Chegg, Inc.'s (NYSE:CHGG) Path To Profitability

Simply Wall St
·3-min read

With the business potentially at an important milestone, we thought we'd take a closer look at Chegg, Inc.'s (NYSE:CHGG) future prospects. Chegg, Inc. operates direct-to-student learning platform that supports students on their journey from high school to college and into their career with tools designed to help them pass their test, pass their class, and save money on required materials. The company’s loss has recently broadened since it announced a US$9.6m loss in the full financial year, compared to the latest trailing-twelve-month loss of US$24m, moving it further away from breakeven. Many investors are wondering about the rate at which Chegg will turn a profit, with the big question being “when will the company breakeven?” Below we will provide a high-level summary of the industry analysts’ expectations for the company.

See our latest analysis for Chegg

According to the 13 industry analysts covering Chegg, the consensus is that breakeven is near. They expect the company to post a final loss in 2020, before turning a profit of US$69m in 2021. So, the company is predicted to breakeven just over a year from now. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 83%, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

earnings-per-share-growth
earnings-per-share-growth

We're not going to go through company-specific developments for Chegg given that this is a high-level summary, however, keep in mind that typically a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

One thing we would like to bring into light with Chegg is its debt-to-equity ratio of over 2x. Typically, debt shouldn’t exceed 40% of your equity, and the company has considerably exceeded this. Note that a higher debt obligation increases the risk around investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on Chegg, so if you are interested in understanding the company at a deeper level, take a look at Chegg's company page on Simply Wall St. We've also put together a list of key aspects you should further examine:

  1. Valuation: What is Chegg worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Chegg is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Chegg’s board and the CEO’s background.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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