Chegg's (CHGG) recent share price rally from mid-November lows is contradicted by "worsening third-party data" implying overly optimistic consensus estimates, Morgan Stanley said Tuesday in a note.
"We think consensus is mis-modeling the potential for growth stabilization and estimates still need to move lower," the firm said, pointing out that its current revenue estimates for Chegg is 12% and 24% below analyst forecasts for calendar years 2025 and 2026, respectively.
Morgan Stanley said its 2025 and 2026 EBITDA estimates for the online learning platform provider are 31% and 57% below consensus forecasts, respectively.
The firm downgraded the stock rating for Chegg back to underweight from equal-weight, after an upgrade about six months ago, and lowered the price target to $1.25 from $2. It said the move is prompted by several factors, including consensus estimates that "remain meaningfully too high, in our view, creating a catalyst of negative estimate revisions ahead."
"The market is not appropriately pricing in the material step-down in demand trends - the latest deterioration caused by changes in the internet search experience, with AI-generated content displayed at the top of search results pages, effectively disintermediating content sites like Chegg," Morgan Stanley said.
Shares of Chegg were down about 7% in recent trading.
Price: 1.51, Change: -0.12, Percent Change: -7.10
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