Does Chegg Make The Grade As A Green Dot Stock?

Quick Summary

Chegg (CHGG) offers services that help university students succeed. 82% of revenues are from the Chegg Services division. These include: Chegg Study, a monthly subscription plan where students get expert answers to questions 24/7, and access to over 59 million previous answers; Chegg Writing, consisting of several online tools to help students create citations; Chegg Math Solver and Mathway, a set of tools for solving and understanding complex math problems; Chegg Study Pack, which consists of test preparation materials, and more. The remaining 18% of sales come from Chegg's Required Materials unit, which includes textbook and e-textbook purchase and rental, an attractive alternative to shelling out big bucks for college textbooks. Chegg has 6.6 million students subscribing to its services.

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Photo by lucas law on Unsplash

Does The Company Have Rising and Recurring Revenues?

YES. Chegg's revenue numbers have been outstanding, delivering a 3-year compound annual revenue growth of 36%. 2020 was a banner year for the company, with revenues up 57% and subscribers growing 51%, juiced by widespread remote schooling driven by the COVID-19 pandemic. Chegg feels its addressable student market in the U.S. alone is 35 million, vs. under 7 million today. International is an even bigger opportunity, with an addressable student population of close to 200 million. While Chegg has mostly pursued an organic growth strategy, it has recently added some acquisitions like Mathway to accelerate its growth plans. Finally, management has also indicated an interest in expanding into skills-based learning, particularly for technology jobs where learning is a constant process (an offering known as Thinkful). Chegg's revenues are recurring, with students paying a monthly fee to access the service (usually around $15). One thing to note is that subscribers are somewhat short-term, as university study is generally only a 4-6 year endeavor.

Does The Company Have Durable Competitive Advantages?

YES. With close to 60 million pieces of educational content and 7 million subscribers constantly asking new questions and adding new content, we feel Chegg has established a solid NETWORK EFFECT in educational help materials. Chegg's substantial content library attracts new students to subscribe (and current subscribers to stay), who in turn increase the rate of new content added. This creates a very effective (and cheap!) flywheel for continued growth. While new competitors could theoretically enter the market, it will take a lot of time and marketing to come anywhere close to the scale Chegg has already built. The firm currently has no real direct competitor, although there are many companies that compete in the individual areas like test prep, study materials, essay writing, etc.

GreenDot Rating: Green

After another look and some maturity in the business model, Chegg has been upgraded and now "makes the grade" as a GREEN (very attractive) business. Its services fill a very important and (to this point) under-served need, helping college students get reasonably-priced materials and study assistance. The business model to achieve this is highly desirable, creating a strong network effect of subscribers creating content, which in turn draws in new subscribers and keeps existing ones. Chegg has a lot of room to grow, with an addressable student population over 20 times its current subscriber base, and green fields for expansion in professional education. The only downside here is a limited-time subscriber duration, given the inherently short time that students are attending college instruction.

Disclaimer: The content is provided by Alexander Online Properties LLC (AOP LLC) for informational purposes only. The material should not be considered as investment advice or used as the basis ...

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