Chegg AI Investments Not Translating To Improved Fundamentals, Analysts Dive Deeper Into Q4 Print

Shares of Chegg Inc (NYSE: CHGG) slipped in early trading on Tuesday, after declining more than 8% in the premarket session.

The company reported its fourth-quarter results amid an exciting earnings season. Here are some key analyst takeaways from the release.

• Piper Sandler analyst Arvind Ramnani downgraded the rating from Neutral to Underweight, while reducing the price target from $9.00 to $8.50.
• KeyBanc Capital Markets analyst Jason Celino maintained a Sector Weight rating on the stock.
• William Blair analyst Stephen Sheldon reiterated a Market Perform rating.
• Needham analyst Ryan MacDonald reiterated a Hold rating on the stock.

Check out other analyst stock ratings.

Piper Sandler: Chegg reported only a modest upside despite “muted” expectations for the fourth quarter, “wrapping up a year with sustained revenue headwinds,” Ramnani said in the downgrade note.

“Subscription Services revenues declined 4.7% in FY23, with domestic/US subscribers constituting ~74% and international ~26%,” the analyst wrote. He added, however, that the company’s disciplined spend management was impressive, as it offset some of its revenue pressure on margins.

KeyBanc: Chegg reported a “modest” revenue beat, mainly due to better Subscription Services revenues, Celino said. “The slightly higher revenue, along with expense management, drove EBITDA to $66.2M (35.2% margin), ahead of consensus of $63.1M (33.9% margin),” the analyst wrote.

He further stated that the company issued disappointing first-quarter guidance “as new subscriber growth, particularly in the U.S., remains challenged.”

William Blair: Chegg’s fourth-quarter results were “slightly ahead of our estimates, although subscriber trends remained weak,” Sheldon said in a note. The company’s first-quarter guidance was disappointing on both the top and bottom line, he added.

Although overall subscriber trends remained weak, with unique subscribers declining 9% year-over-year, the company’s international subscriber count grew for the first time in two years, the analyst stated.

Needham: Chegg continues to focus on AI, after its successful rolled out of automated answers to learners in the first quarter, which resulted in a “material Y/Y increase in the amount of Q&A on the platform at a roughly 75% lower cost,” MacDonald said.

“Despite this, CHGG is not yet seeing the fundamental benefit, with GM guided down Y/Y and adj. EBITDA margin compressing at a lower rev. run-rate,” he added.

CHGG Price Action: Shares of Chegg had declined by 3.23% to $9.00 at the time of publication on Tuesday.

Image: Shutterstock