Shares of embattled education technology (edtech) specialist Chegg (NYSE:CHGG) — which primarily offers online tutoring and homework assistance — popped sharply on Thursday. Earlier this morning, management announced that it authorized an increase of $200 million as part of its securities repurchase program. Further, CHGG stock gained 13% in the early afternoon session as it responds to a broader comeback effort.
According to the accompanying press release, the aforementioned plan allows Chegg to buy back its common stock along with the option of convertible notes through open market purchases and block trades. It also has the option of reacquiring shares in privately negotiated transactions in accordance with applicable rules and regulations.
Along with the increased $200 million securities repurchase authorization, “Chegg has approximately $89 million remaining from its previously announced $2 billion securities repurchase program.”
The news couldn’t have come at a better time for CHGG stock. Since the start of the year, shares plunged about 58% despite the strong rally today. Fundamentally, investors and analysts have grown jittery about Chegg’s relevance amid the rise of generative artificial intelligence (AI) or the ability for computers to create content prompted by requests using natural language.
CHGG Stock Moves on Efforts to Claw Back From the Abyss
With the ability for anyone to type in questions into AI protocols such as the popular chatbot ChatGPT, homework help platforms like Chegg appear to flirt with obsolescence. In addition, the expansive nature of generative AI solutions — that is, the ability to ask a wide range of inquiries — potentially puts CHGG stock on the perpetual backfoot.
Nevertheless, to the underlying company’s credit, it’s not giving up. For one thing, management released solid results for its second-quarter earnings report. Although the top line saw a 6% year-over-year reduction to $182.9 million, this tally beat Wall Street’s estimate of $176.51 million. On the bottom line, Chegg posted earnings per share of 28 cents, a hair off the estimate of 29 cents.
For Q3, management guided revenue to land between $151 million and $153 million. Notably, the Street’s estimate called for sales of $151.95 million.
Second, and more significantly, Chegg announced that it launched a beta version of its initial generative AI experience in May. Further, CEO Dan Rosensweig added that feedback has been positive. Thanks to the pivot to AI, “we’re entering an exciting new chapter for Chegg,” remarked the head executive.
Why It Matters
While some of the developments at Chegg are encouraging, analysts remain pensive. According to TipRanks, CHGG stock carries a consensus view of hold. This assessment consists of one “buy,” eight “holds” and zero “sells.” However, the average price target lands at $13.36, implying over 24% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
