What happened
Shares of Chegg (CHGG 1.74%), an online education platform, fell hard this week after the company reported its fourth-quarter results. While Chegg beat Wall Street's top- and bottom-line estimates, the company's management issued 2023 guidance that was lower than expected.
As a result, Chegg's stock tumbled 20% this week, according to data provided by S&P Global Market Intelligence.
So what
Chegg reported non-GAAP (adjusted) earnings of $0.40 in the quarter, which was up 5% from the year-ago quarter and ahead of analysts' average estimate of $0.38.
The company's sales fell by 1% in the quarter to $205.2 million, but that was better than Wall Street's consensus estimate of $202 million. Chegg's subscription services revenue increased by 4% in the quarter and now accounts for 87% of the company's total sales, which is up from 82% in the year-ago quarter.
But investors ignored the revenue and earnings beats in the quarter and instead focused on management's full-year guidance. The company expected 2023 sales to be in the range of $745 million to $760 million, which is far below analysts' average estimate of $817.5 million for the year.
Now what
Chegg's CEO Dan Rosensweig said in prepared remarks that the company experienced a "substantial loss" in its subscriber base during the height of the pandemic and had only begun to see a reversal of this trend since August.
Rosensweig added that the company has seen "significant improvements in new subscriber growth" and it expects that the "positive momentum will continue and lead to accelerating revenue growth in the second half of 2023."
Part of the company's optimism comes from Chegg focusing on new areas of growth, including new content offerings, improving the quality of existing experiences, and localizing its content for international users.
While investors were clearly disappointed with the company's guidance for the year, management appears to be implementing new opportunities that could help the company grow. All of this means investors may want to keep an eye on how well Chegg delivers on its new initiatives in the coming quarters.
