Chegg 2025 Q1 Earnings Misses Targets as Net Income Declines Sharply

Chegg(CHGG) reported its fiscal 2025 Q1 earnings on May 12th, 2025. Despite the company's efforts to diversify revenue streams and maintain cost efficiency, it reported a notable decline in net income compared to the previous year. Chegg's strategic alternatives process continues to progress, with promising discussions underway. Meanwhile, the company has initiated further restructuring to align costs with its outlook. The financial guidance for Q2 2025 remains cautious, reflecting ongoing industry challenges. The company expects total revenue between $100 million and $102 million, with adjusted EBITDA ranging from $16 million to $17 million, underscoring the need for continued adaptation.

Revenue

Chegg's total revenue in Q1 2025 decreased by 30.4% from the previous year, amounting to $121.39 million, down from $174.35 million in Q1 2024. Subscription Services generated $107.57 million, while the Skills and Other segment contributed $13.82 million to the total net revenues.

Earnings/Net Income

Chegg's losses widened significantly, with an earnings per share loss of $0.17 in Q1 2025, compared to a $0.01 loss per share in Q1 2024. The company's net loss increased to $-17.48 million, marking a steep rise from the loss of $-1.42 million in the same quarter last year. The EPS performance indicates considerable challenges in achieving financial stability.

Post-Earnings Price Action Review

The strategy of purchasing Chegg shares after earnings releases and holding for 30 days resulted in a limited return of 13.22% over the past five years, notably underperforming compared to the broader market. Despite a recovery in stock price over the 30-day period post-earnings, Chegg's overall return was significantly lower than the S&P 500's 63.59% return. This discrepancy highlights the limited effectiveness of the strategy in capturing long-term market growth. While short-term recoveries were evident, the approach exposed investors to volatility, emphasizing its unsuitability for those seeking substantial long-term returns. Investors focused on earnings-related trades may find short-term opportunities, but the strategy's constraints on potential returns make it less appealing for broader market growth.

CEO Commentary

Nathan Schultz, President and CEO, shared optimism about Chegg's revenue diversification, highlighting expansion in business institution pilots and licensing agreements with language model companies. Despite macroeconomic challenges and competition, Schultz remains hopeful about Chegg Study's potential and the anticipated growth of Busuu and Chegg Skills, aiming for profitability by 2026.

Guidance

For Q2 2025, Chegg projects revenue between $100 million and $102 million, with Subscription Services revenue expected between $85 million and $87 million. The company anticipates a gross margin of 64% to 65% and adjusted EBITDA between $16 million and $17 million. Restructuring initiatives are forecasted to yield non-GAAP savings of up to $175 million by 2026.

Additional News

Chegg has continued its strategic alternatives process, engaging with potential acquirers including tech and education firms, as well as private equity players. The company is exploring options to maximize shareholder value, such as acquisition, going private, or remaining public. Additionally, Chegg announced a significant workforce reduction, affecting 22% of its staff, as part of its cost realignment strategy. Furthermore, the company has repurchased $65 million of its 2026 convertible notes at a discount, aiming to optimize its capital structure amidst ongoing industry headwinds.