On Monday, Citi maintained its Neutral rating on shares of Chegg (NYSE:CHGG), a leading education technology company. The firm's analyst pointed out that although Chegg has introduced a new management team, along with a restructuring plan and a fresh vision for growth, these changes have introduced a level of uncertainty that is currently affecting the stock's performance.
The analyst acknowledged the proactive steps taken by Chegg's management to address the company's challenges but also noted the short-term uncertainty as a significant factor impacting investor sentiment.
With the second-quarter results expected to be announced on August 5, the analyst suggested that while the upcoming report might offer insights into the company's future direction, it is unlikely to provide substantial reassurance to the market.
Chegg's current trends regarding learner usage and engagement are challenging, according to the analyst. Moreover, it was mentioned that the management might not have a clear forecast for the 'back to school' trends at this point.
The analyst concluded that despite the potential for the situation to improve in the future, the short-term risks versus rewards for Chegg's stock do not present an attractive investment opportunity, leading to the decision to maintain a Neutral rating.
In other recent news, Chegg has been navigating through a period of significant changes. The company announced a major restructuring plan, which includes a 23% reduction in its workforce. This move is expected to result in annual cost savings of $40 million to $50 million by 2025. On the financial front, Chegg reported a 7% year-over-year decline in revenue for Q1 2024, with earnings reported at $174 million.
In response to these developments, analysts from Morgan Stanley, BMO Capital Markets, Piper Sandler, Jefferies, and Needham have adjusted their outlooks on Chegg.
Morgan Stanley upgraded the company's stock from Underweight to Equalweight, citing a more balanced risk/reward profile despite a revised downward revenue forecast. BMO Capital Markets maintained an Outperform rating, while Piper Sandler, Jefferies, and Needham maintained an Underweight and Hold rating respectively.
Chegg also announced a five-year agreement with Amazon (NASDAQ:AMZN) Web Services (AWS) to bolster its AI learning tools, aiming to enhance personalized learning experiences for students globally. Furthermore, the company introduced an AI-based feature called 'speaking practice' to aid language learners in their conversational skills.
Lastly, Chegg is undergoing a leadership transition, with the current CEO moving to the Executive Chairman role and the Chief Operating Officer set to assume the CEO position. These are the recent developments in Chegg's strategy to optimize operations and improve performance in the long term.
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