Chegg, Inc. (CHGG) on Q4 2021 Results - Earnings Call Transcript
Operator: Greetings. Welcome to Chegg, Inc. Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. . Please note, this conference is being recorded. I will now turn the conference over to your host, Tracey Ford, VP of Investor Relations and ESG. You may begin. Tracey Ford: Good afternoon. Thank you for joining Chegg's fourth quarter 2021 conference call. Today -- on today's call are Dan Rosensweig, Co-Chairperson and CEO; and Andy Brown, Chief Financial Officer. A copy of our earnings press release, along with our investor presentation, is available on our Investor Relations website, investor.chegg.com. A replay of this call will also be available on our website. We routinely post information on our website and intend to make important announcements on our Media Center website at chegg.com/mediacenter. We encourage you to make use of these resources. Before we begin, I would like to point out that during the course of this call, we will make forward-looking statements regarding future events, including the future financial and operating performance of the company. These forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. We caution you to consider the important factors that could cause actual results to differ materially from those in the forward-looking statements. In particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg's annual report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2021 as well as our other filings with the SEC. Any forward-looking statements that we make today are based on assumptions that we believe to be reasonable as of this date. We undertake no obligation to update these statements as a result of new information or future events. During this call, we will present both GAAP and non-GAAP financial measures. Our GAAP results and GAAP to non-GAAP reconciliations can be found in our earnings press release and the investor slide deck on our IR website, investor.chegg.com. We also recommend you review the investor data sheet, which is also posted on our IR website. Now I will turn the call over to Dan. Daniel Rosensweig: Thank you, Tracey, and welcome, everyone, to our 2021 Q4 earnings call. When we reported in early November, there was a great deal of uncertainty around the back-to-the-school season and the continuing impact of COVID-19. Fortunately, while enrollments were lower, we saw that school work did eventually pick up for the need for Chegg increased throughout the quarter, helping us exit the year on a higher note. During these complicated times, the Chegg team has continued to execute extraordinary well, with Chegg Study Pack take rates outperforming our expectations and retention rates reaching an all-time highs, both of which positively impacts subscriptions, ARPU and margins for Chegg Services. Our continued investment in content quality, subject matter expansion, personalization and discovery keep adding more value for students around the world and create even bigger opportunities for Chegg. Students depend on Chegg and is an important part of their learning journey, and the momentum we experienced in Q4 is continuing into Q1. This is why we feel comfortable providing 2022 guidance, which Andy will walk you through shortly. As education evolves, so do the learning pathways, which means there are going to be more students which will require even more help. That is why we are expanding our learning support to reach these students regardless of the path they choose to improve their outcomes through learning. So for 2022, our priorities are: one, to expand and improve the discoverability and quality of our content, the subjects that we cover and further personalize the user experience to make Chegg even better and more valuable for learners; two, invest in our international expansion, including our newest and exciting addition of Busuu, entering us into the $17 billion digital language business; three, invest in and grow our skills business by offering more courses through partnerships and through our direct channels; four, add even more value to our existing customers and new customers through bundling, pricing and new offerings. We believe this will enable Chegg to reaccelerate growth and meet our financial expectations. As you can see, we have an exciting future ahead of us, and we made some important investments last year to position us for continued growth. We added new subjects, higher-quality content and introduced personalization through the successful launches of Learn with Chegg and Uversity. Together, they help us improve and expand our content while building better relationships with faculty at the most prestigious institutions around the world. In fact, since Uversity launched Faculty from over 1,300 schools have uploaded almost 80,000 pieces of learning material including study guides, lecture notes and quizzes. And we have just added new tools to allow faculty to create and upload video content to meet the growing demand from students. The response to Uversity has been so positive that we expect to double the amount of learning material created by professors on our platform by the time we roll it out to students in the fall. And as part of our deepening relationship with faculty, we continue to invest in Honor Shield, both domestically and now globally, to allow faculty to protect the integrity of their TAMs for hybrid and remote learning environment. Uversity is just one part of our investment in Learn with Chegg, our new personalization platform that has already dramatically increased student engagement. And by combining our proprietary student data and AI technology, we are better able to predict students' needs without them having to ask. Learners are automatically pushed relevant content, whether flashcards, videos, quizzes, math or writing support to give them an individualized learning experience based on their needs. We have built a huge moat at Chegg, including the power of our brands, tens of millions of direct relationships, and we have built our own enormous library of content, that between all of Chegg Services now exceeds over 100 million pieces of learning material. So we are better able to serve our students. We believe we have a unique ability to know more about the students' needs to learn, what they need to learn and therefore, we can deliver it the way they learn at best. Our international expansion continues to be an exciting growth opportunity for us. In fact, we exceeded 1.5 million international subscribers during the year, well ahead of our target. In 2022, we will make more investment in new countries with new subjects, in new local languages and with local pricing. And with the acquisition of Busuu, International is becoming an even more significant part of Chegg's growth. For those of you who are not familiar with Busuu, we closed the transaction in mid-January, and I want to share why we are so excited about this addition to Chegg. The fast-growing $17 billion learning digital language category is a market that has significant overlap between college students and young professionals around the world. In fact, 26% of Busuu's customers selected education as their motivation for language learning and 55% of U.S. college students report needing help learning a foreign language. On the skills front, we have dramatically increased our TAM through our partnership with Guild. This partnership gives us access to the largest corporations in the world who are seeking skills-based learning content for their employees, and these companies are asking Chegg to create content uniquely for them. The pandemic has