On Nov 22, shares of Chegg, Inc. CHGG rallied to a 52-week high of $8.32. The stock pulled back to end the trading session at $8.24. The CA-based provider of educational services has a market cap of around $752.7 million and has seen its shares rise 3% from the previous trading day as against a 0.2% increase for the S&P 500 over the same period.
What’s Driving Chegg?
Chegg, a student-first connected learning platform, recently reported third-quarter 2016 adjusted loss of 13 cents per share, narrower than the Zacks Consensus Estimate of a loss of 17 cents.
Non-GAAP total net revenue of $55.5 million increased 22% year over year driven by 44% growth at Chegg Services. Chegg Service subscriber base totaled 800,000 in the quarter – a new record for Chegg – representing more than 40% growth over last year.
Notably, the transition to a fully digital business will be complete by the end of the year which can be expected to make Chegg an all-digital higher margin business in 2017. Chegg’s digital services like Chegg Study, exhibited significant growth in the third quarter with the growing demand for digital educational solutions. Chegg Study continues to have monthly renewable rate of about 80%. The attach rate for Chegg Study from textbook customers grew 25% year over year in the third quarter.
Chegg is also actively pursuing acquisitions to boost its complementary revenue streams within online education. Chegg acquired Imagine Easy Solutions given the growing demand for good writing skills. This will enable Chegg to reach out to junior high and high school students, thus broadening its footprint.
Chegg’s partnership with Ingram Content Group Inc. (started in 2014) will be completed by the end of 2016. Ingram will purchase all textbook inventories while Chegg will market those under its brand. Chegg has benefitted financially through this partnership. Capital once used to purchase print textbooks can now be used to invest in growth opportunities, which the company believes can drive greater shareholder value.
CHEGG INC Price and Consensus
Chegg carries a Zacks Rank #2 (Buy).
Other Key Picks
Other key picks in the Internet-Software industry are Amber Road, Inc. AMBR, FireEye, Inc. FEYE and Five9, Inc. FIVN.
All three companies carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Five9’s full-year 2016 earnings is expected to grow 41.5% while that of FireEye is expected to increase 18.6%.
Full-year 2016 earnings for Amber Road are expected to increase 35.2%.
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