How Does Chegg Inc’s (NYSE:CHGG) Earnings Growth Stack Up Against Industry Performance?

Today I will take a look at Chegg Inc’s (NYSE:CHGG) most recent earnings update (31 March 2018) and compare these latest figures against its performance over the past few years, as well as how the rest of the consumer services industry performed. As an investor, I find it beneficial to assess CHGG’s trend over the short-to-medium term in order to gauge whether or not the company is able to meet its goals, and ultimately sustainably grow over time. See our latest analysis for Chegg

Were CHGG’s earnings stronger than its past performances and the industry?

CHGG is loss-making, with the most recent trailing twelve-month earnings of -US$16.50m (from 31 March 2018), which compared to last year has become less negative. Furthermore, the company’s loss seem to be growing over time, with the five-year earnings average of -US$65.18m. Each year, for the past five years CHGG has seen an annual increase in operating expense growth, outpacing revenue growth of 2.70%, on average. This adverse movement is a driver of the company’s inability to reach breakeven. Scanning growth from a sector-level, the US consumer services industry has been growing its average earnings by double-digit 19.41% over the previous twelve months, and 13.14% over the past five years. This suggests that, while Chegg is presently unprofitable, it may have gained from industry tailwinds, moving earnings into a more favorable position.
NYSE:CHGG Income Statement June 14th 18
NYSE:CHGG Income Statement June 14th 18

Given that Chegg is currently unprofitable, with operating expenses (opex) growing year-on-year at 9.14%, it may need to raise more cash over the next year. It currently has US$189.09m in cash and short-term investments, however, opex (SG&A and one-year R&D) reached US$205.39m in the latest twelve months. Even though this is analysis is fairly basic, and Chegg still can cut its overhead in the near future, or raise debt capital instead of coming to equity markets, the analysis still helps us understand how sustainable the Chegg’s operation is, and when things may have to change.

What does this mean?

While past data is useful, it doesn’t tell the whole story. With companies that are currently loss-making, it is always difficult to envisage what will happen in the future and when. The most useful step is to examine company-specific issues Chegg may be facing and whether management guidance has regularly been met in the past. You should continue to research Chegg to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CHGG’s future growth? Take a look at our free research report of analyst consensus for CHGG’s outlook.
  2. Financial Health: Is CHGG’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  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.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 March 2018. This may not be consistent with full year annual report figures.