been hard on everyone. And what became evident to us was that students have means well beyond academic and skill support. Students trust Chegg, which is why we launched Chegg Life, to support more of their needs. Our initial areas of focus will be personal finance, soft skills, mental health and wellness, which are universal issues for students. We believe offering the support will help us serve them even better. The challenges of the last few years have been -- have had a dramatic impact on all of us, particularly students. There is an increasing need for students to learn on their own, so it is no wonder they are seeking academic and professional support, but it's clear they needed more help as they take on the rest of life's challenges. Chegg is investing to be there with them on their entire journey, and we are very excited about the next chapter of our growth and so grateful for all of you that have been to have been part of our journey. And with that, I will turn it over to Andy. Andy? Andrew Brown: Thanks, Dan, and good afternoon, everyone. Today, I will discuss our financial performance for the fourth quarter and full year 2021 as well as our outlook for 2022. Despite the complexity of the virus and the industry-wide slowdown at the end of the year, the business performed well during a difficult time and 2021 was another good year for our company. Total revenue grew greater than 20% and our adjusted EBITDA margin expanded more than 200 basis points. As we take stock of how far Chegg has come and the opportunity ahead of us, the past 2 years have been truly remarkable. Since 2019, Chegg Services revenue, adjusted EBITDA and free cash flow have more than doubled. This, all while investing in future growth, growth initiatives such as Learn with Chegg, Uversity, Chegg Life, plus expanding into skills-based learning and into international markets. Additionally, through acquisition, we have made key assets such as Mathway in 2020 and more recently, our acquisition of Busuu, allowing us to expand into new subject matters and geographies. Looking more specifically at our 2021 performance, total revenue grew 20% to $776 million despite the fact that Required Materials revenue declined 14%. This growth was driven by an almost $150 million year-over-year increase in Chegg Services revenue, which grew to $670 million, with subscriber growth of 18% to a record 7.8 million for the year. International represented 11% of total revenue in 2021. And while we expect continued domestic growth, International revenue is expected to grow faster, driven by continued organic expansion as well as the addition of Busuu, which is currently primarily international. This resulted in adjusted EBITDA margin of 34% or $266 million, up 28% year-over-year with free cash flow of $177 million or 67% of adjusted EBITDA, both are records for our company. As we survey the broader learning landscape, it's clear we have best-in-class margins. Our free cash flow margin of 23% is an extreme outlier among education peers and even among the broader software and tech sectors which gives us the opportunity to invest in future growth initiatives while continuing to deliver superior results. Looking at Q4, total revenue grew to $207 million driven by better-than-expected Chegg Services revenue growth of 6% to $187 million, which led to better-than-expected adjusted EBITDA of $78 million. Looking at the balance sheet. We ended the year with cash and investments of $2.3 billion. This was bolstered by the aforementioned free cash flow of $177 million, primarily offset by a $300 million accelerated share repurchase, or ASR, we entered into in early December and completed 2 weeks ago, retiring approximately 10.6 million shares. We entered into the ASR as we believe there was an overreaction to the temporary headwinds that affected our industry, which caused a dislocation in our share price. We believe this was a good use of our capital, good corporate hygiene and increases shareholder value. Moving to guidance for 2022. The momentum we experienced in late Q4 has continued into the spring rush. We have seen a reacceleration of growth in subscribers and our retention rates are at an all-time high. With respect to Required Materials, student usage continues to decline as textbooks have become less relevant. And as you can tell from our prior financials and our guidance, that has become a drag on both growth and margins. While we continue -- while we expect to continue to offer this service, we are evaluating strategic alternatives to provide it through partners. And finally, our full year and Q1 2022 guidance now include the financial expectations for our acquisition of Busuu. Also to assist you in modeling all of these changes, we have added the slide to the investor deck on our Investor Relations website that includes expected revenue and adjusted EBITDA seasonality. Specifically, for 2022, we expect total revenue to be in the range of $830 million to $850 million, with Chegg Services revenue in the range of $770 million to $790 million, and Chegg Services organic revenue growing in the 8% to 10% range. Gross margins to be in the range of 70% to 72% as Chegg Services revenue continues to grow and be a larger overall contributor. Adjusted EBITDA to be in the range of $260 million to $270 million, with Busuu being diluted to adjusted EBITDA by $15 million to $20 million as we invest to scale the service. We are investing in Busuu now to accelerate growth, and we expect it to be breakeven by 2024. And finally, as we have stated in the past, we continue to have healthy free cash flow conversion which we expect to be in the range of 50% to 60% of adjusted EBITDA. Moving to Q1 , we expect total revenue between $200 million and $205 million, with Chegg Services revenue between $183 million and $188 million, gross margin between 71% and 72% and adjusted EBITDA between $56 million and $58 million. We believe the future of Chegg is much brighter than the many successes we have experienced in the past. Over the past few years, we have become a clear leader in the education space, and already have many of the assets to extend our leadership position. We also have an operating model and a capital structure to invest in and add assets that few, if any, in the sector can. But the biggest and most valuable assets we have are our dedicated employees, driving our student-first mission. Without which, none of this is possible, giving us great confidence as we enter 2022. With that, I'll turn the call over to the operator for your questions. Operator: . Our first question comes from the line of Jeff Silber with BMO Capital Markets. Jeffrey Silber: I wanted to first focus on what you mentioned about Required Materials. I know this is where the company initially started and you held on it, you kept on saying it was more kind of a marketing strategy to get your name out. You obviously don't need that anymore. Why just not cut the cord and get out of that business totally? Daniel Rosensweig: Well, good question. This is Dan. Mostly because millions of students still use it. And to be frank with you, our concern is if we don't do it, then publishers will raise the prices again on students. But our expectation is that we won't own the business anymore. We'll simply offer it through partners so that students can continue to get their textbooks on us, and we can use our audience to make sure that the prices stay low. So it has -- we never believed we'd be in it for this long, to be honest with you. That's why we transferred to a digital company years ago. But it's -- the value of textbooks in the college marketplace are