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Chegg Inc. shares plunged toward their lowest price in four years Monday afternoon, after the online-education company slashed an annual forecast provided three months ago.
Chegg
CHGG,
righted itself from a stock free-fall in February by providing an optimistic annual forecast after its previous earnings report demolished the shares. Monday afternoon, though, executives reduced their sales forecast for the year by about $100 million and cut expectations for adjusted profit.
“We had a solid first quarter, and Chegg is executing well against our strategic objectives, despite continued industry headwinds,” Chief Executive Dan Rosensweig said in a statement. “We expect these challenges to be temporary and when they subside, our operating model, balance sheet, and leading brand put us in a strong position to accelerate our growth.”
Chegg shares fell more than 28% in after-hours trading, after closing with a 1% gain at $24.98. Shares dove lower than $18 in after-hours trading, prices that have not been reached in a regular trading session since the first quarter of 2018.
Chegg’s first-quarter numbers came in roughly as expected or better. The company reported earnings of $5.7 million, or 4 cents a share, on net revenue of $202.2 million, up from $198.4 million a year ago. After adjusting for stock-based compensation and other effects, the company reported earnings of 32 cents a share, up from 28 cents a share a year ago. Analysts on average expected adjusted earnings of 24 cents a share on sales of $203 million, according to FactSet.
The problem came in the second-quarter forecast and a healthy cut to annual guidance. As in the earnings report late last year that caused a major rerating of the stock from Wall Street, Rosensweig blamed a decline in students seeking higher education, and the workload they are being given.
“Students continue to take fewer classes and those they do take are often less rigorous, with fewer or more limited assignments. With higher wages and increased cost of living, more people are shifting their priorities towards earning over learning, resulting in a lower course load, or delaying enrollment in school at this time,” Rosensweig planned to say in a conference call Monday, for which remarks were disseminated with the earnings information. “In the U.S. alone, we have seen approximately 1 million students forgo or postpone higher education over the last two years. The impact of these factors is evident in the reduced traffic to higher education support services. This has made forecasting at this time challenging, and while we expect many of these trends to be temporary, we are reducing our guidance to better reflect the current market conditions.”
Chegg executives guided for second-quarter adjusted Ebitda of $66 million to $68 million on net revenue of $188 million to $192 million, while analysts on average were expecting adjusted Ebitda of $77.4 million on net revenue of $210.6 million, according to FactSet.
For the full year, Chegg reduced its revenue forecast to a range of $740 million to $770 million from a previously stated range of $830 million to $850 million; adjusted Ebitda is now expected to be $220 million to $235 million, from $260 million to $270 million previously. Gross margin is expected to be higher, with the forecast now calling for 73% to 74% after a guide of 70% to 72% three months ago.
Chegg had rebounded since delivering its original forecast in February, but is still down 72.4% in the past year, as the S&P 500 index
SPX,
has fallen 1.2%.
