Chegg tumbles nearly 50% after guidance miss, gets downgrade from Morgan Stanley

Published Tue, Nov 2 20217:02 AM EDTUpdated Tue, Nov 2 20214:07 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

Wall Street analysts are backing away from Chegg after a disappointing third-quarter report, headlined by a downgrade from Morgan Stanley. The stock closed Tuesday 48.8% lower after the report, which showed a revenue miss and weak guidance. Morgan Stanley's Josh Baer moved the stock to equal weight from overweight, saying that a reset from the Covid-era's online education demand was coming faster than expected. "While we highlighted increased risk as far as the Chegg setup into earnings results and we previously cut our price target and 2022 estimates ... we remained OW and were wrong on several fronts," the note said. Morgan Stanley slashed its price target to $53 per share from $88 per share, which is more than 15% below where the stock closed Monday. The stock fell below the new target on Tuesday. Chegg reported its third-quarter results Monday evening, showing 20 cents in earnings per share and $171.9 million in revenue. Analysts surveyed by Refinitiv were looking for 20 cents in earnings per share and $174.5 million in revenue. Chegg's forward guidance missed estimates significantly. The company said it expected fourth-quarter revenue of $194 million-$196 million, compared with the $241.7 million expected by analysts, according to StreetAccount. Additionally, Chegg CEO Dan Rosensweig said in a news release that "in late September it became clear to us that the education industry is experiencing a slowdown that we believe is temporary and is a direct result of the COVID-19 pandemic." However, the dramatic change raises questions about how well the company will be able to bounce back, Morgan Stanley said. "In addition to our significant negative estimate revisions, the broader uncertainty around the various contributions to the demand headwinds makes us more cautious, and we see the stock in the penalty box near-term," the note said. Chegg received several other downgrades, including from Raymond James and Piper Sandler. —CNBC's Michael Bloom contributed to this report.

Chegg Inc.

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Wall Street analysts are backing away from Chegg after a disappointing third-quarter report, headlined by a downgrade from Morgan Stanley.