declining, and so we don't see any reason to be in it any longer than we need to be. And so we're working on those opportunities now. We just like to make it available to students, but if that doesn't work out, then we may end up exactly where you said. Jeffrey Silber: Okay. That's fair enough. I understand. Let me shift over to Chegg Services, and I wanted to ask about competition. You have this great slide in your deck where you talk about the unique -- the unaided brand awareness. And Chegg has always come out on top. It's still very strong. But when I compare this to what we saw, I think in prior quarters, you've got a couple of companies like Quizlet and Codecademy that have moved up, Quizlet pretty dramatically. Are you seeing more competition in the marketplace? And if so, what are you doing about it? Daniel Rosensweig: Yes. The answer is we're really not. The Quizlet serves the high school market and we serve the college market. So we don't really see overlap. In fact, we're an advertiser on Quizlet because they help drive plenty of customers to us. And when we look at our own internal research and overlap between Quizlet and other companies, all the other companies, we do not find there's significant overlap between our customer and theirs. And what we provide is high-quality expert, you can be certain that the solutions are correct. And that's why students value us. And I think that's why you saw sort of resurrect our growth because when academics became important again, Chegg went up, and that's what we expect. And so we're seeing growth -- we're seeing growth at their expense, not the other way around. And Codecademy is just video-based really for high school students that are trying to master certain subjects, but more importantly, for test prep, and that's not what we do. So they're very insignificant in terms of competitors to us at the moment. And so there are people that can use Quizlet and use Chegg, but they usually use the free version of Quizlet. Operator: Our next question comes from the line of Ryan MacDonald with Needham & Company. Ryan MacDonald: Dan, I'm curious what you saw in fourth quarter, we obviously see an incremental nearly 300,000 subs on the platform. I'm just curious, is that come primarily from just real strong success internationally? Or did you see a shift in seasonality of when maybe students within the U.S. came on and we're using the platform more actively? Daniel Rosensweig: Yes. Great question. Look, if I were Monday morning quarterbacking us, what I would say is in November, we knew what we knew, we didn't know where the bottom was. The bottom, thank goodness, was not nearly as low as we thought and the bounce back came much sooner than we thought. And all of that is good. But essentially, enrollment didn't change. What changed was there was a sudden reinvigoration of the focus on academics. And when that happened, we picked up. So you can call that seasonality, you can call it that students going back from COVID and going all the football games and getting used to seeing each other again and the work started later, I can't tell you exactly what the reason was from that perspective. But our internal numbers show that there was just a dramatic increase somewhere, obviously, after the last report, which was November 1, so subpart, first week of November or so as you start to getting towards midterms and finals. And thank goodness, that momentum is absolutely carried over into Q1, which is why we felt comfortable about giving guidance, and our guidance is stronger than I think anybody expected, including us. Ryan MacDonald: And maybe just a follow-up, a question around Busuu. Obviously, a nice interesting expander of your TAM and moving into the language learning market. Traditionally, you've really -- when you bought something, you kind of left it alone, let it operate and sort of get used to the operating the business model or operating in a new market. Can you talk about when you're thinking about the assumptions for 2022 for Busuu? Are you continuing to do that sort of first year, let it operate on its own, learn the business a bit more? Or does that assume some beginning of some cross-selling of Busuu into the core Chegg base? Daniel Rosensweig : What we have in the forecast assumes Busuu as Busuu. Now what we do for integration is, obviously, the first thing you have to do integrate finance, data, security, all those issues. And those come first because you want to protect the customers you want to make sure that we can report on all those things. And then our expectation is the first area of revenue synergy will start to come probably in the U.S. because 55% of our audience say they want to learn or need to learn language, and we have free access to our own customer list. And so you can expect that we will start working on that. Remember, the deal only closed mid-January, and we haven't been able to even fly over there because of COVID or they come to us. So we're going to make sure that we don't interfere with any of the success they're already having. They really started to invigorate their own growth a couple of years ago, and we couldn't be more excited about them being part of our family. And I think they would say the same thing. So I think what you see in the current forecast is simply what Busuu is. Operator: Our next question comes from the line of Doug Anmuth with JPMorgan. Douglas Anmuth : Maybe just first, Dan, you highlighted the outperformance in Study Pack take rates and also retention. I was hoping if you could just give us a sense of where you are in terms of Study Pack adoption and maybe what the mix of subs looks like currently? And then also how to think about retention rates and some of the drivers that are taking them higher? And I just have a follow-up for Andy as well. Daniel Rosensweig : Yes. Thanks, Doug. And how are you? So everything -- look, when we relaunched Study Pack, it was obviously before COVID. We didn't know where it was going to go. Without giving any specific numbers, I would say that it's probably twice as successful early on than we thought. The first thing was to let new customers know that existed. The second was to make sure that they were utilizing it. Third is to make sure that they start to renew anywhere near the rates that our Chegg Study customers have historically been doing, which goes up every month, which is wonderful. And we've seen all of that success continue. So that's been a really big boost, and that's why you see constant increase in ARPU, particularly with the U.S. customer base. What's also been really positive is that internationally, the take rate for Chegg Study Pack is very similar to the U.S. which we didn't expect, and renewal rates are climbing there. So what we saw in the fourth quarter, which is great for our shareholders, it's great for us, and it really does represent just how valuable Chegg is in the minds of students and how much the investment we're making in content and Uversity and personalization is having an impact as we saw a low cancels, which is wonderful, which meant that people just stayed on because they continue to see the value and they expect to roll over. We had the highest renewal rates, as Andy pointed out, we had record renewal rates, and we're seeing record take rates in the U.S. So everything that we have been doing in terms of improving the quality of the product, the discovery within the product, the amount of content that we have, have all been positively impacting the numbers. And so over the next several years, you're going to see constant increase in ARPU because a higher percentage of our new customers, a