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CI

CHEGG, INC (CHGG)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 revenue modestly beat consensus while EPS missed; Chegg reported Total Net Revenues of $77.7M (-43% YoY), GAAP EPS of -$0.16, Non-GAAP Net Income of $0.4M, and Adjusted EBITDA of $13.3M (17% margin). Management said revenue exceeded guidance and Adjusted EBITDA outperformed guidance by $5M due to cost cuts and restructuring . Versus S&P Global consensus, revenue was above $76.2M*, but EPS of -$0.16 lagged the -$0.08 consensus mean*.
  • Strategic pivot accelerates: CEO Dan Rosensweig returned, reorganized the company into (1) Chegg Skilling (growth, B2B SaaS) and (2) legacy academic services (cash generation), citing structural traffic declines from AI and Google; Skilling is expected to grow double-digits with ~$70M FY25 revenue and +14% YoY in Q4 .
  • Q4 2025 outlook: revenue $70–$72M, gross margin 57–58%, Adjusted EBITDA $10–$11M; Skilling revenue of $18M (+14% YoY). FY25 CapEx trimmed to ~$27M (down from ~$30M in Q2 outlook) .
  • Cash and investments of $112M and net cash of $49M; Q3 free cash flow was -$0.9M, impacted by a $7.5M FTC settlement and $5.5M severance .

What Went Well and What Went Wrong

  • What Went Well

    • Cost discipline drove beats: non-GAAP opex cut ~46% YoY to $49M; Adjusted EBITDA margin reached 17% and outperformed guidance by $5M .
    • Clear strategic reset: company split into Skilling (growth) and legacy academic (cash); CEO highlights large $40B+ skilling market and planned external reporting for Skilling progress .
    • Skilling momentum and visibility: Q4 Skilling revenue guided to $18M (+14% YoY); FY25 Skilling ~$70M and expected double-digit growth beyond; Busuu differentiation in conversational learning and expansion into LatAm .

  • What Went Wrong

    • Revenue contraction: Q3 revenue down 42–43% YoY; management cited reduced traffic (Google AI and search changes) driving fewer subscribers and lower advertising sessions .
    • Traffic/ads pressure: “skills and other” advertising tied to Chegg Study/Writing/Math saw fewer sessions; legacy academic services structurally pressured by AI and search .
    • Cash headwinds from one-offs: Q3 FCF of -$0.9M due to $7.5M FTC settlement and $5.5M severance; additional $15–$19M severance cash to flow through Q4–Q1 .

Financial Results

MetricQ3 2024Q2 2025Q3 2025
Total Net Revenues ($M)$136.6 $105.1 $77.7
GAAP Net Loss ($M)$(212.6) $(35.7) $(17.5)
GAAP Diluted EPS ($)$(2.05) $(0.33) $(0.16)
Gross Margin (%)68% 66% 59%
Non-GAAP Gross Margin (%)70% 68% 62%
Adjusted EBITDA ($M)$22.3 $23.1 $13.3
Adjusted EBITDA Margin (%)—22% 17%

Notes:

  • Q3 2025 revenue exceeded internal guidance; EBITDA outperformance driven by restructuring and lower costs .
  • YoY declines concentrated in legacy academic services as AI/search dynamics reduced top-of-funnel traffic .

Segment/KPI context (where disclosed):

  • Segment revenues: Q2 2025 Subscription Services $89.7M; Skills & Other $15.0M . Q3 2025 segment breakout not disclosed; company will report a consolidated “Chegg Skilling” unit going forward .
  • Subscribers: 3.2M (Q1 2025), 2.6M (Q2 2025); Q3 not disclosed .
  • Cash/investments and FCF: Cash+investments $112M; net cash $49M; Q3 FCF -$0.9M due to FTC and severance .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Total Net Revenues ($M)Q4 2025N/A$70–$72 New
Gross Margin (%)Q4 2025N/A57–58 New
Adjusted EBITDA ($M)Q4 2025N/A$10–$11 New
Chegg Skilling Revenues ($M)Q4 2025N/A$18 (≈+14% YoY) New
Chegg Skilling Revenues ($M)FY 2025N/A≈$70 New
Capital Expenditures ($M)FY 2025≈$30 (Q2 outlook) ≈$27 Lowered

Additional context:

  • Company reiterated Q3 guidance in the Oct 27 strategic update; the Q4 framework was first set on Nov 10 .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025, Q2 2025)Current Period (Q3 2025)Trend
AI impact on trafficQ1: Google AIO, LLM education offers intensify pressure; cost realignment, content licensing launched . Q2: Continued traffic pressure; retention/ARPU improving for found users .CEO cites 50% drop in Google traffic; lawsuit against Google; legacy academic to be run for cash .Worsening traffic, pivoting operating model.
Strategic alternatives/LeadershipQ1: Strategic review in progress with Goldman; restructuring (22% RIF) . Q2: Review continues; regained NYSE compliance .Decision to remain standalone; CEO Rosensweig returns; 388 roles eliminated (~45%) .Concluded review; decisive restructuring.
Skilling (Busuu + Skills)Q1: Busuu +7% YoY rev; Skills on path to profitability, licensing Q&A content . Q2: Busuu +15% YoY; Skills enrollments +16% QoQ; B2B via Guild .Skilling to be reported as a unit; Q4 +14% YoY, FY25 ~$70M; B2B focus, new channels, LatAm expansion .Accelerating execution, clearer reporting.
Cost/CapEx disciplineQ1: FY25 savings $165–$175M (combined); FY26 $100–$110M; AI cuts CapEx . Q2: Additional opex and CapEx savings identified; FY25 CapEx ≈$30M .FY25 CapEx ~ $27M; on track to < $250M non-GAAP expenses by 2026 .Deeper cuts, improved visibility.
Institutional/B2B channelsQ1: 15→40 B2I pilots target; Skills partnerships (Edify, Noodle) . Q2: Build direct B2B + Guild; ACE credit pursuit .B2B skilling is primary growth resource allocation; multiple new distribution channels planned .B2B-first go-to-market gaining priority.

