Chegg Inc. Earnings Call: Skilling Growth Amidst Revenue Challenges

Chegg Inc ((CHGG)) has held its Q3 earnings call. Read on for the main highlights of the call.Meet Your ETF AI Analyst Discover how TipRanks' ETF AI Analyst can help you make smarter investment decisions Explore ETFs TipRanks' users love and see what insights the ETF AI Analyst reveals about the ones you follow. Chegg Inc. recently held its earnings call, revealing a mixed sentiment among stakeholders. While the company is making strategic strides in the skilling market, achieving significant cost reductions and growth, it faces challenges due to a substantial revenue decline and negative free cash flow. These issues are primarily attributed to the disruptive impact of AI and reduced Google traffic, which have affected traditional revenue streams. Chegg Skilling Business Growth Chegg’s skilling business is showing promising growth, with expectations of a 14% year-over-year increase and a projected full-year revenue of $70 million. This segment is experiencing favorable conditions, driving double-digit growth and positioning Chegg as a key player in the evolving skilling market. Cost Reduction and Efficiency The company has successfully reduced its non-GAAP operating expenses by $41 million, or 46% year-over-year. This significant reduction has resulted in a leaner and more efficient company structure, allowing Chegg to better navigate current market challenges. Positive Adjusted EBITDA Outcome Chegg exceeded its adjusted EBITDA guidance by $5 million, achieving an adjusted EBITDA of $13 million with a margin of 17%. This positive outcome underscores the company’s ability to manage its operations effectively despite external pressures. Significant Revenue Decline Chegg reported a total revenue of $78 million, marking a 42% decrease year-over-year. This decline is largely due to reduced traffic, which has led to fewer subscribers and diminished advertising revenue, highlighting the challenges the company faces in maintaining its traditional revenue streams. Negative Free Cash Flow The third quarter saw a negative free cash flow of $900,000, impacted by a $7.5 million settlement payment to the FTC and $5.5 million in severance payments. These expenses have further strained Chegg’s financial position during this challenging period. Challenges from AI and Google Traffic The rise of AI and a decrease in Google traffic have disrupted Chegg’s traditional sources of traffic, resulting in fewer subscribers and reduced advertising revenue. This shift underscores the need for Chegg to adapt its strategies to remain competitive in the digital landscape. Forward-Looking Guidance Looking ahead, Chegg is focusing on the skilling market, aiming for sustainable double-digit growth. The company projects its skilling business to generate $18 million in revenue for Q4, reflecting a 14% year-over-year increase. Total Q4 revenue is expected to range between $70 million and $72 million, with a gross margin of 57% to 58% and adjusted EBITDA of $10 million to $11 million. Chegg is also restructuring to enhance efficiency, with plans to reduce non-GAAP expenses significantly by 2026 and cut CapEx by 60% from 2025 levels. In conclusion, Chegg Inc.’s earnings call highlights a strategic pivot towards the skilling market amidst significant challenges. While the company faces revenue declines and cash flow issues, its focus on cost reduction and growth in the skilling sector offers a promising outlook. Stakeholders remain optimistic about Chegg’s ability to adapt and thrive in a rapidly changing environment.