CHGG: 20% downside / 200%+ upside?
I ran a financial analysis on Chegg (CHGG) and... I think Wall Street might be more asleep than Chegg's users during online exams!
Exactly like GME: fundamentals are questionable but tons of value. It should seriously squeeze.
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.
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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!!)
