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What's in Store for Chegg (CHGG) this Earnings Season?

Headquartered in Santa Clara, CA, Chegg, Inc. CHGG is set to report first-quarter 2016 on May 2, after the market closes.

Last quarter, it had posted a positive surprise of 333.33%. The company surpassed estimates in three out of the past four quarters, resulting in an average positive surprise of 102.29%.

Let’s see how things are shaping up for this announcement.

Factors to Consider this Quarter

As a student-first connected learning platform, Chegg has two revenue streams, digital and print. Digital revenues are generated from digital learning services, advertising and commission-based revenues from e-commerce partners. Print revenues are generated from the rent and sale of text books to students.

Chegg’s expects pro forma revenue for first quarter 2016 between $44 million and $47 million, which is lower than $48 million reported in the first quarter of 2015. Adjusted EBITDA loss is expected to range between $2 million to about breakeven, better than a loss of $4.3 million in the prior year quarter.

Moreover, the company has incurred losses in the last few quarters, a trend which is unlikely to reverse in the to-be-reported quarter.

Earnings Whispers

Our proven model does not conclusively show that Chegg is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. However, that is not the case here, as you will see below.

Zacks ESP: The Earnings ESP is -6.25% as the Most Accurate Estimate stands at a loss of 17 cents while the Zacks Consensus Estimate is at a loss of 16 cents.

Zacks Rank: Chegg currently carries a Zacks Rank #2 (Buy). Although this increases the predictive power of ESP, the company’s -6.25% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies in the wider computer and technology sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Benefitfocus, Inc. BNFT, with an Earnings ESP of +4.00% and a Zacks Rank #2

Agilent Technologies, Inc. A, with an Earnings ESP of +2.56% and a Zacks Rank #2

Mettler-Toledo International Inc. MTD, with an Earnings ESP of +0.41% and a Zacks Rank #2

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
CHEGG INC (CHGG): Free Stock Analysis Report
 
METTLER-TOLEDO (MTD): Free Stock Analysis Report
 
AGILENT TECH (A): Free Stock Analysis Report
 
BENEFITFOCUS (BNFT): Free Stock Analysis Report
 
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