higher percentage of the renewals will all be paying $19.95 versus $14.95. So this is all really positive and better than we would have expected at this point. Douglas Anmuth : Got it. That's helpful. And then, Andy, just a follow-up on Busuu. Just -- you gave some numbers, I think when the deal was announced a few months ago. Can you just help us kind of understand how those like roll into the '22 guidance, how you think about deferred revenue impact? And then also, I think you talked about 500,000-plus paying subs. So those just kind of automatically go into your sub number? What's this going to look like? Andrew Brown : Yes. So several questions there. First thing is on the deferred revenues. There's a new standard accounting standard out there, which allows us actually to capture all of the deferred revenues. And so the numbers we put out there in November basically hold. And so we're forecasting the same. So that's -- yes, that's in our guidance right now. You can see that. With respect to the subscriber number, yes, we'll start reporting out the subscriber numbers in our Q1 report. The 500,000 was an annual number. So once again, we'll be reporting out on a quarterly basis, but those will be included in our subscriber numbers when we report Q1 because that's the first quarter we've owned the asset. Douglas Anmuth: Okay. And just to clarify, similar to your business, right, I mean the annual number, just bigger than any given quarter essentially you're saying. Andrew Brown : Yes, yes, yes, exactly. So when we report out our subscriber number, whether it's on an annual basis or whether it's a quarterly basis, it's during that period of time, how many unique subscribers were on the platform and obviously it gets deduped across the service lines, but that's exactly how we reported out, Doug. Operator: Our next question comes from the line of Brian Peterson with Raymond James. Brian Peterson: So first, just higher level on enrollment. I'd be curious, what are the longer-term expectations there going forward? And obviously, there may not be much of a change in 2022. But just kind of curious to get your thoughts on how that trend line will look longer term. Daniel Rosensweig: Yes. I'm sorry, did you say on enrollment? Brian Peterson: Yes. Just on the enrollment trends. I know that came up last quarter. Obviously, that wasn't a swing factor overall, but I'm looking to, I guess, get your thoughts, Dan, on how you're thinking about framing the enrollment trends, I guess, look domestically and internationally longer term. Daniel Rosensweig: Yes. Look, longer term, and we put some of it in our prepared remarks, I think it's probably helpful if I explain to people that we see Chegg academic support services, which are Chegg Study, Chegg Study Pack, obviously, obviously Mathway and Writing, but those 2 in particular can evolve to any pathway that any student is taking. So the traditional pathways, the 4 profit pathways, 2-year schools, boot camps, doesn't matter. Our expectation is that more students are going to be enrolled in something. It just may not be the traditional college experience. So we expect that in the United States, we'll continue to see growth. Obviously, international, we're seeing substantially more growth, as you heard from the numbers. We expected to do over 1 million when we started last year, and we did over 1.5 million. So clearly, what we said about Chegg resonating around the world holds true. In our guidance, we don't assume any change in enrollment for the second half of this year because we just don't know. So anything that goes up in the U.S. will obviously be beneficial to Chegg and to our shareholders. And I just think that we don't know enough because of COVID and because the economy and when the economy is robust, fewer people go to school. When it's less robust, more people go to school. And so I don't think the economy we're seeing is likely to sustain itself. So I imagine enrollment will be better over the next several years, but we just can't predict it in our guidance yet. So we're being very prudent in the second half of the year. Brian Peterson : Understood. And maybe a follow-up on Busuu. Just you mentioned some investments. I know there's an opportunity with new types of content and then leveraging international and taking their content and selling it domestically. Any help on how you're ranking those investments and maybe where we should start to see some of those series from those investments? Daniel Rosensweig : Yes. Great question. So Busuu has been growing really nicely outside the U.S. and -- but they have always been a company of incredibly high standards in quality of content and how they teach, but never really have been funded. And so we want to make sure that we fund their growth, what they would call their domestic market, which is Europe, and make sure that it's being funded at a level that they hadn't been able to fund it in the past because they have so much momentum and other companies that we know in the U.S. are not there yet and other companies in Europe don't have anywhere near the funding and had to pull their IPOs. So we want to make sure we allow them to put the foot on the gas in a way that they haven't been able to do it. And then priority 2 will, of course, be introducing Busuu with authors and opportunities to the U.S. audience because all of it will be incremental to what their plan is. So those would be the 2 biggest areas that we will be helping them with in terms of investing in their future. So as Andy pointed out, Chegg Services, Chegg Core has incredible margins that just keep going up. So we're using that to invest in the growth of Busuu at this point because we think there's just a huge opportunity in the $17 billion language market. Operator: Our next question comes from the line of Stephen Sheldon with William Blair. Stephen Sheldon: It looks like the guidance assumes some modest organic revenue growth acceleration in core Chegg Services during 2022, I think, relative to the first quarter guidance. Is that a fair takeaway? And if so, how should investors think about the factors that could support at least modest acceleration, would that mainly be easier comps? Or are there other items or factors that you call out? Andrew Brown: Yes. Yes, Stephen. So yes, so we started to see that like we've mentioned in the prepared remarks, we start to see that later in the semester, and so we saw that in our results for Q4. That has continued, clearly into Q1. So it gives us -- it certainly gives us the confidence that what we were seeing early in Q4 clearly didn't sustain as -- sustained as we got into Q1. So that gives us the confidence, particularly for the first -- more confidence clearly in the first half of the year. And then we're taking somewhat of a measured approach in the second half of the year for all of the variables that we've mentioned earlier. But overall, we're very confident in how things are looking from an organic perspective. Stephen Sheldon : Got it. That's helpful. And then I guess, it would just be great to get an update on where you're at in terms of providing local market pricing for your subscriptions to drive even stronger international subscriber growth. Has that started? And how are you thinking about the financial trade-offs between lower revenue per sub with making it affordable to more people. Daniel Rosensweig: Yes. This is Dan. A really interesting question. So we are testing now in the larger countries outside the U.S. and in countries that can afford to pay and have demonstrated that because you can see by our numbers, it's not like we're not growing