Chegg Stumbles Over Guidance

Chegg Inc. (NYSE: CHGG) reported its fourth-quarter financial results after the markets closed on Monday. The company had $0.14 in earnings per share (EPS) on $68.2 million in revenue. That compared to consensus estimates that called for $0.13 in EPS on revenue of $72.9 million.

In terms of guidance for the first quarter, the company expects to have revenues in the range of $60 million to $65 million, with a gross margin between 38% to 40%, and an adjusted EBITDA loss of $2 million to breakeven. Consensus estimates call for a net loss of $0.03 per share on $75.51 million in revenue.

The company reported its segment revenues for the fourth quarter:

• Services revenue grew 32% year over year to $28.7 million, or 42% of the total revenue.
• Print revenue totaled $30.1 million.
• Digital revenue totaled $38.1 million.

The company said it had $84 million in cash, equivalents and short-term investments at the end of the fourth quarter, compared to $89.5 million in the same period from last year.
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Dan Rosensweig, chairman and CEO of Chegg, commented on earnings:

We continue to see strong growth in Chegg Services, particularly Chegg Study, where our investments in product quality led to record subscribers, renewals and engagement. Driven by our higher margin Chegg Services, we also delivered our first full year of non-GAAP profitability, and we are beginning to see the leverage in our student-centric business model.

He added:

In the final year of our transition to a commission-based textbook model, an important nuance to understand is that, as previously announced, total GAAP revenue declines in 2016, while we expect profitability to materially improve.

Shares of Chegg were trading down nearly 41% at $3.16 on Tuesday, with a consensus analyst price target of $10.83 and a 52-week trading range of $3.67 to $8.85.