What Happened?
Shares of online study and academic help platform Chegg (NYSE: CHGG) fell 13.2% in the afternoon session after the company reported dismal second-quarter results that revealed a sharp decline in subscribers and a weak forecast for future revenue. The education technology company reported a steep 40% year-over-year drop in its subscriber numbers, which fell to 2.6 million. This significant decline in users overshadowed the fact that Chegg's revenue and earnings per share actually beat Wall Street's estimates for the quarter. Total revenue decreased by 36% from the previous year, and the company posted a net loss of $35.7 million. Management pointed to lower traffic from Google's AI Overviews as a reason for the slowdown. Looking ahead, the company's third-quarter revenue forecast of $75 million to $77 million also fell short of analyst expectations, signaling continued challenges.
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What Is The Market Telling Us
Chegg’s shares are extremely volatile and have had 98 moves greater than 5% over the last year. But moves this big are rare even for Chegg and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 2 days ago when the stock gained 8.6% on the news that markets rebounded following a sharp sell-off in the previous trading session as a weaker-than-expected U.S. jobs report fueled speculation that the Federal Reserve will cut interest rates in September. The July Nonfarm Payrolls (NFP) report revealed a significant slowdown in the labor market, with the economy adding only 73,000 jobs, well below the anticipated 110,000. Furthermore, data for May and June was revised downwards, indicating 250,000 fewer jobs were created than initially reported. This weaker economic data has led investors to increase their bets on a potential interest rate cut by the Federal Reserve. According to the CME FedWatch Tool, the probability of a rate cut in September has surged to over 80%. Lower interest rates are generally seen as a positive for growth-oriented stocks, as they can boost economic activity and increase the present value of future earnings, fueling broad-based rallies in sectors like technology.
Chegg is down 34.8% since the beginning of the year, and at $1.10 per share, it is trading 58.7% below its 52-week high of $2.65 from December 2024. Investors who bought $1,000 worth of Chegg’s shares 5 years ago would now be looking at an investment worth $12.91.
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