outside the U.S., we are. In those countries, we will present it in local currency, but it will still be the same price, U.S., give or take. So no trade-off there. In countries where it's obvious that there's huge demand because we can see it on the top of the funnel, but the conversion is low because either it's not in local language, the ads are not in local language or the prices are presented in the U.S. or they're too high, those are the countries that we're testing to try to grow market share over revenue per customer there. But all of that will be incremental revenue and incremental process of the company because we have so much margin in that Chegg Services business because it's once, use many times. So in countries that you can imagine, large countries or countries that are focused on education, like the Philippines or Indonesia or Mexico or other places in South America, there are huge populations in India. We're going to play the price game there because it would all be incremental revenue to us and all the incremental profits to us. It just won't be incremental ARPU from those countries. But we're testing all of those now to make sure that we have the right discount structure and that we can watch that behavior month after month after month because we're not interested in doing that for a single month. We want the same kind of behavior we've seen in the U.S. where renewals go up, cancels go down, engagement increases and we're super excited about all that. It's just taken a while to build because we grew so quickly outside the U.S., we weren't ready for it. But we spent a lot of time and energy in our engineering departments and product departments and commerce department. So we're doing all of that work now, and you'll start to see some of that probably in the second half of the year will be more visible. Stephen Sheldon: Great. Daniel Rosensweig: Yes, but it's going to be big. I mean I'm excited about it. Operator: And our next question comes from the line of Brent Thill with Jefferies. Brent Thill: Andy, I wanted to follow back on Doug's question on Busuu. I just -- I wanted to be clear, and I think and maybe then come across this clear. When you think of the guide for '22, I think the last comment you mentioned on the last call was Busuu was growing $45 million over 20% in '21. So if you apply a slightly lower growth or same growth, you get to somewhere between $50 million to $55 million. Is that the range, if we had to tie it to a specific number, is that what you're asking us to put into the model for the year? Andrew Brown : Yes, yes. When you do -- well, absolutely. When you do the math, we put it into the -- we gave you the organic guidance. And if you do the math on that, it's in that $50 million to -- call it, $50 million to $55 million range. Yes, very specifically. Yes. Brent Thill : Okay. Great. And then for Dan, when you talked about what has happened on the strength that you saw throughout the quarter, I'm just curious how you're seeing that carry forward into this current quarter? And are you seeing similar trends as students have come back and they're obviously getting back into their routine that they're becoming more serious. They're coming back. Can you give us a sense of behaviorally how -- what you're seeing even as this quarter has started out? Daniel Rosensweig : Yes. Look, we're already 5 weeks into the quarter. And the variables that we just we didn't know in January was when the schools start, will they start on time, will they start online, they start hybrid, will they start in-person. As we said before, it doesn't matter whether a student physically is, what matters is their work to do. And so I think people confuse that other companies with what actually happens in our world. . What we have seen, again, which is why we can give '22 guidance and give growth guidance in Q1 over Q4, which is not the norm, that's an indication that we're seeing strong momentum carryover from Q4. So it's not just the carryover, but the behavior has remained the same, which is students have not only renewed and fewer have canceled, but new customers are coming in earlier in the semester. That's all good news. Operator: Our next question comes from the line of Arvind Ramnani with Piper Sandler. Arvind Ramnani: I know this has been asked before, but I wanted to ask it a little bit differently. There's certainly been a change in student behavior. On your November earnings call, you were quite bearish on some of the student behavior, but some of the data that we crunch through Q4, there was a remarkable pickup in Q4. And even with tough comps, we were quite surprised to see the significant uptick in the kind of the app downloads and web traffic. Can you kind of outline for the specific areas where you saw strength, whether there are like particular subject areas or particular kind of seniors, like what -- I mean, how should we really think of the strength? I'm just trying to get a sense of how much flow-through we should expect in the first half of this year from that increased interest in Chegg from students. Daniel Rosensweig: Yes. Look, here's what I would say. I appreciate the question, of course, difficult for us to be that level of specificity. But I think what we take away from it is that the value of Chegg as we've added more subjects, improve the quality, increased personalization is real and having a really positive impact on our overall business on every key metric, fewer cancels, higher renewal rates, more people taking the bundle, the bundle renewing at higher rates. Those are all things that we positively affected through excellent execution up and down the line of the Chegg employees who have really fought through to make sure the students are getting served. As you think about the flow-through, we have been very specific about thinking about our guidance, which is to say we have greater visibility in the first half of the year, certainly into Q1. And at the second half of the year, we are not yet prepared to be more aggressive, if you will, because who knows what's going to happen over the course of the year. But what this should tell you is when things start to approach normality, Chegg grows. And it not only grows, it's very profitable. And as I think Andy pointed out in his prepared remarks, there is not another company in the education space that is growing, that is profitable that produces free cash flow. We have $2 billion in our balance sheet. I think the takeaway here is that as things improve, Chegg improves. Which is some companies, it was only the pandemic that approved them. That's not our case. The more people study, the more important they take it, the more that they have to learn, the more they're dependent they need help. The fact is the schools don't have the budget, they don't have the money to provide services and support. And you can see through the strength of Uversity, just how many amazing professors there are willing to help their students learn on-demand online. I mean I'm surprised we didn't get more questions about tech. We already have over 80,000 pieces of content. We haven't even launched the consumer yet. And we only announced it at the end of last year. I mean this just shows you that the real professors understand how important online learning support is. Arvind Ramnani: Yes. That's super helpful. And then the follow-up I had to that is when we crunch our data, we crunch it separately both from a web traffic level and then from a mobile downloads level. When you think of these 2 buckets, web traffic and mobile, how is Chegg being used? Like are you able to kind of give us like a split? Or