Citi has maintained its Neutral rating on shares of Chegg Inc (NYSE: NYSE:CHGG), a leading education technology company.
The firm's stance comes in light of concerns over sustained revenue pressure that could affect the stock in the short term.
Despite recognizing Chegg's solidly profitable financial model and strong balance sheet, highlighted by the company's net cash position, the firm anticipates that the current challenges may not be quickly resolved.
The report specifically cites the impact of generative AI on demand, which was identified as a potential issue in the first quarter of 2023.
Continued pressure on web traffic has been observed, limiting confidence in the temporary nature of the current revenue pressure.
However, Citi acknowledges Chegg's decisive actions to manage its cost base, which is expected to support earnings in the near term.
Chegg's second-quarter earnings report revealed a mixed picture, with the company surpassing its own revenue and adjusted EBITDA expectations. Specifically, Chegg reported $146.8 million in revenue and $44.1 million in adjusted EBITDA. However, the company's total revenue saw an 11% year-over-year decline, reaching $163 million.
Goldman Sachs (NYSE:GS) adjusted its stance on Chegg, upgrading the stock from Sell to Neutral, while also reducing the price target to $3.75 from the previous $7.00. This decision came after Chegg's third-quarter guidance suggested a significant shortfall compared to Goldman Sachs and Street estimates.
Chegg's management has signaled a commitment to long-term financial targets, including achieving a 30% adjusted EBITDA margin and over $100 million in free cash flow by 2025. Furthermore, the company is focusing on expanding its product offerings through AI integration and international expansion, with Mexico set to be Chegg's first fully localized market.
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