Needham downgrades Chegg to Hold as long-term initiatives limit growth upside

As previously reported, Needham analyst Ryan MacDonald downgraded Chegg to Hold from Buy. His analysis of 2022 growth trends across Chegg Services subs, ARPU, and Busuu suggests the 2023 consensus estimate of 9.2% year-over-year Chegg Services revenue growth is too high. MacDonald sees limited opportunity for acceleration given the slowing growth in domestic subs combined with expectations that ARPU will be pressured by international price localization that will bring new subs on at a 40%-60% discount. He also sees limited upside for Busuu given its 2022 underperformance and lack of brand awareness among the core Chegg Study base. While the analyst foresees multiple levers for EBITDA margin expansion, he believes incremental investment to reaccelerate growth will limit near-term expansion opportunities.