Chegg (NYSE: CHGG) is expected to report its fourth quarter fiscal 2021 results on Feb. 7. Shares of the company have fallen significantly since its last reported results. Investors were surprised to learn that college student enrollment in the United States had plummeted.
While listing trends are unlikely to have changed much since Chegg last reported earnings, there is one key metric investors should watch. One of Chegg’s competitive advantages is the treasure trove of content it has. Those interested in the education technology company will want to see how much new content is added when it releases fourth quarter results.
Content is the key to Chegg’s competitive advantage
As you may already know, Chegg is a subscription company aimed primarily at students. Learners pay Chegg between $15 and $20 per month to access the platform. The main attraction for students is the 70 million exclusive contents. These step-by-step explanations were created at the request of subscribers. In addition to access to existing content, subscribers can ask 20 questions per month answered by Chegg’s subject matter experts.
Of course, the more students enroll in college-level classes, the greater the demand for Chegg’s services. For this reason, the stock came under fire when the company flagged a dramatic slowdown in the education sector in its latest earnings press release on Nov. 1. Chegg lowered its guidance for its fourth quarter and full year in conjunction with the revelation. Still, Chegg can’t influence the number of students taking college courses, so its efforts should be more focused on serving its 4.4 million existing subscribers.
This is where content creation could come in. If Chegg created millions of new pieces of content, that means existing subscribers were highly engaged and likely to stick around throughout their time at college. . Additionally, newly created content can work to attract new subscribers for several years or much longer (the college curriculum usually doesn’t change much). Finally, the expansion of Chegg’s content database will strengthen its competitive advantage.
One of the drawbacks of Chegg’s business model is that it serves a relatively small addressable market, primarily students. The other side of the coin is that Chegg is a dominant player in this market. Chegg is a verb on college campuses now. It’s not uncommon to hear students say “Chegg” it. And the core of its competitive advantage is its treasury of assets.
What this could mean for Chegg investors
Wall Street analysts expect Chegg to report revenue of $195.2 million and earnings per share (EPS) of $0.31 for the fourth quarter. If it meets those projections, that would equate to declines of 5.1% and 43.6%, respectively, from the same period a year earlier. Wall Street’s estimate for revenue of $195 million falls in the middle of what management has expected for the quarter.
Shares of Chegg have fallen 56% in the past three months. Management’s projections for 2022 will be larger than fourth quarter results. If it forecasts improved subscriber growth and student enrollment, that could boost the stock.
10 stocks we like better than Chegg
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They just revealed what they think are the ten best stocks investors can buy right now…and Chegg wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
View all 10 stocks
* Portfolio Advisor Returns as of January 10, 2022
Parkev Tatevosian owns Chegg. The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.