Well Chegg beat analyst expectations for Q3 on October 26th
with another strong quarter of top-line growth of 64% But after
more than doubling this year's shares sold off in the wake of the
report, but the long-term outlook for Chegg remains encouraging
with a company.
Q4 and 2021 guidance signaling more stronger the head here
now to discuss the company's growth plans is Andy Brown the CFO
of Chegg. Thanks so much for joining me today Andy strong
sales growth for Chegg.
And this quarter though.
We did see the bottom line adjusted earnings slightly dip year-over-year.
What would you say is the main takeaway from this quarter?
Well the main takeaway from this quarter is it we continue
to see strong growth both from our subscriber base which then
obviously generates Revenue growth and will continue to see expansion
of our margins.
That's one of the things that you know,
where I think we're unique where we're hype Top Line Growth
Company at the same time was seeing leverage on the bottom
line. And so, you know, that's and and and we had the courage
quite frankly to you know take what we we we saw in Q3 and as
you know, when you think about Q3 that's the best of time
when school starts at the beginning of a semester what kind
of translates into Q4 so it gave us the confidence to raise
our guidance for Q4 and unlike most companies.
We are also gave us the confidence to provide our initial
outlook for 2021 which we've been doing for the past 4 years.
This is the fifth year that we've done this so strong Q4 nice
guide up another strong and a strong guide up there 2021
Which also beat analysts' expectations as well.
So let's talk about the remainder of the year.
We know that 2020 has impacted every company in in different
ways. So Chegg has also seen that with this business how have
you leverage what this year has thrown at you and fuelled
or fueled the company to make decisions that can set you up for
more growth moving forward to wasn't it started in in the middle
of March as you're aware when the the the pandemic hit and you
know, whether you're at work and you went home to work like
you are and I am today right?
I'm sitting in my dining room for goodness sake cuz my wife
occupies the office but students students also went went home
and it's not just in the US to cross the globe so they were
really to core dynamics that we saw as a result of that and
was starting to lean into it from an investment standpoint.
The first one is in the US where that's been our traditional
business right as being in the u.s.
College students and to some degree high school and middle
school, but we saw as kids went off campus and they didn't
have their two things happen.
They didn't have access to on campus support because they're
not on campus Big surprised and the second thing that happened
as they went off campus is that we saw it in one of the
things that we've seen for many years as what we call account
sharing and in as they went off campus,
it was more difficult to share accounts and what we can and so
that proximity sharing we saw as a result in the US we've
seen an acceleration in the business.
We're where we we believe it's a function of primary account sharing
not occurring as kids around campus what that did for us.
However was accelerated an investment that we were going to make
in 2021 to have a technical solution whereas you could where
the students Couldn't account.
So if you cannot go back into the early part of the year and
pretty much forever.
If you are subscribed to Chegg study,
you could just share it with as many people as you wanted
as long as you were only one concurrent user on the account.
So you could prop technical share it with 10 20 30 people and they
could share it.
What we accelerated was a technological development that we call
device management that got accelerated.
We we introduced it in August of this year August 17th and back
until that limits his kids.
Go back onto campus.
They can't go back to that old habit of you know that proximity
sharing. So that was one dynamic in the US outside the US and
this is what would be making Investments really since the beginning
of excuse me at the beginning of what 2019 what we started
making investments in International Falls from a technological
standpoint content and marketing but what the COVID revealed
was as kids went off campus at that point in time is how how
big International
could be for us in other words until they found,
you know, where an internet-based company rights of the kids
go offline and they go how do I get help?
I can't get help on campus and we saw a significant acceleration
in our international business and what we've done those were
also leaning into that investment.
So we would mention not on this call as much but on the prior
call the fact that we are increasing our investments
both internationally and for John we believe that will continue
to allow us to sustain high-growth 20 21,
22 23. so it sounds like there are some short-term dynamics in play with more students being removed and you know the
expanding abroad but from a long-term perspective,
what about covid-19 that has changed the business you think
it's going to have those long-term lasting effects.
So it is what we talked at.
We talked about the many years with with with our investors.
And that is that the inevitability of more and more of Education
going online, right?
And so we believe Covid has accelerated that I mean is it's it's,
you know, I can throw out a bunch of Statistics whether it's
the professors who know back in May thought,
you know, you felt like, you know education online education
could be affected now half of them think it is so they're
starting to turn that corner and that's a study group hate to
say that but they don't they don't change much and then when
you think about the students does the students more and more
going online and experiencing the online Dynamic,
you know, 61% they believe say that they believe a properly
designed online course is just as rigorous as being on campus
course that we believe this this is complete shift to where
online education is becoming more and more accepted and all we
do is what online so we think we benefit from it.
Engagement that you're seeing with students and an increase
in that, you know us and outside of the US because you know,
that could also be a signal of stickiness perhaps what's your
take? Yes, so if that is one of the things clearly we subscribe
engagement that we have on our platform for just last quarter
like the last 90 days is it were we had 252 million content
views on our platform which is you know,
just stunning and then one of the things that is really pleased
as it went and if you think about our platform our Chegg study
platform a big part of his what we call Expert Q&A,
right, so we have over 40 million pieces of content with students
of asked a question and then we have experts that answer it and
then it gets archived on our platform 25% of all of the new questions
that we had to answer came from International sources.
