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What's in the Cards for Chegg (CHGG) This Earnings Season?
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Chegg, Inc (CHGG - Free Report) is set to report second-quarter 2018 results on Jul 30, after market close.
In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 11.1%. Moreover, it surpassed expectations in three of the last four quarters, the average being 25.1%.
Investments in Chegg Study (part of Chegg Services) drove results in subscribers, engagement and renewals. This led to an impressive 60% year-over-year growth in engagement, resulting in 440 million views in 2017. Total Chegg Study content views surged 59% year over year to 158 million in the first quarter of 2018.The trend is expected to continue in the upcoming quarterly results.
Let’s take a look at other factors that might influence Q2 results.
Other Factors at Play
The rising popularity of online as well as on-demand human help for different courses at high school and college levels bode well. The company’s strategy of delivering high-quality and low-cost educational services is another positive.
Chegg’s revenues comprise two streams — Chegg Services and Required Materials. The company’s strategic investments in Chegg Services are expected to drive the upcoming quarterly results. Chegg services subscribers rose 45% in 2017 and 44% in the first quarter of 2018. The trend is expected to continue in the to-be-reported quarter.
The company projects Chegg Services revenues in the band of $58-$60 million, showing a rise from $44.7 million in the year-ago quarter. The Zacks Consensus Estimate for segment revenues is pegged at $60 million, implying a 34.2% increase on a year-over-year basis.
However, revenues in the Required Materials are expected to decline. The Zacks Consensus Estimate for Required Materials revenues is pegged at $10.6 million, implying a 9.2% year-over-year decline.
The company anticipates gross margin between 74% and 75% for the to-be-reported quarter, higher than 70% in the prior-year quarter. Adjusted EBITDA is expected to increase sequentially to around $17-$18.5 million.
Overall, for the second quarter, Chegg projects total revenues in the $69-$71 million band compared with $56.3 million in the prior-year quarter. Also, the Zacks Consensus Estimate for revenues is pegged at $70.2 million, implying a 24.7% increase.
A strong top-line growth owing to higher contributions by Chegg Services is expected to translate into higher earnings, considering the relatively fixed cost structure. Earnings are expected at 8 cents per share, reflecting a 33.3% improvement, per the consensus estimate.
Zacks Model
Our proven model does not show that Chegg is likely to beat estimates because it does not have the right combination of two key ingredients.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is pegged at -16.95%. A positive Zacks ESP serves as a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Chegg has a Zacks Rank #3 (Hold).
Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates.
Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Chegg’s Zacks Rank #3 and -16.95% ESP makes us skeptical about an earnings beat in the quarter to be reported.
Here are some companies in the Internet-Software industry that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter.
PayPal Holdings, Inc (PYPL - Free Report) has an Earnings ESP of +0.44% and a Zacks Rank #2.
Mimecast Limited has an Earnings ESP of +11.11% and a Zacks Rank #3.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
What's in the Cards for Chegg (CHGG) This Earnings Season?
Chegg, Inc (CHGG - Free Report) is set to report second-quarter 2018 results on Jul 30, after market close.
In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate by 11.1%. Moreover, it surpassed expectations in three of the last four quarters, the average being 25.1%.
Investments in Chegg Study (part of Chegg Services) drove results in subscribers, engagement and renewals. This led to an impressive 60% year-over-year growth in engagement, resulting in 440 million views in 2017. Total Chegg Study content views surged 59% year over year to 158 million in the first quarter of 2018.The trend is expected to continue in the upcoming quarterly results.
Let’s take a look at other factors that might influence Q2 results.
Other Factors at Play
The rising popularity of online as well as on-demand human help for different courses at high school and college levels bode well. The company’s strategy of delivering high-quality and low-cost educational services is another positive.
Chegg’s revenues comprise two streams — Chegg Services and Required Materials. The company’s strategic investments in Chegg Services are expected to drive the upcoming quarterly results. Chegg services subscribers rose 45% in 2017 and 44% in the first quarter of 2018. The trend is expected to continue in the to-be-reported quarter.
The company projects Chegg Services revenues in the band of $58-$60 million, showing a rise from $44.7 million in the year-ago quarter. The Zacks Consensus Estimate for segment revenues is pegged at $60 million, implying a 34.2% increase on a year-over-year basis.
However, revenues in the Required Materials are expected to decline. The Zacks Consensus Estimate for Required Materials revenues is pegged at $10.6 million, implying a 9.2% year-over-year decline.
The company anticipates gross margin between 74% and 75% for the to-be-reported quarter, higher than 70% in the prior-year quarter. Adjusted EBITDA is expected to increase sequentially to around $17-$18.5 million.
Overall, for the second quarter, Chegg projects total revenues in the $69-$71 million band compared with $56.3 million in the prior-year quarter. Also, the Zacks Consensus Estimate for revenues is pegged at $70.2 million, implying a 24.7% increase.
A strong top-line growth owing to higher contributions by Chegg Services is expected to translate into higher earnings, considering the relatively fixed cost structure. Earnings are expected at 8 cents per share, reflecting a 33.3% improvement, per the consensus estimate.
Zacks Model
Our proven model does not show that Chegg is likely to beat estimates because it does not have the right combination of two key ingredients.
Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is pegged at -16.95%. A positive Zacks ESP serves as a meaningful indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Chegg has a Zacks Rank #3 (Hold).
Note that stocks with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 have a significantly higher chance of beating estimates.
Conversely, Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement.
The combination of Chegg’s Zacks Rank #3 and -16.95% ESP makes us skeptical about an earnings beat in the quarter to be reported.
Chegg, Inc. Price and EPS Surprise
Chegg, Inc. Price and EPS Surprise | Chegg, Inc. Quote
Stocks to Consider
Here are some companies in the Internet-Software industry that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter.
HubSpot (HUBS - Free Report) has an Earnings ESP of +9.68% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
PayPal Holdings, Inc (PYPL - Free Report) has an Earnings ESP of +0.44% and a Zacks Rank #2.
Mimecast Limited has an Earnings ESP of +11.11% and a Zacks Rank #3.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>