Chegg Navigates a Pivotal Quarter as Revenue Declines but Skilling Business Shows Promise
Chegg Inc (NYSE:CHGG) reported financial results for the fourth quarter and full year of 2025, delivering a mixed performance that underscores the company's ongoing strategic transition. While the company managed to exceed Wall Street's expectations for the quarter just ended, its forward-looking guidance and the stark reality of a shrinking core business appear to be the primary drivers of a negative market reaction in after-hours trading.
Earnings Snapshot: A Beat on a Shrinking Top Line
For the fourth quarter, Chegg's results presented a tale of two metrics. The company reported revenue of $72.7 million, which represented a significant year-over-year decline of 49%. However, this figure narrowly surpassed the analyst consensus estimate of $72.4 million. On the bottom line, the company reported a non-GAAP net loss of $0.7 million, or a loss of $0.01 per share. This was a substantial improvement over the estimated loss of $0.1071 per share, beating expectations by over 90%.
The market's immediate reaction, however, was focused on the future. Following the release, Chegg's stock fell approximately 7.8% in after-hours trading. This sell-off suggests investors are weighing the modest quarterly beat against more concerning trends.
Forward Guidance Falls Short of Analyst Expectations
A key factor in the negative sentiment appears to be the company's outlook for the first quarter of 2026. Chegg provided guidance for total net revenues in the range of $60 million to $62 million. The midpoint of this range, $61 million, falls meaningfully below the analyst consensus estimate of $86.7 million for Q1 2026.
This guidance highlights the continued pressure on Chegg's legacy Academic Services business, which the company now refers to as its cash flow engine. Management acknowledged that "changes in search interfaces continue to impact our traffic," a persistent challenge that has weighed on the student-focused side of the platform.
Strategic Pivot: Skilling as the New Growth Engine
The core narrative of Chegg's earnings report was its strategic reinvention. CEO Dan Rosensweig framed the quarter as part of "a period of reinvention at Chegg," with the company now organized into two distinct units:
- Chegg Skilling: Positioned as the new growth engine, targeting the $40 billion workforce skilling market.
- Legacy Academic Services: Managed to generate free cash flow to strengthen the balance sheet and fund growth initiatives.
The early results from this pivot were visible in the Q4 numbers:
- Chegg Skilling revenue was $17.7 million, an increase of 11% year-over-year.
- The company announced new enterprise partnerships with organizations like DHL, Gi Group, and Woolf University.
- Management expressed a goal to achieve double-digit revenue growth in the Skilling business for 2026 and an adjusted EBITDA margin of at least 20% over the next few years.
Concurrently, the company has undertaken aggressive cost-cutting, reducing non-GAAP operating expenses by 47% year-over-year in Q4 and targeting a 53% total reduction from 2024 levels by the end of 2026. CFO David Longo stated the objective is to end 2026 debt-free with a "substantial cash balance."
Market Reaction and Valuation Considerations
The stock's decline following the report indicates that investors remain cautious. While the cost discipline and early signs of life in the Skilling segment are positive, they are currently overshadowed by:
- The steep year-over-year decline in total revenue.
- Q1 2026 revenue guidance that is significantly below current analyst forecasts.
- The inherent uncertainty and competition involved in pivoting to the enterprise skilling market.
The company also disclosed it received a delisting notice from the NYSE due to its stock price falling below the exchange's continued listing standards. Management stated they have "ample time and multiple avenues" to regain compliance, including a potential reverse stock split, but emphasized that business execution is their primary focus.
Conclusion
Chegg's fourth-quarter earnings illustrate a company in the midst of a profound transformation. It successfully managed costs and beat lowered expectations for the quarter, and its nascent Skilling business is showing growth. However, the path forward is fraught with challenges. The rapid decline of its legacy revenue stream and soft near-term guidance have tempered optimism, leading to a negative market reaction. The investment thesis for Chegg now hinges almost entirely on the successful scaling of its B2B skilling platform and the rate at which it can offset the erosion of its academic services.
For a detailed look at Chegg's upcoming earnings estimates and historical performance, you can review the data here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, nor does it recommend the purchase or sale of any security. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
