Intrinsic value of Chegg, Inc. - CHGG

Previous Close

$41.22

  Intrinsic Value

$11.57

stock screener

  Rating & Target

str. sell

-72%

Previous close

$41.22

 
Intrinsic value

$11.57

 
Up/down potential

-72%

 
Rating

str. sell

We calculate the intrinsic value of CHGG stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 4.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  30.20
  27.68
  25.41
  23.37
  21.53
  19.88
  18.39
  17.05
  15.85
  14.76
  13.79
  12.91
  12.12
  11.41
  10.76
  10.19
  9.67
  9.20
  8.78
  8.40
  8.06
  7.76
  7.48
  7.23
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
Revenue, $m
  418
  534
  669
  826
  1,003
  1,203
  1,424
  1,667
  1,931
  2,216
  2,522
  2,847
  3,192
  3,557
  3,939
  4,341
  4,760
  5,199
  5,655
  6,130
  6,625
  7,139
  7,673
  8,228
  8,805
  9,404
  10,027
  10,676
  11,350
  12,052
Variable operating expenses, $m
  332
  419
  521
  639
  773
  923
  1,089
  1,272
  1,471
  1,685
  1,898
  2,143
  2,402
  2,676
  2,964
  3,266
  3,582
  3,912
  4,255
  4,613
  4,985
  5,372
  5,774
  6,191
  6,625
  7,076
  7,545
  8,033
  8,541
  9,069
Fixed operating expenses, $m
  71
  72
  74
  75
  77
  79
  80
  82
  84
  86
  88
  90
  92
  94
  96
  98
  100
  102
  104
  107
  109
  111
  114
  116
  119
  121
  124
  127
  130
  133
Total operating expenses, $m
  403
  491
  595
  714
  850
  1,002
  1,169
  1,354
  1,555
  1,771
  1,986
  2,233
  2,494
  2,770
  3,060
  3,364
  3,682
  4,014
  4,359
  4,720
  5,094
  5,483
  5,888
  6,307
  6,744
  7,197
  7,669
  8,160
  8,671
  9,202
Operating income, $m
  15
  43
  74
  112
  154
  202
  255
  313
  377
  445
  537
  615
  699
  787
  879
  977
  1,078
  1,185
  1,295
  1,411
  1,531
  1,656
  1,785
  1,920
  2,060
  2,206
  2,358
  2,515
  2,680
  2,851
EBITDA, $m
  52
  84
  122
  166
  216
  273
  335
  405
  480
  561
  649
  742
  841
  945
  1,055
  1,170
  1,290
  1,416
  1,547
  1,683
  1,825
  1,973
  2,127
  2,286
  2,452
  2,624
  2,804
  2,990
  3,184
  3,387
Interest expense (income), $m
  0
  22
  27
  36
  47
  59
  73
  89
  106
  125
  146
  168
  192
  217
  244
  273
  303
  334
  367
  401
  437
  474
  512
  552
  594
  638
  683
  729
  778
  829
  882
Earnings before tax, $m
  -7
  15
  38
  65
  95
  128
  166
  207
  252
  300
  369
  423
  481
  543
  607
  674
  745
  818
  895
  974
  1,057
  1,143
  1,233
  1,326
  1,423
  1,524
  1,628
  1,737
  1,851
  1,969
Tax expense, $m
  0
  4
  10
  17
  26
  35
  45
  56
  68
  81
  100
  114
  130
  146
  164
  182
  201
  221
  242
  263
  285
  309
  333
  358
  384
  411
  440
  469
  500
  532
Net income, $m
  -7
  11
  28
  47
  69
  94
  121
  151
  184
  219
  269
  309
  351
  396
  443
  492
  544
  597
  653
  711
  772
  835
  900
  968
  1,039
  1,112
  1,189
  1,268
  1,351
  1,437