So it kind of gives you an
Interesting Dynamic into what's happening for us internationally
what 25% of our our our our new questions are coming from from
International students. Oh, yes, it really high navigation
on the platform and looking into next year as we do see more
students coming back to the classroom.
How is Chegg thinking about incorporating?
Perhaps some of these digital learning aspects either in the
physical classroom itself or with more study material.
How are you thinking ahead for when that shift back
to the physical might happen think about is,
you know, we have more kids that are on campus actually
learning in person learning was that what I'll call it because
if you think about the dynamic today,
there's a lot of kids that have gone back to campus.
But in fact, they're not actually going to classes.
They're actually doing it in there doing
From their dorm room but I do think what would your you're
likely to see is what I'll call The New Normal cuz I don't
think there's going to be going to go back to the old normal. I
really don't whether it's in our work life or whether it's
an education. I think you're going to have a new normal and that's
likely to be sometime.
You know, I don't think it happens any earlier than the fall
semester at next year.
It may even go into 2022 but I think you're going to see more
of a hybrid model on campus more likely than not students
seem to want it.
I think that end and for us it really doesn't matter that much
whether or not it's an online educational experience or an in-person
education, if that student needs help with their classes
to better understand a mess of the subject matter help pass
the pass a test or get a better grade in the class online
offline, you know a a mixed mode.
It really doesn't make a a significant amount of difference
to us cuz we're going to be there for them,
you know when we're on the on-demand anytime.
Anywhere anyplace a service and I talked about the international
growth in the plans there.
You've also talked a lot about college students.
So would you say those are kind or two main areas of Focus
right. Now, what about other other verticals or markets will
lose a couple things that we haven't talked about interesting
enough, you know, we so what I've been talking about is what
we call Chegg study our chegg study pack and in what you know,
we at we have other parts of our business that actually
address a younger demographic college students to be younger
demographic for example on a writing tools properties.
We've got Thirty million students that are actually accessing
our writing tools properties in freemium model.
So part of his ad-supported part of it is then you upgrade
to a subscription on that goes all the way down at the middle school.
And so that service actually helps and it helps students,
you know, create a citation if you upload the paper you trade a
citation for a debate.
Get a citation quite a bibliography and that's for free and then
they can upgrade to us up to a subscription that allows them
with sentence structure of grammar and things like that.
So that goes into that demographic and we have that service
for some. Of time the other part of our business which is much
newer rights of what I just talked about his academic learning
and so one of the things we we we moved into a little bit
under a year ago was what we call skills-based learning
because we do believe and if you look at any employee data,
they're looking for skills.
It's not necessarily about whether or not you have a degree.
Do you have the skill to get that job completed?
And so we acquired a relatively small company last boss guess it
was October 1st.
So about a year ago called thankful where we've we've branched
out into skills-based learning for those.
What are those people that want to either re-skill themselves
or get a new skill into things like coating on things like that?
And that's that's a business that we recently moved into and
we believe over.
I'm that will likely be a big growth area for us as as we
develop it be 21 or what segment would you say provides
that a biggest potential for growth without a doubt the worst
thing in our student bass boats into both domestically
and internationally will be will be from a from an overall
standpoint that the largest but we do believe if we look if we
if we imagined check 5 years from now the magic 5 years from now,
we do believe we'll have a skills-based
business at scale is not a scale today,
but we do believe in those Investments with making us work without
trying to create a 1/4 company or a one-year company and we talked
about this internally.
What was trying to what were attempting to do is create a hundred-year
companies. They got to make those Investments early for those
future Growth opportunities now when it comes to competition
and I think that all all speaks perfectly this how can you stay
ahead of the competition and I think about it in the context
of the different markets that you're playing in or you go to continue
to innovate right?
And that's one of the things you know it when I think about
what we have done over the last,
you know, 7 to 10 years.
We really defined a market, you know,
how you know, if you particularly if you take a look in the
public markets, which I'm sure many of your views are in is,
you know, I I would beg to ask the question how many companies
are education companies to Ed tech companies or even broadly
education companies are actually focused on direct to student
relationship and selling services director that I don't I can't
think of one, you know.
So we we are a Pioneer in our space and and to continue
to be that Pioneer and continue to to get our I'll call it unfair
share.
The market we got to continue to innovate and so so what I thought
you know, I look at our core flywheel,
which is Chegg study and I always like to talk to investors
about it, you know think about chegg study which is a $14.95 subscription
product and we both literally millions of students across
the globe using it, you know think of it as like Amazon Prime,
right? You can relate to Amazon Prime Prime and you may not recall
but I recall when Amazon Prime first came out it was just two
day shipping. It was a very simple service.
Well, if you think about Chegg study seven or eight years ago,
it was a fairly simple service.
It was textbook Solutions.
But if you think about Amazon Prime,
it's much more than two day shipping today and they became
TV shows than original content than music Amazon Fresh kind
of do all the things they've added an added capability
same thing with what we do when we have done and we will continue
to do with chegg study.
And that is we've gone from textbook solutions to expert Q&A
to you know, assessments to practice test and when we Continue
to add to that capability what we create this incredible
mode. Where are some to replicate it would be very
very difficult. So it's that Innovation.
You know, like I said, once again,
that's like an Amazon Prime that we we continue to innovate
in the education space about Chegg, and we look forward to seeing
it all all of these growth initiatives.
in action.
Thanks again, Andy.