qualitatively say, like how many people are accessing Chegg via web versus mobile downloads? Daniel Rosensweig: Yes. Look, what I would say is it depends on the country, of course, and it depends on the service. So Mathway was much more used on mobile than Chegg was, for example. But I what we are striving for and what we see is that once the student downloads, they use us on both. The truth is a big screen is helpful when you're doing homework, when you have to read things. For Math, it really was the input was used by the phone because the easiest thing to do is just snap a photo of the equation. So what I would say is you're going to continue to see Chegg app downloads be more significant over the next bunch of years because we're investing now in that product and service. It was a surprise to us for the longest period of time that most people use this on their laptop. We don't -- it's not a desktop. It's a laptop. But increasingly, mobile devices are becoming an integral part of not only how they input, but how they're getting data out. And if you can see our new designs and new personalization make that even easier to do. And we are pushing more towards app downloads than we have in the past. So I think you'll see that improve. Operator: Our next question comes from the line of Josh Baer with Morgan Stanley. Joshua Baer: And great to see the really strong international numbers this quarter. I wanted to ask kind of a follow-up to the last 2 on just student behaviors and -- toward the end of Q4 and into Q1. Just wondering like how you're thinking about Omicron and any impact that, that might have had on the student behaviors? Daniel Rosensweig: Yes. I can tell you the impact I had on my behavior, I caught it December 22, and nobody in my family had any symptoms, but I had them all. So not a fan. And actually -- but I know the question seriously is how does it affect our business? One thing that I want to tell you, our data shows us consistently is that where the student physically is does not matter because we are an on-demand service that can be used on your phone, on your laptop, it doesn't matter. If you need help -- we are there for you, whether you're either a hybrid student or remote student or a fully in Class 2. And every survey that we provide tells us the behavior. The conversion rates, the renewal rates, engagement rates are almost identical. So that is not -- that's the area that other people ask about. They think because if you're off-campus, you're going to use this more. That's not been our experience in terms of observing and communicating with the student. Where it has made a difference is when the actual academic starts. So if they're delayed, we're delayed is what we learned in the fourth quarter. So if -- remember, before Omicron started, Chegg Services started to pick up. Then it hit sort of end of, what, November, on or around Thanksgiving time. And so our business has already started to reaccelerate before that. And right now, I think we're seeing a decline in most states and decline in most cities. And we've seen, as Andy pointed out in the prepared remarks, that momentum continues, thank goodness. So this, to us, the message to us, our belief is that it doesn't matter where the student is. It matters when the student starts to study. Joshua Baer: Great. That's clear. And then one on EBITDA margins and the guidance. I know the margin lower in '22, most of that is from Busuu and adding that to the model and the investments there. I think there's still some compression versus '21, making that adjustment. I'm just wondering if you could kind of review the longer-term framework for margin expansion. Obviously, margins have consistently improved for many years. Just wondering if there's any change to that, just given the opportunity ahead and the investments that you're making across the board. Andrew Brown: No. And in simple terms, as we continue to scale and grow, we would -- without getting into specific margins beyond '22 because we're not going beyond '22, but we would anticipate that margins would expand over time. If you think about our -- the core of our business, it's high leverage, right? I mean if you think about Chegg Study, as a prime example, the content is reusable and reusable and reusable. And therefore, incremental subscribers, $0.90 or more in the -- certainly, in the short term, dropped to the bottom line. So yes, we believe that we will continue to expand margins over time. Clearly, Busuu's having a small impact on us, but we think it's absolutely the right investment. And like I said earlier, when you look at Chegg in its entirety and for the past several years, we have best-in-class margins in the sector. I would argue with you -- to point out to you that nobody has our types of margins, whether it's the EBITDA margin or more importantly, free cash flow. I mean our free cash flow margin is better than most companies' EBITDA margin. So we'll continue to grow that, but we're really proud of what we've accomplished over the last several years with respect to growing our profitability. Daniel Rosensweig: Yes, look, and I think Andy made it crystal clear. But one of the things that we did was break out Chegg without Busuu because it really does highlight the fact that our EBITDA margins are going up from last year. So -- and that includes the fact that textbooks probably lose a little bit of money now, whereas in the past, they were breakeven or made a little bit of money. So I think the way to think about it is Chegg itself before Busuu, continued growth and continued improvement in margins and continued improvement of free cash flow, and that's baked into this guidance that we're getting at the beginning of the year, which is really only the beginning of the year. So the business just keeps getting more powerful and more powerful. Operator: And our next question comes from the line of Jason Celino with Keybanc. Jason Celino: Hey, Andy. Hey, Dan, thanks for putting me in. Maybe just 2 quick ones. Maybe first on skills. In the past, you've used M&A to build out these new areas. And obviously, you just acquired Busuu. But as you think about building out your presence and skills, how much role partnerships play relative to maybe how you use partnerships in the past? Daniel Rosensweig: Yes. Fair question. So when we first entered the skills market, we knew how big it was and it is. What's happened during the period of COVID is the direct-to-consumer model sort of grew and sort of froze. You could see that on Coursair, and others. And then their B2B markets picked up, but those B2B markets, at least from our experience, have yet to be profitable, and we're not sure if and when they get profitable. So we chose a different path. We said, let's take the assets we have, our core strength of being a content creator, user experience, greater and academic support company that can teach you something and support you and partner with Guild in this case as our primary partner, but not necessarily our exclusive partner. Because if you follow them, they have done a spectacular job of growing their customer base. So they have the largest corporations in the world from Walmart to Target. They just named several in the medical field and where they're working with partners to supply that academic degree programs, Chegg is actually supplying the skills programs. The really cool part of that is that the corporations are working with Guild and with Chegg to say, this is what we would like to teach our employees. So it's not just a marketplace of stuff, it's now very specifically, this is what we would like our employees to know. We