Chegg,Inc operates direct-to-student education platform. Chegg began textbook rentals in 2007 and expanded in to educational platform offering service to high school and college students. It was founded in 2005 and head-quartered in Santa Clara, California. Here are a few notes:
- Chegg’s top competitors include Barnes & Noble, upGrad, Zhangmen and Cluey Learning.
- Revenue increased from $250M to $410M in the last 4 years. Earnings increased from -$45M to -$10M during the same period.
- Beat Earnings estimates last four quarters straight.
- Total Debt is $931.5M. Gross Profit $318.74M. Revenue is 445M. Current Ratio is 7.93.
- Market Capitalization of $7B, P/E: Not Available, PEG ratio : 1.58, EPS : -$0.09
- Shares are currently trading at $60.39 with 52W-High of $67.98 and 52W-Low of $25.89 with support level at $39.04 and resistance level at $61.15.
- Acquired Mathway (Education mobile app) for approximately $100M in cash in order to expand its international coverage. May pay up to $15M additional payments over next 3 years subject to performance.Net Revenue of Mathway for 2019 was $13M.
- On 6/16/2020, announced that its board of directors has authorized $500M share buyback.
- Reported Q1 subscription to services increased 35% to 2.9M students and revenue went up by 35% ($131M).
- Forecast for the Q2 – subscriber growth to be more than 45% and revenue to $137M.
- Chegg hit a low of $25.89 on 18-March-2020. It is now at $60. That is 2.3 times!
- The free cash flow has more than doubled when compared to Q1 2019.
- The stock is trading at 16 times the revenue per share, 22 times gross profit per share, 44 times operating Cash Flow per share and 98 times levered free cash flow per share.
Pros:
Good company with massive growth potential. Acquisitions and stock buybacks show confidence of the management. Pandemic has expedited the need for digital education. This caused increase in subscriptions and generating higher revenues. Revenues and earnings have been going up in the last 4 years. The financial health of the company appears to be good.
Cons:
Digital Education might be the way for the future. Given massive student loans, more students might opt for this mode of education. However, we will also have to see what happens once things come back to normalcy and college campuses are open for students again.
Given the high valuation and how quickly the stock went up so fast to $60 from $26 in less than 3 months tells me there might be a correction on the cards.
Final Thoughts:
Chegg is a good company to buy but NOT a good price to buy at. Once bought we need to wait for the growth story to unfold and it could be a few years.
Timing is everything. If it is meant to happen it will, at the right time for the right reasons.
moneyclove.finance.blog 