Chegg (NASDAQ:CHGG) stock dropped in late October after the digital education giant reported third-quarter earnings that smashed expectations, but also included a down guide for fiscal 2021.

Specifically, Chegg smashed third-quarter subscriber, revenue and profit numbers, and delivered a strong fourth-quarter guide. But, management also issued preliminary fiscal 2021 guidance, and those numbers came in below what bulls were expecting.

The implication, of course, is that management is projecting a material slowdown in e-learning demand in 2021 as the Covid-19 pandemic passes and students return to school. Investors freaked out. CHGG stock dropped.

But I don’t think that’s going to happen. Instead, the connected-learning megatrend that has materialized in 2020 will persist over the next few years, regardless of what the pandemic looks like, because the future of education is a hybrid of in-class and online (much like the future of shopping is a hybrid of in-store and online).

And, to that end, Chegg is turning into the Amazon (NASDAQ:AMZN) of education at a time when the education sector is rapidly being digitized. That’s a winning combination that could propel ~150% gains in CHGG stock over the next several years.

So buy this earnings dip in Chegg stock. It’s ephemeral pain in a long-term winner.

Strong Chegg Earnings

Despite the selloff in CHGG stock, Chegg’s third-quarter numbers were actually really good.

Chegg Services subscribers rose 69% year-over-year to 3.7 million subs. Both of those numbers are record highs, meaning Chegg is both getting bigger than ever and growing faster than ever, as students lean more heavily into e-learning platforms amid physical school closures in 2020.

Average revenue per subscriber rose 2% year-over-year, powering total Services revenue growth of 72% — also a record high. Total revenues rose 64% — again, a record high. So, Chegg is doing a great job of turning record student demand into recording paying demand and record revenues.

Chegg also isn’t sacrificing profits to sustain this big growth, and adjusted EBITDA dollars rose nearly 40% year-over-year in Q3.

Better yet, management expects most of these trends to continue into the fourth quarter. Revenues are projected to rise over 50% in the fourth quarter, while adjusted EBITDA is expected to rise almost 80%.

Big picture: Chegg is killing it today.

Why did CHGG stock drop then?

Because management implied that the company may stop killing it in 2021. Specifically, management is calling for revenues to rise just 24% next year — a sharp slowdown from the 50%-plus growth rates Chegg is reporting today — with the implication being that as physical schools reopen in 2021, demand for Chegg’s connected learning platform will fall.

But that’s an overly pessimistic outlook that, quite frankly, won’t come true.

The Future of Learning Is Hybrid

The simple reality of education is that, pre-Covid, the whole sector was stuck in the stone age, and the pandemic has actually offered an opportunity for the industry to leapfrog into the modern, digital era.

That’s exactly what the industry is doing, and will continue to do for the foreseeable future.

Even if schools reopen in 2021, deployment and usage of digital solutions in the education space will continue to go up, because hybridizing in-store lectures and labs, with digital learning tools like Chegg, creates an optimal education experience that maximizes how much and how easily a student can learn.

Simply imagine a world where high school students can go to school during the day, learn from teachers in class, and then go home, and have consistent, 24/7, on-demand access to a platform like Chegg that gives them the extra help they need on their homework or for test prep. Or, imagine a world where college students go to lecture, learn from a professor, and then go back to their dorms, and log on to Chegg.com to taker a deeper dive into what they just learned at lecture.

That’s the future of learning.

In that future, Chegg usage doesn’t go down as students return to school. It goes up. Especially since Chegg is doing everything right today to expand its value proposition, by becoming a digital skills boot camp with the acquisition of Thinkful.com, and adding various front-end features to the core Chegg platform.

All in all, the future of learning is online, and Chegg is optimally positioned to turn into the Amazon of education — so forget the subpar 2021 guide, and buy CHGG stock on this dip.

Chegg Stock has Big Upside Potential

Chegg stock has a realistic path to $200 prices in the 2020s, implying ~150% upside from current levels.

Here’s that bull scenario:

• Chegg leverages virtualization tailwinds, international expansion and its expanding value proposition to grow subscribers at a 20%-plus compounded annual growth rate to 30 million by 2030.
• Thanks to Thinkful (whose courses cost several thousand dollars), average revenue per subscriber rises at a steady low-single-digit pace into 2030.
• Big sub growth, mild unit revenue growth, and tepid declines in the required materials business lead to revenues rising at a 20%-plus compounded annual growth rate into 2030.
• Profit margins continued to expand with scale and higher average unit revenues. Adjusted operating margin hits 40% by 2030.
• Earnings per share soar from roughly $1 expected in 2020, to $10 by 2030.

Based on a 20-times forward earnings multiple — which is the medium-term average for technology stocks — that equates to a 2029 price target for CHGG stock of $200.

Bottom Line on CHGG Stock

Chegg stock is a long-term winner with visibility to $200 in the long run. Near-term weakness on the back of ultra-conservative 2021 guidance is transient. It will pass. So let CHGG stock fall, and then scoop it up on the dip.