build it, we can use it for those companies or any other companies. And over time, it's going to take several years to build because corporations move slow and deals going to sign the business, then we got to build it and they're going to promote it. But you can imagine it being very high growth, very high-margin business because we don't have any cost of marketing. It goes directly through Guild, directly to the customer. And many of these skills can be used in our own network, either directly to our audience or with other companies. So that is the primary area of focus that we have right now in the skills space is to build out our catalog of incredible content and work with Guild and these largest corporations in the world, to teach their employees, what the companies want them to know. And those will all be profitable for us as we scale. So it's really a powerful model for us and one that we worked over a year to negotiate as we began to see the dynamics of the other skills market just change. And you can see that in all those companies' numbers, which is their consumer business sort of slowed or declined and they're not profitable yet. That's not the way Chegg run -- we focus on growth with profitability. Jason Celino: Okay. Interesting. And quickly on International, the new disclosure is very helpful, 11%, international subs, 1.5 million. That's 50% more than what we thought, at least initially at this time of year. Framing this maybe in the more anecdotal comments, but maybe can you speak to how that business grew or maybe stepped up over 2020? Daniel Rosensweig: Yes, you're fading there at the end, but I think what you asked is how the business sort of got this big and it sort of stepped up. There -- we just -- what Chegg does which is support students that are putting their hands up and saying, "I need to know this. I have to know this. I want to know and I need help." That is universal around the world, particularly for students who are learning business or STEM, which is what our initial content primarily focused on. So for obvious reasons, English-speaking countries became bigger faster. But this is an effort that countries around the world are really promoting their young people, their students to learn STEM and to learn business. And that has really helped us grow within each country that we're in, but then adding many more countries. So I can't point to one country over the other. I could just tell you that as we get discovered, the same virality of our brand recognition in the U.S. begins to take place in other countries. And so the numbers were even bigger than we had imagined. So I -- we had a very difficult time in November. But you can see that we've recovered a lot faster and a lot stronger than people thought. And it's because the U.S. has returned, international continues to do extraordinarily well, the quality of our product, the amount of content that we have has improved renewals and engagement and reduction in cancels and take rates. So we feel very good about our future right now, coming from a place where we were just -- and everything that happened in November. Operator: And our next question comes from the line of Alex Furman with Craig Hallum Capital Group. Alex Fuhrman: Just lastly, if I could sneak one in here. Certainly, it sounds like the business recovered nicely as the academic calendar started to heat up closer to final exams. I'm curious if you saw a similar acceleration outside of the U.S. and especially in markets that maybe have a little bit of a different calendar, if it was something about that was happening globally or it was really confined more to places where final exams and midterm exams started to happen. Daniel Rosensweig: Yes. It's a terrific question. And what I would say is I don't know that we know that yet because we really went from zero to 1.5 million in 3 years. And so we have to discover the patterns. We have to get our data and analytics, the same quality that we have in the U.S., which is when do they come on? What year are they? How long do they stay on? Which subjects are they in? We're doing all that work now. But that's extraordinary growth from zero to 1.5 in just a few years. And so we will know the answers to those questions as we go on. We don't have that with the same clarity that we have in the United States right now. But what I can tell you is that all metrics over time, similar to the U.S. get better. And because we -- one of the things about owning your customer and owning the data and owning the channel of distribution and owning your content, which I'm not sure there's another company that owns all of that, allows you to monitor what the student wants, monitor what they use, improve it, add more, get rid of the things that they don't need. And all of those are the reasons that we continue to improve engagement and improve renewals and improve the take rate. So we just -- international is early stages for us, but it's already doing great as exemplified by the numbers that Andy reported. So I don't have the level of specificity outside the U.S. that I have inside the U.S., but we will shortly. Operator: And we have reached end of the question-and-answer session. I'll now turn the call back over to Dan for closing remarks. Daniel Rosensweig: Okay. Thank you, operator, and thank you, everybody, for joining. I think this is between the webcast and the call, the most people we've had. So we're very enthusiastic about the number of people that are taking a look at Chegg again for the second time, maybe more. But as you can see, what we offer matters and the number of students that need help is only increasing. The amount of budgets that states have or schools have to provide support to their students, unfortunately, is diminishing. And so online learning, online learning support is only going to get bigger. And our investments in content and quality and subject matters and personalization and on continuing focus on the student is what continues to differentiate us as a service, which is why we compete extraordinarily well, which is why we have this massive database of content of high quality. We're improving our relationships with institutions and professors at a higher rate than we expected. And that we, like others, were surprised with what happened in Q3, Q4 time period, but we feel like we passed that, and we're back on our way to building a very huge company. And we couldn't do without our extraordinary employees who have stayed with us through COVID, who have focused on the students, and we're incredibly grateful for them. We have a mission. We want to help students improve the outcomes of their life through education and we're going to get back to work. So thank you, everybody, very much. Really appreciate you all for dialing in. Thank you. Thank you, operator. Operator: Thank you. And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.CHGG Ratings Summary
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Chegg Inc. (CHGG) Price Target Adjusted by BMO Capital Analyst
Analyst Adjusts Chegg Inc. (CHGG) Price Target
Jeffrey Silber of BMO Capital has recently adjusted the price target for Chegg Inc. (CHGG), setting it at $7, which is a notable change from its previous target. This adjustment was made on May 1, 2024, and suggests a potential upside of about 35.4% from the stock's price at the time of the announcement, which stood at $5.17. This new price target is a reflection of the analyst's updated view on the company's future performance and potential growth. For those interested in the detailed analysis behind this new target, the full report is available on TheFly.
