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Chegg Losing its Charm Among Students?
Stock Analysis & Ideas

Chegg Losing its Charm Among Students?

Online learning platform Chegg (CHGG) closed 48.8% lower on Tuesday, November 2, as the market responded to the sharp drop in enrollment volume, which led to lower-than-expected revenues.

Additionally, management reduced its outlook on revenues for 2021 to $762 million-$764 million from $805 million-$815 million, saying that the downtrend in enrollments is likely to continue the rest of the year.

Moreover, TipRanks’s website traffic tool helped us see that total unique visits to the company’s website from all devices steadily declined since the beginning of Q1 of 2021. In Q3, the total website visits by unique visitors fell 22.5% sequentially.

Interestingly, the stock price has been on par with the declining trend of website visits. Particularly in Q3, the stock price declined 18.2% sequentially.

This drop in website traffic reflects the decline in enrollments in the past quarter.

Chegg’s Q3 print led to a flurry of downgrades from Wall Street analysts, including one from Needham analyst Ryan MacDonald. (See Analysts’ Top Stocks on TipRanks)

MacDonald downgraded Chegg to Hold from Buy, and did not provide a price target. “In our view, subscriber losses related to enrollment declines create a structural headwind to growth heading into FY22. This is due to the fact that we believe that enrollments, particularly in undergrad, are unlikely to return in the spring semester,” he explained.

Furthermore, growing competition in the online education market, and numerous options for lower-priced subscriptions, make a domestic recovery in enrollments uncertain.

Nonetheless, Chegg’s international success continues to grow and the company is planning to cash in on this opportunity by making heavier investments in efforts to localize its content and pricing.

MacDonald is waiting for the cloud to clear around Chegg before making further analyses on the company. He said, “As such, we are stepping to the sidelines until we get a better understanding of the duration of the enrollment impact and see signs of stabilization in the domestic subscriber base.”

Wall Street analyst consensus is cautiously optimistic about Chegg, with a Moderate Buy rating, based on 7 Buys and 8 Holds. The average Chegg price target of $68.27 indicates an upside potential of 112.6%.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article.

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