Chegg Shares Soar Over 6% on Stronger-Than-Expected Q2 Earnings; Target Price $111

Chegg shares jumped over 6.5% on Tuesday after the education technology company reported better-than-expected earnings and revenue in the second quarter, largely driven by strong growth in services revenue with subscribers growing to 4.9 million in the quarter.

The Santa Clara, California-based company reported quarterly adjusted earnings (EPS) of $0.43 ​ per share, beating the Wall Street consensus estimates of $0.37 per share.

Chegg’s revenue jumped about 30% to $198.48 million from a year earlier. That was also higher than the analysts’ expectations of $190.09 million.

For the full year 2021, the company forecasts total net revenues in the range of $805 million to $815 million and adjusted EBITDA in the range of $295 million to $300 million. For the third quarter, Chegg forecast total net revenues in the range of $170 million to $175 million and adjusted EBITDA in the range of $43 million to $45 million.

Following upbeat results, Chegg shares gained over 6.5% to $85.0 on Tuesday. However, the stock down about 6% so far this year.

Analyst Comments

“Q2 Services upside & FY21 guidance raise help to calm investor concerns on the durability of Services growth. Bullish mgt commentary and demonstrated model efficiency highlight the attractive opportunity at current levels, w/ a high high-30%’s EBITDA CAGR through 2023, not in the price,” noted Josh Baer, equity analyst at Morgan Stanley.

“We see Chegg’s direct-to-consumer platform, with limited competition and large moat, as uniquely positioned to help students’ educational outcomes – especially in a virtual education format given Covid-19, from completing homework to studying for and passing tests, to increasing graduation rates. Combining ~27% operating margins in 2020 (which we expect to expand to 41.5% in CY26) and a durable 25%+ revenue growth underscores Chegg as a unique asset, underpriced versus peers. Our price target implies 16x EV/CY22 Sales or 0.63x EV/S/Growth, in line with the SaaS peer average despite significantly better op margins: 31% in 2021 vs. SaaS comps average at ~1.5%.”

Chegg Stock Price Forecast

Seven analysts who offered stock ratings for Chegg in the last three months forecast the average price in 12 months of $111.67 with a high forecast of $120.00 and a low forecast of $100.00.

The average price target represents a 31.38% change from the last price of $85.00. All of those seven analysts rated “Buy”, none rated “Hold” or “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $115 with a high of $160 under a bull scenario and $55 under the worst-case scenario. The firm gave an “Overweight” rating on the education technology company’s stock.

Several other analysts have also updated their stock outlook. JPMorgan raised the stock price forecast to $98 from $97. Berenberg lifted the target price to $98 from $96.

“CHGG continues to demonstrate the power of its model, with sustained top-line growth and margin expansion, while the company invests in international + skills-based opportunities and expands its content library with University,” noted Brent Thill, equity analyst at Jefferies.

“Chegg Services rev growth of 38% yoy was 5 pts ahead of cons. 33%, and adj. EBITDA margin of 43% was 4 pts ahead, through a decelerating subscriber growth number off tough comps remains an area to monitor. Maintain Buy and $105 price target.”

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