I ran a financial analysis on Chegg (CHGG) and... I am excited!
Fight me if you disagree with the thesis below.
In a nutshell:
\-the **market cap ($80m) is currently largely below the net asset position value ($213m),** while the company is cash flow positive with more than **$400m+ of revenues**
\-a cost cutting plan is currently being implemented and there is a lot to cut: **the company spent $170m on R&D in 2024...**
\-the management has initiated a strategic review: "*we are undertaking a strategic review process and exploring a range of alternatives to maximize shareholder value,* ***including being acquired, undertaking a go-private transaction***" (this quote is from Q4 24).
\-Market cap is so low compared to the net asset value, the stock could easily do 2-3x when the outcome is announced; **Goldman Sachs has been hired**.
\-In addition, a lawsuit has been filed against Google who is previewing Chegg's content in AI-powered search (IP infringement): Chegg could get **up to c. $500m in compensatory damages** due to revenue loss caused by AI Overviews (estimated at c. $100-200m annual hit)
\-Yes, the topline is currently declining 20%: this is a similar growth profile to what is coming for Tesla... **except that we are on less than 2x P/E and less than 1x EBITDA**, while having a positive **net asset position at 3x the market cap!**
\-Finally, **the stock is highly shorted**
**This is not a financial advice, just my own analysis. I really like the stock.**
\*\*\*
**Few numbers below as of 31-Dec-24:**
\-Market cap of $80m (current market cap as of today)
\-Cash: $161m
\-Short-term investments (government bonds): $154m
\-Long-term investments (government bonds): $213m
**=> total cash + government bond position: $528m**
\-Liabilities: a convertible bond: $359 + $127 = $486m
**=> Net cash position = $42m**
\-Properties: $171m
**=> Net cash position + value of properties = $213m (2.7x the market cap!!)**