Chegg is an online education company which has marked its global presence and dominance with its proprietary content that thousands of school and college students use for academic help. At the end of Dec 2021 (Quarter 4), the stocks of the company plummeted abysmally due to a temporary factor.
But contradictory to what everyone thought, Chegg reported new earnings and profits in the new year that surprised the market. As of May 2022, the stock price was $18.20. This blog delves into the dip and rise of Chegg’s stock, the probable reason behind it and what it could mean for the company in the longer run.
Story: What Happened in 2021?
Chegg is a well-established name in the digital education market and is based on a subscription business model which is the primary source of revenue for the company. However, the education market saw a dip in early 2021 when unexpected college enrollments dropped and the already registered students started taking easier and fewer courses. To say the least, the next quarter reported fewer earnings and the stock price dipped significantly.
Howbeit, surprisingly, the registrations rose up again in the next quarter. The return to growth gave the management confidence to issue guidance for 2022 that called for revenue of $840 million, and which would be a healthy increase from the $776 million it generated in 2021. Both of these were ahead of any analyst expectations.
Improved Earnings in Q1- 2022
In December, the company closed the Q4 with 1% Y-o-Y, which was driven by Chegg’s strong performance. CEO Dan Rosensweig attributed the success to Chegg Study Pack for all time high retention rates. He said that this ‘benefited subscriptions, average revenue per user, and margins for Chegg services overall.’ The momentum also carried on to the first quarter in 2022 that led to an eventual increase in the share price.
In the first quarter of 2022, Chegg forecasts its revenue to increase by 2% Y-o-Y, which ranges between $200 million to $205 million. The management expects company earnings to grow 8.4% over and above the earnings of 2021 with adjusted earnings before taxes, depreciation, interest, and amortization. These, however, remain little over last year- between $260 million to $270 million. These year on year growth and revenue targets imply that the sales and revenue should accelerate over the year 2022.
What Could This Mean for the Education Industry?
There are a couple of ways Chegg could show a growth in sales cycle and revenue for the next financial year. The company has already reported a rise in student enrollments to its courses and study material. Other than direct sales, revenue can be increased by cost-cutting within the company. From many other strategies that can be followed, outsourcing content to third party vendors is one.
If Chegg does resort to outsourcing, it will mean a generous rise in demand for B2B content development partners who can develop academic solutions for students and provide homework help.
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Evelyn Learning Systems is a B2B content development company which is positioned among leading brands in educational content development across all STEM and Business subjects.