Chegg Inc. (NYSE:CHGG) experienced a decline in its stock value during extended trading on Monday after unveiling the financial outcomes for its fourth quarter. The earnings disclosure presented mixed performance indicators, balancing a year-over-year revenue drop with some positive margin and segment growth details.
For the quarter, Chegg reported a loss of one cent per share on a GAAP basis, surpassing market expectations which had projected a loss of 10 cents per share. This indicates an improved profitability relative to analysts’ forecasts despite remaining in the red. Revenue for the period stood at $72.66 million, surpassing consensus estimates pegged at $71 million, but this figure marks a sharp decrease when compared to the $143.48 million generated during the same quarter in the prior year.
Detailed performance metrics highlight specific aspects of the company’s operations. Notably, Chegg Skilling revenues reached $17.7 million, reflecting an 11% growth on a year-over-year basis. This segment is interpreted as the company’s growth engine, focusing on the expanding $40 billion skilling market. The firm anticipates this arena will support sustained double-digit growth accompanied by robust margins and cash flow in the forthcoming years.
On profitability, Chegg's non-GAAP gross margin was reported at 60%, a metric that provides insight into the efficiency of the company’s core business operations after adjustments. The adjusted EBITDA for the quarter was $12.9 million, further underscoring operational profitability trends. However, the non-GAAP net loss amounted to $700,000, indicating continued challenges in achieving net positive earnings after adjustments.
Chegg’s Chief Executive Officer Dan Rosensweig commented on the strategic direction of the company, underscoring a commitment to reinvent Chegg around the skilling market. He emphasized that this pivot towards the $40 billion skilling sector is aimed at enabling strong growth momentum while securing healthy profit margins and cash flow generation. Moreover, Rosensweig noted the company’s organizational restructuring into two focused business units: Chegg Skilling, intended as the driver of future expansion, and the legacy Academic Services segment, which continues to generate free cash flow. This cash flow is expected to boost the balance sheet and support the objective of exiting 2026 without debt and with a substantial cash reserve.
Following the earnings publication, Chegg's shares experienced downward movement, dropping 8% in after-hours trading to $0.69, as per data from Benzinga Pro. This market reaction reflects investor caution amid the pronounced revenue decrease, despite the slightly better than expected earnings per share result.
Chegg's earnings illustrate a transitional phase for the company as it manages legacy operations while investing in new growth avenues. The contrasting financial indicators reflect this dual focus, with shrinking revenues overall but growth within the new skilling segment. The company’s success in executing this strategy will be critical to its financial trajectory in subsequent periods.