What happened
Shares of Chegg (CHGG +7.13%) were down 18% as of 12:08 p.m. ET on Tuesday. The company reported earnings results that were above analysts' consensus estimates for the fourth quarter, while management offered guidance that was below expectations.
The post-earnings sell-off brings the stock down 33% year to date.
NYSE: CHGG
Key Data Points
So what
Revenue fell 1% year over year in the fourth quarter, which got a lift from a 4% year-over-year increase in subscription services. However, low enrollment, a strong labor market, and high inflation continue to be headwinds reducing traffic to education support sites.
Chegg generates 87% of its revenue from subscription services, which is expected to be a catalyst for rising margins over the long term. However, management's full-year forecast for adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) margin came in below analysts' estimates, which may continue to weigh on the stock's performance in the near term.
Now what
Wall Street doesn't like uncertainty, but Chegg's earnings report and guidance created less clarity about near-term business trends. Management expects fiscal 2023 revenue and adjusted EBITDA to be slightly down from fiscal 2022.
The long-term opportunities in education still point to potential market-beating returns for investors. The higher education market is expected to grow 10% per year through 2028. Chegg is investing in offering cybersecurity courses and other skill-based learning to capitalize on the fastest-growing areas of higher education.
The company has a long runway of growth, but investors might want to wait to see how Chegg navigates the near-term headwinds impacting its performance before pulling the trigger.
