🤯 Picked by our AI, this stock rallied more than Nvidia this month, yielding 94% since MarchSee the stock

JPMorgan sets Chegg stock at Neutral with $9 target

EditorAhmed Abdulazez Abdulkadir
Published 03/11/2024, 06:56 AM
© Reuters.
CHGG
-

On Monday, JPMorgan initiated coverage of Chegg Inc (NYSE:CHGG), an education technology company, with a Neutral rating and a price target of $9.00. The firm outlined Chegg's main focus areas for 2024, which include returning to global new account growth, maintaining strong margins and cash flow, introducing next-phase GenAI-enhanced services, and capitalizing on momentum in Skills for continued growth.

Chegg's progress in its GenAI transformation is evident, with the company rolling out proprietary Large Language Models (LLMs) and conversational GenAI tools aimed at improving user experience and driving deeper engagement and conversions. Despite the competitive risks posed by GenAI/LLMs, Chegg's vast proprietary database and subject matter experts are seen as significant differentiators.

The company reported a 6% year-over-year decline in Annual Subscription Services Subscribers and a 7% drop in Total Revenue for 2023. Chegg has implemented promotional pricing in the U.S. since mid-January and is banking on enhancements in GenAI/LLM to boost conversions across the country. The combination of these strategies, along with Study Pack, international expansion, Skills, and Busuu, is expected to help Chegg recover subscriber and revenue growth, although the timing remains uncertain.

Chegg is also focusing on profitability by reallocating resources towards AI and reducing expenses in other areas. The company's strong Adjusted EBITDA profile, with $222.4 million and a 31.0% margin in 2023, along with Free Cash Flow (FCF) generation of $172.9 million, reflects its solid financial health.

JPMorgan anticipates that a return to revenue growth, increased cost discipline, and GenAI/LLM efficiencies will contribute to incremental operating leverage over time.

The price target set by JPMorgan for December 2024 is based on approximately 3.5 times Chegg's estimated 2025 EBITDA of $217 million, which correlates to about 4.5 times the projected 2025 FCF of $171 million.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.