Shares of online education provider Chegg plunged nearly 50% on Tuesday, wiping billions off its market value after the company’s recent earnings showed revenue would continue to take a hit from lower demand as students return to the classroom.
Chegg’s stock is down 45% to around $34 per share so far on Tuesday, shaving over $4 billion off the company’s market value, which stood at more than $9 billion a day earlier.
The company on Monday afternoon reported third-quarter revenue of $171.9 million—up 12% from a year ago but slightly below analyst expectations of $174.5 million.
While earnings of 20 cents per share were in-line with forecasts, Chegg’s total subscribers fell to 4.4 million, an unexpected decline from 4.86 million in the previous quarter.
Another issue was Chegg’s forward guidance: The company warned that fourth-quarter results would take a substantial hit amid a sudden slowdown in the education industry.
Chegg highlighted that with fewer enrollments and lighter course-loads as students returned to school post-pandemic, demand for online education services reset faster than expected.
The company is now projecting sales of around just $195 million for the fourth-quarter, usually a busy time of year with final exams, well below the $241 million expected by Wall Street analysts.
“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,” Chegg’s CEO, Dan Rosensweig, said in a statement. “A combination of variants, increased employment opportunities and compensation, along with fatigue, have all led to significantly fewer enrollments than expected this semester,” he added during the company’s earnings call. The post-pandemic impact will affect the current school year, but is “not sustainable for higher education long term,” Rosensweig argued.
Chegg’s stock more than tripled in 2020, as demand skyrocketed among students learning remotely during the pandemic. Shares of the online education company have fallen significantly from their peak of $110 earlier this year, however: The stock is down nearly 60% so far in 2021.
What To Watch For:
Analysts at Morgan Stanley slashed their price target for Chegg shares to $53 from $88, warning that the impact of lower demand raises questions about how well the company can bounce back. “In addition to our significant negative estimate revisions, the broader uncertainty around the various contributions to the demand headwinds makes us more cautious, and we see the stock in the penalty box near-term,” the analyst note said.
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