shares of Chegg (CHGG 20.57%) closed Tuesday's trading up 16% after the company reported fourth-quarter earnings results late Monday.
The stock is down 62% over the last six months, and fell sharply in November after management warned that the fourth quarter would be below expectations due to a temporary slowdown in the education industry. Results turned out much better than expected, and that is a recipe for a surging share price.
Image source: Getty Images.
So what
Chegg closed the fourth quarter with revenue up 1% year over year, driven by strong performance from Chegg services, which grew 6%.
For that performance, CEO Dan Rosensweig called out Chegg Study Pack, which showed retention rates at all-time highs. This benefited subscriptions, average revenue per user, and margins for Chegg services overall.
The momentum Chegg experienced in the fourth quarter carried over to the first quarter of 2022. It's management's outlook for the first quarter and full year that explains why the stock is bouncing higher today.
Now what
For the first quarter, guidance calls for revenue to increase by 2% year over year at the midpoint of the range between $200 million to $205 million. For the full year, management expects revenue to grow 8.4% over 2021, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) remaining roughly flat over last year between $260 million to $270 million. The higher full-year growth implies that sales should gradually accelerate over the course of 2022.
This top education stock trades at a forward price-to-earnings ratio of 24 after the post-earnings pop. That could be a steal for a company with double-digit earnings growth prospects over the long term. During the earnings call, Rosensweig said the company can reaccelerate its growth by personalizing the user experience, expanding internationally, and offering more courses and better pricing to customers.
