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Chegg - AI Stock Analysis

Analysis generated February 6, 2024

Chegg is a well-known education technology company that provides digital and physical textbook rentals, online tutoring, and a variety of other student services. Founded in 2005, Chegg has expanded its platform to include homework help, scholarship searches, internship matching, and college application advice, aiming to become a one-stop-shop for student needs beyond just textbook rentals. In recent years, Chegg has focused heavily on digital services, recognizing the trend toward online education and the need for accessible, on-demand educational resources.

Fundamental Analysis

Chegg's revenue for the last quarter was $158M, reflecting a decline of 13.67% from the previous quarter. This drop in revenue is a red flag and requires attention, as it might hint at underlying issues in either market demand or competitive positioning. Moreover, when compared to the same quarter of the prior year, revenue saw a dip of 4.18%, reinforcing concerns about the company's growth trajectory. Net income also tells a cautionary tale, with a nosedive of 174.28% from the preceding quarter and a year-over-year plunge of 107.27%, both indications of profitability challenges. EBITDA was a mere $950,000, demonstrating dramatic decreases of 112.22% and 108.70% when compared quarter-over-quarter and against the same quarter last year, respectively, signaling substantial pressure on operating margins. However, an anomalously low P/E ratio of 6.49 might signal that the stock is undervalued by the market, which could present an opportunity for investors with an appetite for risk. The recent insider selling of stock could point to a lack of confidence from those with intimate knowledge of the company, or it might be a routine portfolio diversification.

Technical Analysis

The stock price of Chegg currently sits at $9.00, indicating a worrying 16.28% drop when measured against the price a month ago. Looking at a longer timeframe, the price has eroded by 48.36% compared to a year ago, casting doubt on the stock's long-term prospects and reinforcing the bearish trend. The SMA10 at $9.70 is lower than the preceding SMA10 at $9.84, suggesting a continued downward momentum in the stock's price. The RSI, at an extremely low 17.6, could hint at an oversold bullish condition, signaling that a corrective rebound might be on the horizon for investors willing to gamble on a bounce-back.

Alternative Data Analysis

Signs of Chegg's intention for growth can be inferred from its increased number of job postings – up 24% in recent months, suggesting proactive steps toward expansion. This could be a positive sign of the company's commitment to sustaining its business model. However, the employee sentiment is currently neutral, needing close monitoring for signs of improvement or further deterioration which could profoundly affect operations. Moreover, the 25% decline in website visitors could be worrying, possibly indicative of weakening customer acquisition. That said, mobile app downloads have increased by 26%, suggesting a shift in user behavior and a potential growth area. Lastly, social media presents a mixed picture: static follower growth on Instagram and a marginal loss of followers on Twitter might suggest a decline in brand engagement or marketing effectiveness.

Conclusion and Recommendation

Considering all facets of Chegg's current situation—from the fundamental downturn indicated by reduced revenue and net income, to the bearish technical indicators, and the mixed signals gleaned from alternative data—Chegg appears to face notable challenges. While some growth signals are present, such as app downloads and job postings, the overall negative trends in financial performance and user engagement raise significant concerns. The market's valuation of Chegg, as suggested by its low P/E ratio, might attract contrarian investors; still, the current evidence leans more towards caution. Investors should remain vigilant for signs of a decisive turnaround before committing capital. For those already holding Chegg, it may be wise to consider reducing exposure until the company demonstrates a clear path to reversing its declines and achieving sustainable growth.