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CI

CHEGG, INC (CHGG)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 revenue of $105.1M and adjusted EBITDA of $23.1M both exceeded guidance; GAAP EPS was -$0.33 while non-GAAP EPS was $0.10, driven by disciplined cost control and incremental content licensing revenue .
  • Subscription Services revenue was $89.7M (down 39% YoY) on 2.6M subscribers (down 40% YoY), reflecting ongoing traffic headwinds from Google AI Overviews; retention and ARPU increased YoY, partially offsetting acquisition pressure .
  • Q3 2025 guidance: revenue $75–$77M, Subscription Services $67–$69M, gross margin 56–57%, adjusted EBITDA $7–$8M; management identified an additional $10M OpEx and $7M CapEx savings for 2026 and expects FY25 CapEx ≈$30M .
  • Strategic review continues (acquisition, go-private, or standalone); Busuu growth accelerated (+15% YoY in Q2; B2B +39%), and Skills showed early traction (enrollments +16% QoQ; MAU +11% QoQ), positioning these as core growth engines .

What Went Well and What Went Wrong

What Went Well

  • Exceeded Q2 guidance on both revenue ($105M vs $100–$102M guided) and adjusted EBITDA ($23.1M vs $16–$17M guided); non-GAAP gross margin was 68% .
  • Busuu momentum: +15% YoY revenue in Q2; B2B +39% YoY with improving retention (+22pp); management reiterated ~$48M Busuu 2025 revenue and positive adjusted EBITDA by Q1’26 .
  • Cost discipline: non-GAAP OpEx down ~33% YoY to $64M; CapEx cut 60% YoY to $7M; FY25 CapEx ≈$30M and further ~50% reduction targeted in 2026 leveraging AI .
    • “Expense discipline is now in our DNA… committed to unlocking each and every opportunity to strengthen cash flow” — CFO David Longo .

What Went Wrong

  • Subscribers fell 40% YoY to 2.6M due to lower traffic from Google AI Overviews, pressuring Subscription Services revenue (-39% YoY) and acquisitions .
  • Free cash flow was -$12M in Q2, impacted by ~$12.5M severance and annual hosting prepayment; GAAP net loss was -$35.7M .
  • The business remains in transition: Q3 guidance implies sequential declines with gross margin compressing to 56–57% and adjusted EBITDA $7–$8M, reflecting seasonal and traffic headwinds .

Financial Results

GAAP and Non-GAAP Summary (chronological: Q2 2024 → Q1 2025 → Q2 2025)

MetricQ2 2024Q1 2025Q2 2025
Revenue ($USD Millions)$163.147 $121.387 $105.120
GAAP EPS ($USD)-$6.01 -$0.17 -$0.33
Gross Margin % (GAAP)72% 56% 66%
Non-GAAP Gross Margin %75% 57% 68%
Adjusted EBITDA ($USD Millions)$44.096 $19.269 $23.106
Non-GAAP EPS ($USD)$0.24 -$0.06 $0.10

Segment Breakdown (Q2 2025)

SegmentQ2 2025
Subscription Services Revenue ($USD Millions)$89.7
Skills and Other Revenue ($USD Millions)$15.0
Content Licensing within Skills & Other ($USD Millions)≈$7.0

KPIs and Operating Metrics

KPIQ2 2024Q1 2025Q2 2025
Subscription Services Subscribers (Millions)—3.2 2.6
Subscriber YoY Change (%)—-31% -40%
Retention (Monthly, bps change)——+117 bps
ARPU Trend——Up YoY
Busuu Revenue YoY (%)—+7% (Q1) +15% (Q2)
Busuu B2C YoY (%)——+6% (Q2)
Busuu B2B YoY (%)——+39% (Q2)
Skills Enrollments QoQ (%)——+16% (Q2)
Skills MAU QoQ (%)——+11% (Q2)

Q2 2025 vs S&P Global Wall Street Consensus

MetricConsensus EstimateActual
Revenue ($USD Millions)103.128*105.120
Primary EPS ($USD)0.047*0.10
EBITDA ($USD Millions)16.674*1.694*

