Chegg: Revenue Beat, Subscriber Loss

Chegg (NYSE:CHGG), a provider of educational technology and services, released its Q4 2024 earnings on Feb. 24, 2025. The report highlights a period of transition, with revenue slightly beating analyst expectations but falling short of last year's results. Diluted Non-GAAP Earnings Per Share (EPS) stood at $0.17, aligning with the $0.17 forecast. Revenue at $143.5 million outpaced the $142 million expectation, yet this was a 24% year-over-year decline from $188 million in Q4 2023. Despite the downturn, the quarter showed signs of potential stabilization with strategic shifts in AI integration.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in 2024-11-12 earnings report.

Chegg: Business Overview and Strategy

Founded with the mission to offer educational support, Chegg provides students a suite of tools ranging from online textbooks to AI-powered study aids. Its subscription services, such as Chegg Study Pack, Writing, and Math, underpin its revenue model. Recently, Chegg shifted focus toward integrating artificial intelligence (AI) into its offerings, aiming to enhance personalized learning experiences and user engagement through technology like GPT and Anthropic models.

Chegg identified two primary success factors: leveraging AI to personalize education and expanding its subscriber base. The firm believes AI integration will offer a competitive edge by providing personalized content and reducing costs. Its efforts include the recent launch of Solution Scout to validate AI-generated educational content and the transition of its language learning platform, Busuu, to a freemium model to enhance user conversion rates.

Quarterly Achievements and Challenges

During Q4 2024, Chegg surpassed both analyst and its own management's high-end revenue expectations of $141 million to $143 million. The company generated impressive Adjusted EBITDA of $36.6 million, exceeding its guidance range of $32 million to $34 million. Gross Margin hit 68%, at the upper end of the 67% to 68% range as anticipated by management. Although the subscriber base declined 21% year-over-year to 3.6 million, the company noted improvements in engagement, with a 15 basis points boost in retention and a 66% uptick in user queries.

Chegg faced headwinds from competitive pressures, notably Google's AI Overviews impacting web traffic. In response, Chegg lodged a legal complaint against Google, citing competitive challenges. Despite subscriber losses, the Busuu freemium model shifts reported encouraging signs of growth.

Future Outlook and Guidance

For Q1 2025, Chegg anticipates significant adjustments due to ongoing competitive pressures. Management projected Q1 revenue between $114 million and $116 million, with subscription services at $104 million to $106 million. Expected EBITDA notably lowers to $13 million to $14 million from Q4 levels, reflecting the industry's competitive climate and strategic pivoting efforts.

Moving forward, Chegg remains committed to enhancing AI technology within its educational platforms and restructuring for efficiency gains.

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JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.