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On Tuesday, JPMorgan analysts downgraded Chegg stock from Neutral to Underweight, citing concerns over secular headwinds and increased competition from Generative AI and Large Language Models (LLMs). The firm also noted the strategic review that Chegg is currently undergoing. The stock, currently trading at $0.52, has experienced a dramatic 92.85% decline over the past year. According to InvestingPro data, the company appears undervalued based on its Fair Value analysis, though significant challenges remain. InvestingPro subscribers can access 18 additional key insights about Chegg's current situation.
JPMorgan's analysis points to potential challenges for Chegg, as it may face additional demand headwinds due to economic weakness. They suggest that students might seek secondary sources of income in a softer economic environment, which could impact Chegg's customer base. Consequently, JPMorgan has reduced its 2025 revenue and adjusted EBITDA estimates for Chegg by approximately 5%, placing them below the consensus. This aligns with InvestingPro data showing a 13.78% revenue decline in the last twelve months, despite maintaining impressive gross profit margins of 71.81%.
The firm projects Chegg's 2025 revenue to be $414 million, a decline of 33% year over year, with an adjusted EBITDA of $54 million, reflecting a margin of 12.9%. Despite these challenges, JPMorgan recognizes Chegg's ongoing efforts to achieve non-GAAP savings of $100 million to $120 million annually by 2025 through restructuring and a focus on expense management across all business areas. For detailed analysis of Chegg's financial health and future prospects, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro, which covers over 1,400 US stocks with expert insights and actionable intelligence.
Chegg has recently addressed its financial obligations by paying off its 0.125% convertible senior notes, which matured on March 15, 2025. The company paid a total of $359 million, leaving no principal outstanding.
The downgrade to Underweight reflects JPMorgan's cautious stance on Chegg's stock, as they anticipate that the secular and competitive headwinds the company faces in 2025 could worsen against a softer macroeconomic backdrop. JPMorgan is looking for subscriber and revenue trends to stabilize before becoming more positive on the stock.
In other recent news, Chegg, Inc. (NYSE:CHGG) has announced several significant financial and strategic developments. The company reported a slight top-line beat with a fourth-quarter revenue of $143.5 million for 2024, although this figure represents a 24% year-over-year decline. Chegg's full-year revenue for 2024 also declined by 14% compared to the previous year. In response to these challenges, Jefferies analyst Brent Thill downgraded Chegg's stock price target to $1.20, maintaining an Underperform rating due to ongoing difficulties, particularly from the impact of artificial intelligence on the company's operations.
Additionally, Chegg has completed the payment of $358.9 million for its matured 0.125% convertible senior notes, effectively eliminating this debt from its balance sheet. The company is also actively repurchasing its 0% Convertible Senior Notes due in 2026, having recently agreed to buy back $65.2 million in principal amount. Chegg has received a non-compliance notice from the New York Stock Exchange due to its stock price falling below the required minimum, and the company is exploring options to regain compliance, including a potential reverse stock split.
These actions reflect Chegg's strategic financial management as it navigates current market challenges. The company's management is undergoing a strategic review process to address its struggling business, highlighting its commitment to adapting and finding solutions in a competitive landscape.
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