Chegg Stock is Ready for Bargain Hunters

Online education platform provider Chegg (NYSE: CHGG) stock has been devastated plunging (-80%) off its 2021 highs of $115.21. The popular leading provider of digital education and training was a major benefactor during the pandemic but has since felt the pain of the post-pandemic reopening trend with the acceleration of COVID-19 vaccinations. Remote education and telework drove digital engagements during the pandemic. However, investors have lost confidence in the Company as its CEO held back an earnings warning due to quiet period restrictions during his interview on CNBC. Chegg missed top and bottom lines in addition to lowering topline Q4 2021 revenue guidance. The reasons range from the continued decline in college enrollments as students are forgoing college to join a strong labor market with improved salaries. Returning students are taking (-10%) fewer classes and 16% of students are simply taking just pass/fail. However, the International channel is still young as the Company expects it to grow larger than the U.S. channel. Prudent investors looking for a bargain entry to gain exposure can watch for opportunistic pullbacks in shares of Chegg.

Q3 2021 Earnings Release

On Nov. 1, 2021, Chegg released its fiscal third-quarter 2021 earnings report for the quarter ending in September 2021. The Company reported an earnings-per-share (EPS) profit of $0.05, excluding non-recurring items, versus consensus analyst estimates for profit of $0.19, a (-$0.14) miss. Revenues grew 11.6% year-over-year (YoY) to $171.9 million missing consensus analyst estimates for $173.79 million. The board approved an additional $500 million increase to the share buyback program. Chegg CEO Dan Rosensweig commented, “Over the last year and a half, we experienced extraordinary growth and, in midst of a strong year, had a solid third quarter, growing Chegg Services revenue 23% year-over-year. However, in late September it became clear to us that the education industry is experiencing a slowdown that we believe is temporary and is a direct result of the COVID-19 pandemic. Despite these trends, our team continues to execute at a high level. Chegg is in an excellent position to come out of this stronger than ever and take advantage of the opportunities before us.”

Downside Guidance

Chegg lowered its Q4 2021 revenue guidance to come in between $194 million to $196 million compared to $241.62 consensus analyst estimates. This triggered a very nasty collapse in shares.

Conference Call Takeaways

CEO Rosensweig talked up the international growth opportunity “In the rest of the world, we continue to see very robust subscription and revenue growth. While still early, international is clearly becoming a meaningful part of our business, and we have already exceeded our target of 1 million international subscribers. We believe that, in time, international will be larger for us than the U.S. This is why we are investing in key areas such as localization of content and language as well as our e-commerce and pricing platform. These infrastructure investments will allow us to take local currency and offer both variable and local pricing, and we believe these capabilities will help increase penetration in large untapped markets where pricing is a major variable for success. We should be ready to leverage these investments by the fall of 2022. At a global level, students are increasingly turning to the Internet and Chegg to improve their learning and outcomes. Domestically, personalization, expanding beyond the textbook to courses and supporting additional non-STEM subjects, remain our focus to increase our domestic TAM. Chegg is uniquely positioned to personalize each student's learning journey and bring them additional services because we have so many subscribers, so much data and such relevant content. Therefore, we have the ability to personalize and expand the value we offer to existing customers and create new value for our new customers.”

Degree Paths

He expounded on new paths, “The degree-based pathway will continue to be very large in the United States, and we expect that it will grow again after the pandemic. But one of the lessons we see is just how much technology influences and empowers the world. Therefore, we are increasing our investment in digital skills training, which is important to an increasing percentage of the population around the world. Within this space, one of the key trends is more employers providing skilling, reskilling, and upskilling to their current employee base and using this benefit to attract new employees. That is why we are excited to announce our new partnership with Guild, which we'll launch next year. Guild is a leader in serving large corporations where the employers offering to pay for the employees undergraduate degrees as well as provide skilling and upskilling curriculum. Thinkful courses will be offered to employees at relevant companies through the Guild platform, creating a new opportunity for domestic growth.”

He concluded, “As we look ahead, we remain strong believers in the growth of online education support and skill services around the world. As we manage through this moment in time, we will remain focused on building long-term value for both learners and our shareholders. The last two years have created a situation nobody could have anticipated and have clearly temporarily affected the higher education industry. But what is also clear is that more people are going to learn more things, especially online, and that will only create more opportunity for Chegg. We remain the market leader with a beloved brand, a strong moat and our services continue to help millions of learners all around the world as students rely on us to learn their course material and better understand concepts, which improves their outcomes.”

CHGG Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the price action playing field for CHGG stock. The weekly rifle chart peaked recently off the $88.32 fib Fibonacci (fib) level before triggering the weekly market structure high (MSH) sell signal causing the collapsed to $24.23. The weekly downtrend continues with a falling 5-period moving average (MA) at $34.30 and lower weekly Bollinger Bands (BBs) at $10.98. The weekly stochastic has been under the 5-band extremely oversold for over a month. The daily rifle chart downtrend is attempting to bottom off the $24.25. The daily 5-period MA flattened at $25.56 with a daily market structure low (MSL) buy trigger above the $26.38 level. The daily lower BBs sit at $6.09 but may be starting to compress as the daily stochastic finally crosses back up to the 5-band, but still well below the 20-band oversold level. Prudent investors can watch for opportunistic pullback levels at the $$23.44 fib, $21.17 fib, $19.09 fib, $17.08 fib, $15.66 fib, $14.72 fib, and the $11.88 fib. Upside trajectories range from the $33.34 fib up towards the $48.22 fib level.