Textbook company Chegg's stock crashes amid enrollment drop

Aarthi Swaminathan
·Reporter
·3 min read
1

Shares of online textbook company Chegg (CHGG) are crashing amid declining enrollments at American colleges and universities.

The sudden slowdown in the higher education sector pushed shares down by 48.82% on Tuesday.

"Over the last 1.5 years, we experienced extraordinary growth and in the midst of a strong year... in late September, it became clear to us that the education industry is experiencing a slowdown that we believe is temporary," Daniel Rosensweig, co-chairman, president and CEO, said on the earnings call.

"This industry-wide dynamic was unanticipated and is a direct result of the COVID-19 pandemic," he added. "A combination of variants, increased employment opportunities and compensation, along with fatigue, have all led to significantly fewer enrollments than expected this semester."

The company reported third quarter earnings on November 1, posting total revenue of $171.9 million, up 12% from the previous year. The consensus estimate was $173.8 million.

The bigger miss came from the fact that Chegg projected a revenue of $194 million to $196 million when the consensus estimate for the fourth quarter was much higher at $241 million, according to S&P Global Market Intelligence.

LOS ANGELES, CA - AUGUST 24: Chegg Mascot,
Chegg Mascot, "Shelly" at Chegg.com Campus Takeover's Coffee with Chegg at Vieta Coffee on August 24, 2009 in Los Angeles, California. (Photo by Amy Graves/Getty Images for Chegg.com)

Community college declines hit Chegg

According to early data from the National Student Clearinghouse Research Center, undergraduate enrollment continued to decline by 3.2% after dropping last year amid the coronavirus pandemic.

Enrollment at community colleges dropped by 5.6% and at public four-year colleges by 2.3%.

"These data are depressing, but they also show that the effects of the pandemic on higher education are far from over," Robert Kelchen, professor of higher education at the University of Tennessee, previously told Yahoo Finance.

The new data represents about half of the 3,600 post-secondary institutions the center collects data on and 8.4 million students as of Sept. 23. Combined with last fall's declines in enrollment, the number of undergraduate students has now fallen by a total of 6.5% since 2019.

“Far from filling the hole of last year’s enrollment declines, we are still digging it deeper,” Doug Shapiro of the National Student Clearinghouse Research Center said in a statement.

“A year and a half into the COVID-19 pandemic, we continue to see significant nationwide declines in undergraduate students, and community colleges remain the most adversely affected sector, experiencing a 14.1% total enrollment decline since fall 2019," he added.

Community colleges play a key role in Chegg's strategy, based on the earnings call. Rosensweig said the company had been focusing support services for community colleges and online universities, until the pandemic hammered enrollments.

"As we've said in the past, the average age of a student is 25. 26% of them already have a child. That 40% of them are working 30 hours a week or more," Rosensweig said. "That's the group that we think is most dramatically affected."

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Aarthi is a reporter for Yahoo Finance. She can be reached at aarthi@yahoofinance.com. Follow her on Twitter @aarthiswami.

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