• Revenue: $137 million, down 13% year-over-year.
• Subscription Services Revenue: $120 million, down 14% year-over-year.
• Subscribers: 3.8 million, a decline of 13% year-over-year.
• Adjusted EBITDA: $22 million, representing a margin of 16%.
• Free Cash Flow: $24 million in the third quarter.
• Capital Expenditures: $15.8 million, down 32% year-over-year.
• Cash and Investments: $631 million at the end of the quarter.
• Q4 Revenue Guidance: Expected between $141 million and $143 million.
• Q4 Subscription Services Revenue Guidance: Expected between $126 million and $128 million.
• Q4 Gross Margin Guidance: Expected to be in the range of 67% to 68%.
• Q4 Adjusted EBITDA Guidance: Expected between $32 million and $34 million.
• Restructuring Plan: Reduction of headcount by 21%, with expected non-GAAP cost savings of $60 million to $70 million in 2025.

• Warning! GuruFocus has detected 4 Warning Signs with CHGG.

Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Chegg Inc (NYSE:CHGG) delivered better-than-expected revenue of $137 million and $22 million in adjusted EBITDA for Q3 2024.
• Engagement remained high with a 79% year-over-year increase in the number of questions asked.
• Chegg Study and Chegg Study Pack monthly retention rate increased by 30 basis points year-over-year.
• The company launched a new brand marketing campaign, 'Small Step Big Win,' showing early signs of progress with improved conversion rates.
• Chegg Inc (NYSE:CHGG) introduced a content quality and satisfaction guarantee, which is driving a lift in new subscriber conversion rates.

Negative Points

• Chegg Inc (NYSE:CHGG) faced challenges due to advancements in AI search experiences and the adoption of generative AI services by students.
• The rollout of Google's AI-generated content has negatively impacted Chegg's traffic and revenue outlook.
• Global nonsubscriber traffic to Chegg declined significantly, with a 37% year-over-year decrease in October.
• Chegg Inc (NYSE:CHGG) does not expect to meet its 2025 goals of 30% adjusted EBITDA margin and $100 million in free cash flow.
• The company announced a restructuring plan, reducing headcount by 21% to manage costs and align with market conditions.

Q & A Highlights

Q: Can you discuss the balance between making key investments for long-term growth and reducing costs in light of current challenges? A: Nathan Schultz, Chief Operating Officer, emphasized the importance of maintaining a focus on differentiation against generic AI products. He highlighted ongoing efforts such as the satisfaction guarantee and brand campaigns, which have shown positive results. The company plans to continue evolving its product, particularly in areas like practice and solution comparison, to support students' learning journeys.

Q: How is Chegg addressing the impact of Google's AI updates on traffic, and what new channels are being explored? A: Nathan Schultz explained that while Google's AI overviews have affected SEO traffic, Chegg is leveraging strong direct channels and partnerships with platforms like TikTok and Discord. The company is integrating its products into student workflows and focusing on a holistic marketing strategy to attract and engage students.

Q: With subscriber numbers down but engagement up, how does Chegg plan to monetize its core users? A: Schultz noted that while questions asked increased by 79% year-over-year, the focus is on enhancing the Q&A experience to foster deeper learning. The company aims to amplify its brand campaigns to convert engaged users into vocal advocates and paying subscribers.

Q: What are the primary drivers of the softening in nonsubscriber traffic, and how can this trend stabilize? A: Schultz attributed the decline in traffic to Google's AI-generated content, which provides immediate solutions to students. To counter this, Chegg is diversifying its student engagement strategies, including new apps and brand initiatives, to reinforce its value proposition.

Q: How is Chegg addressing retention challenges and funnel losses due to AI enhancements? A: Schultz highlighted the importance of building trust in Chegg's content and offering opportunities for students to explore the product before encountering paywalls. The focus is on attracting students who are genuinely interested in learning and improving their academic performance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.