CHGG - Embedded Expectations Analysis - 2021 02 10
Chegg, Inc. (CHGG:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with an 81.3x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may have concerns about ARPU growth, the long-term potential of Thinkful, and effectiveness of online educationSpecifically, management may lack confidence in their ability to sustain average revenue per unit (ARPU) growth and meet their 2020 revenue guidance. Moreover, they may be exaggerating the effectiveness of online education and the long-term profitability potential of Thinkful. Furthermore, they may lack confidence in their ability to sustain Thinkful subscriber growth, sustain their high growth model, and drive international market growth. Finally, management may be exaggerating the diversity of their customer base, the quality of their direct-to-student relationships, and their leadership position in the online education market
Chegg provides products and services that help students improve their outcomes throughout their educational journey. The company's offerings fall into two categories: Chegg Services, which encompasses all of its digital products and services such as Chegg Study, Chegg Writing, Chegg Tutors, Chegg Math Solver, and Other Services; and Required Materials, which primarily includes its print textbook and eTextbook offering. To deliver services to students, the company partners with a variety of third parties. The company sources print textbooks, eTextbooks, and supplemental materials directly or indirectly from publishers including Cengage Learning, Pearson, McGraw Hill, Sage Publications, and MacMillan.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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