CHGG - Embedded Expectations Analysis - 2021 06 29
Chegg, Inc. (CHGG:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 72.5x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may have concerns about subscriber growth, student retention rates, and margin expansionSpecifically, management may lack confidence in their ability meet upwardly revised gross and EBITDA margin guidance and sustain subscriber growth, especially in non-English-speaking countries. Furthermore, they may have concerns about student retention rates and platform engagement as students return to campus, their employee headcount expansion, and the changing needs of students Moreover, management may lack confidence in their ability to improve user experience and they may be exaggerating the extent of word-of-mouth advertising in enhancing their brand awareness
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
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