Values retrieved from S&P Global. Note: Company emphasizes adjusted EBITDA ($23.106M) while consensus “EBITDA” may reflect a different definition; use caution comparing these directly .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance / ActualChange
Total Net Revenues ($M)Q2 2025$100–$102 $105.1 (actual) Beat
Subscription Services Revenues ($M)Q2 2025$85–$87 $89.7 (actual) Beat
Gross Margin (%)Q2 202564–65 66 (actual) Beat
Adjusted EBITDA ($M)Q2 2025$16–$17 $23.1 (actual) Beat
Total Net Revenues ($M)Q3 2025N/A$75–$77 New
Subscription Services Revenues ($M)Q3 2025N/A$67–$69 New
Gross Margin (%)Q3 2025N/A56–57 New
Adjusted EBITDA ($M)Q3 2025N/A$7–$8 New
FY CapEx ($M)2025N/A≈$30 New/Defined
2026 OpEx Savings ($M)2026$100–$110 +$10 identified (to $110–$120) Raised
2026 CapEx Savings ($M)2026N/A+$7 identified New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
AI-powered Chegg Study (Solution Scout, personalization)Multi-model AI integration; Solution Scout launch; content cost -70%+; personalization roadmap Smart planning tool and voice interface slated for Sept; retention +117 bps; positive student feedback Advancing features; improving engagement
Google AI Overviews impact & legalFiled complaint vs Google; non-subscriber traffic -49% in Jan; strategic review initiated Lower traffic continues; retention/ARPU up; strategic alternatives ongoing; NYSE compliance regained Headwind persists; stabilization efforts
Busuu performanceFY24 +9% revenue; B2B +46% Q2 +15% revenue; B2C +6%; B2B +39%; ~$48M FY25; adj EBITDA positive by Q1’26 Accelerating growth, profitability path
Skills repositioningShift away from bootcamps; segment pressure Enrollments +16% QoQ; MAU +11% QoQ; path to profitability and positive double-digit revenue growth in 2026 Early traction; scaling
Enterprise/Institution pilotsTarget ~35 pilots in 2025 Expanded from 5 to 23 pilots; efficacy studies underway Broadening adoption
Cost actions/CapEx efficiencyContent CapEx -56% YoY; notes repurchases Non-GAAP OpEx -33% YoY; Q2 CapEx $7M (-60% YoY); FY25 CapEx ≈$30M; more 2026 savings Tightening cost base

Management Commentary

  • “We had a good Q2, exceeding our guidance and actively engaging on the strategic review process… implementing AI to transform Chegg Study… and evolving to be a skills focused organization, with Busuu and Skills… future growth engines.” — Nathan Schultz, CEO .
  • “Busuu continues on a strong path, achieving a 15% year-over-year revenue increase in Q2… B2B… 39% year-over-year revenue growth.” — Nathan Schultz .
  • “We had 2.6 million subscribers… decline of 40%… lower traffic, largely due to Google AI Overviews. Despite the traffic trends, retention and ARPU increased year over year.” — David Longo, CFO .
  • “Monthly retention rate was up 117 basis points in Q2.” — Nathan Schultz .
  • “Successfully cured our stock price deficiency during the quarter and regained compliance with the NYSE’s price listing requirements.” — David Longo .
  • “Identified an additional $10 million of operating expense savings and $7 million in CapEx savings in 2026.” — David Longo .

Q&A Highlights

  • Busuu B2B growth durability: Management emphasized a robust direct enterprise sales motion (not solely reseller-driven) and confidence in sustaining growth, with deeper execution on enterprise sales metrics and expanding Guild partnership .
  • Chegg Study institution pilots: Focus shifts from adding logos to proving efficacy to unlock campus-wide implementations in 2026–2027; seat-based pricing model to maximize student coverage .
  • Busuu B2C drivers: Targeting “success seeker” personas and AI “speaking practice” features improved acquisition and stickiness .
  • Skills competitive positioning: Transitioned from long-form bootcamps to microlearning aligned to current demand; optimistic on capturing future AI education spend .

Estimates Context

  • Q2 2025 delivered a revenue and EPS beat versus consensus: revenue $105.12M vs $103.13M*, EPS $0.10 vs $0.047*; adjusted EBITDA outperformed company guidance but consensus “EBITDA” definitions differ, requiring caution in comparison .
  • Q3 2025 consensus sits near guidance: revenue ~$76.20M* vs $75–$77M guided; EPS -$0.083* and EBITDA ~$7.66M* align with adjusted EBITDA guidance ($7–$8M) after definition reconciliation.
    Values retrieved from S&P Global.*

Key Takeaways for Investors

  • The quarter was a clear operational beat vs guidance on revenue, gross margin, and adjusted EBITDA; non-GAAP EPS positive at $0.10, signaling effective cost execution despite top-line pressure .
  • Continued subscriber declines and Q3 guide-down reflect persistent traffic headwinds from Google AI Overviews; retention and ARPU improvements indicate stronger unit economics when students reach Chegg .
  • Busuu is emerging as a growth engine with accelerating B2B and steady B2C trends; management’s ~$48M FY25 revenue target and Q1’26 positive adjusted EBITDA frame near-term profitability inflection potential .
  • Skills shows green shoots (enrollments/MAU up QoQ) after product modernization toward microlearning; 2026 targets imply medium-term growth/profit trajectories .
  • Cash and investments of $114.1M and net cash of $52M provide flexibility to navigate the transition; additional OpEx/CapEx savings identified for 2026 support margin durability .
  • Strategic alternatives remain a potential stock catalyst alongside institution pilots’ efficacy results and content licensing monetization; note definitional differences in EBITDA when comparing to consensus .
  • Near term, watch Q3 execution vs guidance, Busuu B2B pipeline conversion, and institutional pilots’ efficacy outcomes; medium term, thesis hinges on diversified revenue mix (Busuu/Skills/licensing) and AI-enabled cost leverage .