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Chegg (CHGG) to Report Q2 Earnings: What's in the Offing?

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Chegg, Inc. (CHGG - Free Report) is slated to report second-quarter 2020 results on Aug 3, after market close.

In the last reported quarter, Chegg’s adjusted earnings and revenues topped the Zacks Consensus Estimate by 29.4% and 6.5%, respectively. On a year-over-year basis, both the metrics increased 46.7% and 35%, respectively. The upside was backed by 33% growth in Chegg Services revenues, which contributed 76% to total revenues.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has been stable at 34 cents in the past 60 days. This indicates an improvement of 47.8% from the year-ago quarter’s figure. The consensus mark for revenues is pegged at $136.76 million, which suggests 45.7% year-over-year increase.

Chegg, Inc. Price and EPS Surprise

Chegg, Inc. Price and EPS Surprise

Chegg, Inc. price-eps-surprise | Chegg, Inc. Quote

Key Factors to Consider

Chegg’s second-quarter results are expected to reflect increasing demand for online education amid this unprecedented time. Coronavirus has impacted the overall economy including school industry. However, the same has created opportunities for the online educations like Chegg.

The company is banking on its early adaptability of technology and infrastructure to provide education remotely. To improve efforts and serve students better, the company has been expanding offerings through the acquisition of companies like Mathway, Thinkful, WriteLab, StudyBlue, Cogeon, the developer of the math application Math 42, Imagine Easy Solutions, and internships.com.

Also, it has been integrating its efficiencies with supplemental materials including Chegg Study, Chegg Writing, Chegg Tutors, and Chegg Math Solver. Rising popularity of online courses at various levels, especially in this challenging period, is likely to have supported the company in the to-be-reported quarter.

Apart from these initiatives, the company is expanding its curriculum, scholarships, and currently working toward reducing prices to help students who lost their jobs.

As coronavirus hit the industry in mid-March, Chegg witnessed substantial increase in new subscribers throughout the globe. Also, it saw increase in engagement from existing subscribers. During the first quarter conference call, the company noted that subscribers increased 33% in the first two months of the quarter.

Q2 Projections

The company expects total net revenues in the range of $135-$137 million. Chegg Services revenues are likely to be in the band of $115-$117 million. The Zacks Consensus Estimate for Chegg Services revenues is currently pegged at $118 million, which indicates year-over-year increase of 47.5% and sequential rise of 18%. The consensus mark for Required Materials’ revenues is pegged at $19.45 million, which suggests an increase of 43.4% from the year-ago quarter’s reported figure.

The company expects gross margin between 74% and 75%, compared with 78% in year ago period. Also, it projects adjusted EBITDA in the range of $48-$50 million. This reflects an increase from $31.1 million reported in the year-ago quarter.

The Zacks Consensus Estimate for Services Subscriber is currently pegged at 3.2 million, which calls for year-over-year rise of 44.3% and sequential increase of 10.9%.

Quantitative Model Prediction

Our proven model predicts an earnings beat for Chegg this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat.

Earnings ESP: Chegg has an earnings ESP of +2.94%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks Worth a Look

Here are other stocks worth considering in the Zacks Computer and Technology sector as our model shows that these also have the right combination of elements to beat on earnings.

Benefitfocus, Inc. (BNFT - Free Report) has an Earnings ESP of +6.25% and a Zacks Rank #2.

Evolent Health, Inc. (EVH - Free Report) has an Earnings ESP of +18.04% and a Zacks Rank #3.

PayPal Holdings, Inc. (PYPL - Free Report) has an Earnings ESP of +2.15% and a Zacks Rank #3.

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