Management Commentary

  • “We split the company into two units: our growth business, Chegg Skilling… and our legacy academic services, which will focus on generating cash… I firmly believe we will create significant long-term value for our shareholders.” — Dan Rosensweig, CEO .
  • “In Q3, total revenue was $78 million, a decrease of 42% year-over-year… non-GAAP operating expenses were $49 million… our Q3 Adjusted EBITDA was $13 million, representing a margin of 17%.” — David Longo, CFO .
  • “Our Google traffic dropped by 50%… we’ve launched a lawsuit against them… Our desire is to run [legacy academic] as long as we can… and generate cash.” — Dan Rosensweig .
  • “For Q4, we expect $18 million of revenue from our skilling business (+14% YoY)… total revenue $70–$72 million; gross margin 57–58%; Adjusted EBITDA $10–$11 million.” — David Longo .

Q&A Highlights

  • Resource allocation: “All of our growth resources are going to go into the skilling business… transformed from B2C to B2B… growing ~14% YoY in Q4” .
  • Legacy academic support: Despite traffic decline, Chegg maintains a large Q&A database (~130M) and expects the business to generate cash; litigation targets Google traffic changes .
  • Skilling go-to-market: Initial success via Guild; plan to diversify into non-competitive channels in US/EU, build a B2B salesforce, and cautiously develop direct-to-institution relationships over time .
  • Busuu product roadmap: Focus on conversational AI, seat growth, engagement and retention; expansion into LatAm and B2B language learning .
  • Clarification on advertising: Ad declines relate to Chegg Study/Writing/Math traffic; not a headwind for Skilling .

Estimates Context

MetricConsensus (Q3 2025)Actual (Q3 2025)Result
Revenue ($M)$76.2*$77.7 Beat
GAAP EPS ($)-$0.08*-$0.16 Miss
  • Values marked with an asterisk (*) retrieved from S&P Global.
  • Implication: Revenue outperformance suggests better-than-feared top-line amidst restructuring; EPS shortfall reflects GAAP charges and ongoing revenue contraction. Adjusted EBITDA performance was supported by accelerated cost reductions .

Key Takeaways for Investors

  • Restructuring-driven margin floor emerging: Q3 EBITDA margin 17% with non-GAAP opex down ~46% YoY; FY25 CapEx cut to ~$27M, with a path to < $250M non-GAAP expenses by 2026 .
  • Skilling is the growth vector: Q4 Skilling +14% YoY and FY25 ~$70M, with B2B channels (e.g., Guild) and broader distribution strategy; clearer reporting and CEO focus should aid investor tracking .
  • Legacy academic services repositioned for cash: Despite 50% Google traffic decline, the large content database supports cash generation, though structural AI/search headwinds persist and litigation outcome is uncertain .
  • Near-term guide is conservative/stabilizing: Q4 revenue $70–$72M and EBITDA $10–$11M frame a softer seasonal quarter while sustaining profitability; watch conversion of cost actions to cash as severance run-off completes by Q1 .
  • Balance sheet intact post-deleveraging: $112M cash/investments and $49M net cash provide runway for Skilling investment despite temporary FCF headwinds from FTC/severance .
  • Narrative for stock reaction: CEO return + decisive restructuring + Skilling growth visibility are potential positive catalysts; EPS miss and ongoing traffic declines are offsetting risks .
  • What to monitor next: Q4 Skilling execution vs. +14% guide, new B2B distribution deals, any progress in Google litigation, and February call multi-year Skilling roadmap .

KPIs (select disclosures)

KPIQ1 2025Q2 2025Q3 2025
Subscription Services Subscribers (M)3.2 2.6 —
Free Cash Flow ($M)15.9 (12.0) (0.9)
Cash and Investments ($M)126 114.1 112
Net Cash ($M)64 52 49

Additional Materials Reviewed (prior quarters and releases)

  • Q2 2025 press release and 8-K with revenue $105.1M, Adj. EBITDA $23.1M, and FY25 CapEx ≈$30M .
  • Q1 2025 press release with revenue $121.4M, Adj. EBITDA $19.3M, content licensing program, and restructuring (22% RIF) .
  • Strategic update (Oct 27): remain standalone; CEO change; 388 role reduction (~45%), targeted 2026 non-GAAP opex cut by ~$100–$110M .

Citations:

  • Q3 2025 press release/8-K financials and guidance: .
  • Q3 2025 call transcript: .
  • Strategic press releases/8-K (Oct 27): .
  • Q2 2025 press release/8-K: .
  • Q1 2025 press release: .

S&P Global estimates:

  • Revenue and EPS consensus for Q3 2025: Revenue $76.2M*, EPS -$0.08* (Primary EPS Consensus Mean; Revenue Consensus Mean). Values retrieved from S&P Global.