CHGG stock: buy, sell, or hold?

Shares of Chegg Inc (Chegg Inc Stock Quote, Charts, News, Analysts, Financials NYSE:CHGG) are down a ton over the past two years, with the stock’s most recent drop coming after quarterly earnings in May.

What happened? 

Chegg is a Santa Clara-based online education platform, with a number of offerings for students, including renting and selling textbooks and e-textbooks, homework help and college admissions and scholarship services as well as marketing services for brands and advertisers.

The stock saw a big run-up in the early days of the pandemic as everywhere students were turning online to get their information, course packets and texts, along with help with their coursework. Investors saw Chegg as one of a number of e-commerce companies set to benefit from an accelerated adoption of online transactions and activity.

CHGG went from $40 pre-COVID to up above $100 by early 2021 but shares have fallen in a step-wise fashion over the ensuing two years, taking the stock to now around the $10 mark — that’s a long way down for the $1.2 billion market cap company which had $769 million in revenue last year and earnings of $1.34 per share.

More recently, Chegg shares dropped over 48 per cent with the release of its first quarter 2023 financials in early May. The company beat analysts’ estimates for its top and bottom lines, with EPS at $0.53 per share on a topline of $188 million.

But the market seemingly reacted strongly to management’s commentary on the impact AI might be having on its business. The company had said that ChatGPT was beginning to have an effect on Chegg’s new customer growth rate, as students turned more to the AI chatbot for help with their studies rather than to Chegg’s offerings. Management declined to provide full-year guidance, saying that it was too early to appropriately gauge the effect of AI.

But CEO Dan Rosensweig did respond to the market’s reaction to Chegg’s comments, saying that there is still value in coming to Chegg rather than a chatbot for educational assistance.

“I think this is extraordinarily overblown, and I don’t normally say that, I don’t really talk about the stock price much,” Rosensweig said in a CNBC interview.

Chegg is also planning to roll out its own AI-powered learning platform called Cheggmate, which will be powered by OpenAI’s GPT-4. 

“We believe we are in the best position to take advantage of the advancements in AI for the benefit of students, because we can leverage our proprietary data, our 150,000+ experts, and our decade-plus years of experience as we launch CheggMate,” Rosensweig said in a press release.

After the quarterly posting, Morgan Stanley dropped its target price on Chegg from $18 to $12, while Jefferies downgraded CHGG from Buy to Hold and asserted a one-year target of $11.