Chegg has been through a rough patch recently, with its stock price experiencing a significant drop of 27.49% over the past four weeks. Despite this downturn, there are signs that the stock might be ready for a rebound. Currently, Chegg's stock is considered to be in technically oversold territory. This indicates that the intense selling pressure that has driven the stock's price down might be easing up, setting the stage for a potential recovery. This perspective is supported by the fact that Wall Street analysts have been revising their earnings estimates for Chegg upwards, suggesting a growing optimism about the company's financial outlook.
On a more granular level, Chegg's stock has shown some signs of recovery, with a recent increase of approximately 3.09% to $5.33. This uptick, albeit modest, is a positive sign against the backdrop of its recent performance. The stock has seen fluctuations, trading between a low of $4.96 and a high of $5.37 during the trading day. This volatility reflects the uncertain environment Chegg is navigating but also highlights the potential for recovery as indicated by the recent price movement.
Over the past year, Chegg's shares have seen a wide range of trading prices, from as high as $13.11 to as low as $4.96. This volatility underscores the challenges the company has faced, as well as the potential for significant price movements. With a current market capitalization of approximately $548.72 million and a trading volume of about 1.91 million shares, Chegg remains a notable player in its sector. The company's market position, combined with the recent adjustments in analyst expectations and the technical indicators of a potential turnaround, suggests that Chegg could be on the path to recovery, aligning with Jeffrey Silber's revised price target.
Chegg Shares Drop 13% on Weak Guidance
After releasing its Q3 results, Chegg (NYSE:CHGG) shares experienced a more than 13% decline intra-day today. Although the company reported an EPS of $0.18 and revenues of $157.9 million, surpassing the Street estimates of $0.17 and $152.18 million respectively, its outlook for Q4 appeared weak.
Subscription services, which formed 89% of the total net revenues, decreased by 4% year-over-year, reaching $139.9 million.
CEO Dan Rosensweig emphasized Chegg's potential, stating the company's vision to create a powerful, AI-driven personal learning assistant, aiming to serve more students efficiently and at a lower cost.
For the upcoming Q4/23, Chegg anticipates revenue to hover between $185 million and $187 million, with Subscription Services revenue projected between $164-$166 million.
Chegg Shares Drop 13% on Weak Guidance
After releasing its Q3 results, Chegg (NYSE:CHGG) shares experienced a more than 13% decline intra-day today. Although the company reported an EPS of $0.18 and revenues of $157.9 million, surpassing the Street estimates of $0.17 and $152.18 million respectively, its outlook for Q4 appeared weak.
Subscription services, which formed 89% of the total net revenues, decreased by 4% year-over-year, reaching $139.9 million.
CEO Dan Rosensweig emphasized Chegg's potential, stating the company's vision to create a powerful, AI-driven personal learning assistant, aiming to serve more students efficiently and at a lower cost.
For the upcoming Q4/23, Chegg anticipates revenue to hover between $185 million and $187 million, with Subscription Services revenue projected between $164-$166 million.
Chegg Stock Jumps 20% Following Q2 Earnings Report
Chegg (NYSE:CHGG) exceeded expectations for its second-quarter revenues and outlined its intentions to further expand into generative artificial intelligence. This move is aimed at directly competing with ChatGPT in the AI space. Chegg's stock surged by over 20% pre-market today.
Chegg's adjusted EPS stood at $0.28, coupled with a revenue of $182.9 million. These figures outperformed Street predictions of $0.29 EPS and $176.5 million in revenue. Notably, the company observed improvements in year-over-year customer acquisition and retention rates in the quarter, a trend that followed the launch of its initial generative AI experience in May.
Looking ahead to Q3, the company anticipates revenue between $151 million and $153 million, compared to the Street estimate of $152.4 million.
Chegg Shares Up 8% on Busuu Acquisition Announcement
Chegg, Inc. (NYSE:CHGG) shares closed more than 8% higher Tuesday, following the company’s announcement, according to which it is going to acquire Busuu, an online language learning platform targeting both students and professionals in the workplace.
The $436 million cash acquisition is expected to help diversify Chegg’s business model and provide it with a strong foundation of users internationally (90% of Busuu’s subscribers are outside of the U.S.).
The company also announced a proposed $300 million accelerated share repurchase transaction under the previously announced $1 billion securities repurchase program.
Chegg Shares Up 8% on Busuu Acquisition Announcement
Chegg, Inc. (NYSE:CHGG) shares closed more than 8% higher Tuesday, following the company’s announcement, according to which it is going to acquire Busuu, an online language learning platform targeting both students and professionals in the workplace.
The $436 million cash acquisition is expected to help diversify Chegg’s business model and provide it with a strong foundation of users internationally (90% of Busuu’s subscribers are outside of the U.S.).
The company also announced a proposed $300 million accelerated share repurchase transaction under the previously announced $1 billion securities repurchase program.
