3 Chegg Analysts Are Disappointed With Guidance: Are ChatGBT, AI Apps A Threat?

Zinger Key Points
  • The magnitude of Chegg’s guidance cut is surprising, one analyst said.
  • ChatGBT and other AI-powered apps are a risk to Chegg's pricing model, another analyst stated.

Shares of education tech firm Chegg Inc CHGG plummeted in early trading on Tuesday, after the company reported quarterly results and guidance.

Total revenue for the fourth quarter hovered at around $205.2 million. That was slightly ahead of what was expected, $202 million. Meanwhile, Chegg Services revenue ($200.7 million) and subscribers (5 million) were both in line with expectations.

Here's how analysts reacted to the Santa Clara, California-based company.

Check out other analyst stock ratings.

  • KeyBanc Capital Markets analyst Jason Celino downgraded the rating on the stock from Overweight to Sector Weight.
  • Piper Sandler's Arvind Ramnani reaffirmed a Neutral rating, while reducing the price target from $24 to $17.
  • Needham analyst Ryan MacDonald reiterated a Hold rating on the stock.

KeyBanc

  • “Chegg is guiding 2023 total revenue of $745M-$760M (-2% growth at the midpoint), well below consensus of $818M,” Celino wrote. “Implied 2023 Chegg Services revenue (under prior segment reporting) of 1.8% growth also came in meaningfully below Street expectations of 10%."
  • “We are downgrading Chegg to Sector Weight as our prior upgrade thesis around EBITDA margin upside does not look like it will play out, at least over the NT,” Celino added.

Piper Sandler

  • “Chegg 2023 guidance was well below expectations, with the top end of guidance range indicative of annual revenue decline,” Ramnani said. “While the company indicated that subscriber growth improved in mid-2022, they expect the full benefit to start to show in 2H23 and 2024."
  • “On balance, while it's still early, we view ChatGBT and other AI powered apps as a risk to Chegg's pricing model,” the analyst wrote.

Needham

  • Although Chegg’s fourth-quarter earnings and revenues were higher than expected, the fiscal 2023 guidance is disappointing, MacDonald said.
  • “While we expected a revision to the consensus topline est for FY23, we were surprised by the magnitude of the guidance cut as Chegg now expects rev to contract,” he added.

CHGG Price Action: Shares of Chegg had declined by 18.21% to $17.20 at the time of publication Tuesday.

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Posted In: Analyst ColorEarningsNewsDowngradesPrice TargetReiterationTop StoriesAnalyst RatingsMoversTrading IdeasArvind RamnaniJason CelinoKeyBanc Capital MarketsNeedhamPiper SandlerRyan MacDonald
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