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  459
  586
  735
  907
  1,103
  1,322
  1,565
  1,832
  2,122
  2,436
  2,771
  3,129
  3,508
  3,908
  4,329
  4,770
  5,231
  5,713
  6,214
  6,737
  7,280
  7,845
  8,432
  9,041
  9,675
  10,334
  11,019
  11,731
  12,473
  13,244
Adjusted assets (=assets-cash), $m
  459
  586
  735
  907
  1,103
  1,322
  1,565
  1,832
  2,122
  2,436
  2,771
  3,129
  3,508
  3,908
  4,329
  4,770
  5,231
  5,713
  6,214
  6,737
  7,280
  7,845
  8,432
  9,041
  9,675
  10,334
  11,019
  11,731
  12,473
  13,244
Revenue / Adjusted assets
  0.911
  0.911
  0.910
  0.911
  0.909
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
  0.910
Average production assets, $m
  175
  223
  280
  345
  419
  503
  595
  697
  807
  926
  1,054
  1,190
  1,334
  1,487
  1,647
  1,814
  1,990
  2,173
  2,364
  2,563
  2,769
  2,984
  3,207
  3,439
  3,680
  3,931
  4,191
  4,462
  4,744
  5,038
Working capital, $m
  -43
  -54
  -68
  -84
  -102
  -123
  -145
  -170
  -197
  -226
  -257
  -290
  -326
  -363
  -402
  -443
  -486
  -530
  -577
  -625
  -676
  -728
  -783
  -839
  -898
  -959
  -1,023
  -1,089
  -1,158
  -1,229
Total debt, $m
  347
  461
  595
  750
  926
  1,123
  1,342
  1,582
  1,843
  2,125
  2,428
  2,749
  3,091
  3,451
  3,829
  4,226
  4,642
  5,075
  5,526
  5,996
  6,485
  6,994
  7,522
  8,071
  8,641
  9,234
  9,851
  10,492
  11,159
  11,853
Total liabilities, $m
  413
  528
  662
  817
  992
  1,190
  1,409
  1,649
  1,910
  2,192
  2,494
  2,816
  3,157
  3,517
  3,896
  4,293
  4,708
  5,141
  5,593
  6,063
  6,552
  7,060
  7,588
  8,137
  8,708
  9,301
  9,917
  10,558
  11,225
  11,920
Total equity, $m
  46
  59
  74
  91
  110
  132
  157
  183
  212
  244
  277
  313
  351
  391
  433
  477
  523
  571
  621
  674
  728
  784
  843
  904
  968
  1,033
  1,102
  1,173
  1,247
  1,324
Total liabilities and equity, $m
  459
  587
  736
  908
  1,102
  1,322
  1,566
  1,832
  2,122
  2,436
  2,771
  3,129
  3,508
  3,908
  4,329
  4,770
  5,231
  5,712
  6,214
  6,737
  7,280
  7,844
  8,431
  9,041
  9,676
  10,334
  11,019
  11,731
  12,472
  13,244
Debt-to-equity ratio
  7.550
  7.860
  8.090
  8.270
  8.400
  8.500
  8.570
  8.640
  8.690
  8.730
  8.760
  8.790
  8.810
  8.830
  8.850
  8.860
  8.870
  8.880
  8.890
  8.900
  8.910
  8.920
  8.920
  8.930
  8.930
  8.940
  8.940
  8.940
  8.950
  8.950
Adjusted equity ratio
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -7
  11
  28
  47
  69
  94
  121
  151
  184
  219
  269
  309
  351
  396
  443
  492
  544
  597
  653
  711
  772
  835
  900
  968
  1,039
  1,112
  1,189
  1,268
  1,351
  1,437
Depreciation, amort., depletion, $m
  36
  41
  47
  54
  62
  71
  81
  92
  103
  116
  112
  127
  142
  158
  175
  193
  212
  231
  251
  273
  295
  317
  341
  366
  392
  418
  446
  475
  505
  536
Funds from operations, $m
  29
  52
  75
  101
  131
  165
  202
  243
  287
  335
  381
  436
  493
  554
  618
  685
  755
  828
  904
  984
  1,066
  1,152
  1,241
  1,334
  1,430
  1,530
  1,635
  1,743
  1,856
  1,973
Change in working capital, $m
  -10
  -12
  -14
  -16
  -18
  -20
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -48
  -50
  -52
  -54
  -57
  -59
  -61
  -64
  -66
  -69
  -72
Cash from operations, $m
  39
  64
  89
  117
  149
  185
  225
  268
  314
  364
  412
  469
  529
  591
  657
  726
  798
  873
  951
  1,032
  1,117
  1,204
  1,296
  1,390
  1,489
  1,591
  1,698
  1,809
  1,925
  2,045
Maintenance CAPEX, $m
  -14
  -19
  -24
  -30
  -37
  -45
  -53
  -63
  -74
  -86
  -99
  -112
  -127
  -142
  -158
  -175
  -193
  -212
  -231
  -251
  -273
  -295
  -317
  -341
  -366
  -392
  -418
  -446
  -475
  -505
New CAPEX, $m
  -41
  -48
  -57
  -65
  -74
  -83
  -92
  -102
  -110
  -119
  -128
  -136
  -144
  -152
  -160
  -168
  -175
  -183
  -191
  -199
  -207
  -215
  -223
  -232
  -241
  -251
  -261
  -271
  -282
  -294
Cash from investing activities, $m
  -55
  -67
  -81
  -95
  -111
  -128
  -145
  -165
  -184
  -205
  -227
  -248
  -271
  -294
  -318
  -343
  -368
  -395
  -422
  -450
  -480
  -510
  -540
  -573
  -607
  -643
  -679
  -717
  -757
  -799
Free cash flow, $m
  -16
  -3
  8
  22
  38
  57
  79
  103
  129
  159
  186
  221
  258
  297
  339
  383
  430
  478
  529
  582
  637
  695
  755
  817
  882
  949
  1,019
  1,092
  1,168
  1,247
Issuance/(repayment) of debt, $m
  63
  114
  134
  155
  176
  197
  219
  240
  261
  282
  302
  322
  341
  360
  379
  397
  415
  433
  452
  470
  489
  508
  528
  549
  570
  593
  616
  641
  667
  695
Issuance/(repurchase) of shares, $m
  51
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  114
  116
  134
  155
  176
  197
  219
  240
  261
  282
  302
  322
  341
  360
  379
  397
  415
  433
  452
  470
  489
  508
  528
  549
  570
  593
  616
  641
  667
  695
Total cash flow (excl. dividends), $m
  98
  113
  143
  177
  214
  254
  297
  343
  391
  441
  488
  543
  599
  657
  718
  780
  845
  911
  981
  1,052
  1,126
  1,203
  1,283
  1,366
  1,452
  1,542
  1,636
  1,733
  1,835
  1,941
Retained Cash Flow (-), $m
  -51
  -13
  -15
  -17
  -20
  -22
  -24
  -27
  -29
  -31
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -63
  -66
  -68
  -71
  -74
  -77
Prev. year cash balance distribution, $m
  408
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  456
  101
  128
  160
  195
  232
  273
  316
  362
  409
  455
  507
  561
  617
  676
  736
  799
  863
  930
  1,000
  1,072
  1,147
  1,224
  1,305
  1,389
  1,476
  1,567
  1,662
  1,761
  1,864
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  437
  92
  111
  131
  151
  169
  184
  198
  208
  215
  216
  216
  213
  207
  198
  187
  174
  159
  143
  127
  111
  95
  80
  66
  54
  43
  34
  26
  19
  14
Current shareholders' claim on cash, %
  31.2
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1
  31.1

