What Happened?

Shares of online study and academic help platform Chegg (NYSE:CHGG) fell 21.1% in the morning session after the company reported disappointing third-quarter results. Its number of users declined, and this figure fell short of Wall Street's estimates. Looking ahead, revenue and EBITDA guidance for the next quarter also missed. Overall, this quarter was mediocre, and with the market thinking that Chegg's business will be decimated by AI, the company needs much better quarters to convince investors otherwise and get the stock up.

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What The Market Is Telling Us

Chegg’s shares are extremely volatile and have had 50 moves greater than 5% over the last year. But moves this big are rare even for Chegg and indicate this news significantly impacted the market’s perception of the business.

The biggest move we wrote about over the last year was 5 months ago when the stock gained 28.8% on the news that the company announced a new restructuring plan, which also involves refocusing on its core audience (mostly Students) in a Shareholder Letter shared with the public.

This effort will involve the provision of more individualized support to learners via a single platform enabled with AI (artificial intelligence) capabilities. The restructuring effort includes the layoff of 441 employees, which represents 23% of the company's global workforce.

David Longo, Chegg's Chief Financial Officer added that, "We expect the restructuring will result in non-GAAP expense savings for 2025 of $40 million - $50 million. For 2025, we remain committed to our goal of 30%+ Adjusted EBITDA margin, and we believe we can deliver at least $100 million in Free Cash Flow. We are also reiterating our previous second-quarter guidance that we provided on April 29, 2024."

Overall, the update highlights the company's focus on improving growth and profitabiity, with some of the cost reduction efforts highlighted likely to positively impact the bottom line in the near term.

Chegg is down 86.5% since the beginning of the year, and at $1.52 per share, it is trading 86.7% below its 52-week high of $11.41 from December 2023. Investors who bought $1,000 worth of Chegg’s shares 5 years ago would now be looking at an investment worth $42.02.

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