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Why Chegg, Inc. Stock Popped Today

By Steve Symington – Feb 24, 2016 at 4:35PM

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The online education company bounced after an extreme post-earnings drop.

Image source: Chegg,

What: Shares of online education specialist Chegg (CHGG -1.92%) rose nearly 19% Wednesday, rebounding after a harrowing 35% post-earnings plunge on Tuesday.

So what: Specifically, Chegg stock plummeted yesterday as the market reacted not only to its mixed fourth-quarter 2015 results -- where it beat analysts' expectations on earnings per share but fell short on revenue -- but also to its disappointing forward revenue outlook. Chegg told investors to expect GAAP revenue of $60 million to $65 million for the current quarter, and full-year revenue of $230 million to $250 million. And analysts, on average, were anticipating significantly higher current-quarter revenue of $72.1 million, and full-year revenue of $281.7 million.

But it was also questionable whether that really merited such a steep pullback. As I pointed out yesterday, Chegg investors were already expecting revenue to fall in the coming year, as the company aims to complete its transition to a fully commission-based model with Ingram Content Group for its print textbook business some time in 2017. Keeping in mind its quarterly earnings beat yesterday, CEO Dan Rosenswieg explained, "An important nuance to understand is that, as previously announced, total GAAP revenue declines in 2016, while we expect profitability to materially improve."

Now what: At the same time, it's evident investors weren't anticipating Chegg's revenue declines to be quite so pronounced as guidance foretells. In the end, though, today's rebound makes sense as the market digests the fact Chegg's results weren't nearly as bad as yesterday's plunge seemed to indicate.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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