New Chegg (CHGG -3.66%) CEO Nathan Schultz is making big changes at the online education company, and investors appear pleased to see some action. Shares of Chegg traded up 10% as of 10:30 a.m. ET after the company announced a restructuring plan that included significant layoffs.
A slimmer, refocused Chegg
So far, Chegg has been one of the major casualties of the artificial intelligence (AI) revolution. The company's shares are down about 75% year to date due to declines in earnings and subscriptions. The fear among investors is that in a world of free or relatively low-cost AI, there's no need for other educational help.
The company isn't standing still in the face of this threat. Chegg is developing its own customized AI tools that it hopes will drive future subscription growth. In April, the company named longtime Chief Operating Officer Nathan Schultz as CEO, with a mandate to revamp Chegg's operations.
On Tuesday, investors got a glimpse of Shultz's plans. The company is reducing its global headcount by 23%, or about 441 jobs, as part of a renewed focus on providing tech-enabled tools to assist students.
Schultz said in a statement:
Today, we executed a restructuring effort, a major step in my plans to refocus Chegg and return to subscriber and revenue growth. These changes are designed to make us a more focused, more efficient, uncomplicated, and quicker-moving company. Our renewed focus on our core audience -- the student -- will allow us to address an unmet need with an offering that is differentiated, holistic, and verticalized for education.
Is Chegg stock a buy?
Investors have all but left Chegg for dead. If Schultz's plan gains traction, there's a lot of upside in the shares from here. If it doesn't, the stock is likely to fall further.
Management said the cuts will save $40 million to $50 million annually and recommitted to its goal of 30% adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin and $100 million in free cash flow by 2025. Even through this down period, the company has remained a cash generator and has been putting that cash to use by buying back shares.
There's a lot of risk here, and Chegg shares are best left for investors who can tolerate a lot of volatility. But for those looking for potential significant rewards in return for taking on a lot of risk, Chegg is a stock worth considering.
