What Happened?

A number of stocks jumped in the pre-market session after 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.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Financial Technology company Remitly (NASDAQ: RELY) jumped 3.2%. Is now the time to buy Remitly? Access our full analysis report here, it’s free.
• Consumer Subscription company Chegg (NYSE: CHGG) jumped 8.6%. Is now the time to buy Chegg? Access our full analysis report here, it’s free.
• Gig Economy company Lyft (NASDAQ: LYFT) jumped 3.7%. Is now the time to buy Lyft? Access our full analysis report here, it’s free.
• Online Marketplace company eHealth (NASDAQ: EHTH) jumped 3.4%. Is now the time to buy eHealth? Access our full analysis report here, it’s free.
• Gig Economy company Fiverr (NYSE: FVRR) jumped 3.8%. Is now the time to buy Fiverr? Access our full analysis report here, it’s free.

Zooming In On Chegg (CHGG)

Chegg’s shares are extremely volatile and have had 97 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 5 months ago when the stock dropped 32.1% on the news that the company reported weak fourth-quarter 2024 results, as both its number of users and services subscribers fell short of Wall Street's estimates, which is never a good look. Revenue plunged 24%, with subscription sales down 23%, highlighting the struggle to keep and attract customers. Despite aggressive cost-cutting, adjusted EBITDA dropped 45% year-on-year. The swing from a profit last year to a $6.1 million net loss this quarter adds to the concerns. Management pointed to Google's AI Overviews feature as a major issue, saying it's pulling traffic away from Chegg and hurting sales. 

The company planned to take legal action. And the outlook for Q1 2025? Not great, as lower-than-expected sales and EBITDA guidance suggest the pain isn't over yet. Overall, this quarter was mediocre, and with the market fearing that this company is toast due to AI, a big move makes sense.

Chegg is down 18.5% since the beginning of the year, and at $1.37 per share, it is trading 53.2% below its 52-week high of $2.93 from August 2024. Investors who bought $1,000 worth of Chegg’s shares 5 years ago would now be looking at an investment worth $16.08.

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