Chegg shares have just been slaughtered following an alarming earnings call, raising the question of what to do next if one is an investor.
"We don't really see moves like this in our coverage. So what I would say is that this company has historically been extremely consistent, is very well-run and is helping the world achieve the mission from learning to earning. Our view is that this [sell-off] is overdone," said Jefferies analyst Brent Thill on Yahoo Finance Live.
The selling may be overdone, but it doesn't mean Chegg investors will be exiting Tuesday's session feeling good about themselves.
Shares of the online learning portal crashed by nearly 50% by early afternoon trading as executives warned the surging labor market is pressuring demand for educational services.
"In late September, it became clear to us that the education industry is experiencing a slowdown that we believe is temporary. This industry-wide dynamic was unanticipated and it's direct result of the COVID-19 pandemic. A combination of variants, increased employment opportunities and compensation along with the fatigue have all led to significantly fewer enrollments than expected this semester. And those students who have enrolled are taking fewer and less rigorous classes and are receiving less graded assignments. We believe this is a post-pandemic impacts that will affect this school year, but it's not sustainable for higher education long-term," Chegg CEO Dan Rosensweig told analysts on an earnings call.
The warning on the conference call overshadowed a decent third quarter from Chegg.
Chegg reported third quarter total revenue of $171.9 million, up 12% from the previous year. The consensus estimate was $173.8 million. The company projected sales of $194 million to $196 million for the fourth quarter, short of analysts projections for $241 million.
The company also didn't share guidance for the year ahead as it typically does when it reports third quarter results.
Wall Street analysts promptly downgraded their ratings and price targets Tuesday in response.
For his part, Thill cut estimates for sales and operating profits for 2022. But, he maintained a Buy rating on the stock.
"The sentiment is terrible, and it's not going to get better in the next three months. For short-term investors it's [Chegg's] probably not an opportunity, for long-term investors, under $35 a share, there probably is an opportunity," Thill added.
Yahoo Finance's Aarthi Swaminathan contributed to this story.