Chegg (CHGG) has had a great underlying business for a long time, but its stock stagnated for more than a year as it digested its prior move, observes Mike Cintolo, editor of Cabot Growth Investor.
But now it’s off and running again after a monstrous earnings gap following this week’s quarterly report. As for the story, Chegg has the leading online learning platform for students.
The company offers on-demand and personalized services that cover homework help (including a library of 37 million pieces of content and 31 million expert Q&A answers), writing, math, tutoring and some online skills-based courses, along with textbook and e-textbook services (though it operates those at breakeven).
The company is attacking a giant market (36 million U.S. university and high school students, as well as 18 million others in Canada, Australia and the U.K. as it expands overseas), and its offerings have been a hit, with 90%-plus saying they help produce better grades.
Growth has been consistent for years, and the shut-in has accelerating that—in Q1, services (not textbook) revenue and EBITDA both lifted 33%, the subscriber total (now 2.9 million) grew 35%, and management forecasts subscriber growth will accelerate to 45% in Q2.
To be fair, the top brass isn’t comfortable forecasting full-year results due to uncertainty concerning back-to-school season, but there’s no question business is strong and getting stronger, and that’s been enough for big investors — CHGG exploded out of a year-long base this week on incredible volume following results. Shares can be squirrelly, so some near-term volatility is certainly possible, but the action is enticing.
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