Chegg, Inc. is a student-first connected learning platform. The Company helps students study for college admission exams, find the colleges, get grades and test scores while in school, and find internships that allow them to gain skills to help them enter the workforce after college. The Company matches domestic and international students with colleges, universities and other academic institutions (collectively referred to as colleges) in the United States. It also offers eTextbooks library for rent and sale. The Company also has live tutors on its connected learning platform available to students online, anytime, anywhere through its Chegg Tutors service. It provides access to internships to help students gain skills that are critical to securing their first job. It offers two product lines: Required Materials and Chegg Services. The Required Materials product line includes the rental and sale of print textbooks and eTextbooks, as well as the commission it receives from Ingram.

FINANCIAL RATIOS  of  Chegg, Inc. (CHGG)

Valuation Ratios
P/E Ratio -90
Price to Sales 14.9
Price to Book 17
Price to Tangible Book
Price to Cash Flow 151.2
Price to Free Cash Flow -3780.3
Growth Rates
Sales Growth Rate -15.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -36.6%
Cap. Spend. - 3 Yr. Gr. Rate -27.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0.3
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -14.4%
Ret/ On Assets - 3 Yr. Avg. -18%
Return On Total Capital -18.5%
Ret/ On T. Cap. - 3 Yr. Avg. -22.7%
Return On Equity -18.5%
Return On Equity - 3 Yr. Avg. -22.7%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 52.8%
Gross Margin - 3 Yr. Avg. 40.3%
EBITDA Margin -6.7%
EBITDA Margin - 3 Yr. Avg. -0.8%
Operating Margin -15.7%
Oper. Margin - 3 Yr. Avg. -18.8%
Pre-Tax Margin -16.1%
Pre-Tax Margin - 3 Yr. Avg. -18.9%
Net Profit Margin -16.5%
Net Profit Margin - 3 Yr. Avg. -19.1%
Effective Tax Rate -2.4%
Eff/ Tax Rate - 3 Yr. Avg. -1.4%
Payout Ratio 0%

CHGG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHGG stock intrinsic value calculation we used $321 million for the last fiscal year's total revenue generated by Chegg, Inc.. The default revenue input number comes from 0001 income statement of Chegg, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our CHGG stock valuation model: a) initial revenue growth rate of 30.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CHGG is calculated based on our internal credit rating of Chegg, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Chegg, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of CHGG stock the variable cost ratio is equal to 80.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $69 million in the base year in the intrinsic value calculation for CHGG stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 7.9% for Chegg, Inc..

Corporate tax rate of 27% is the nominal tax rate for Chegg, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the CHGG stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for CHGG are equal to 41.8%.

Life of production assets of 9.4 years is the average useful life of capital assets used in Chegg, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for CHGG is equal to -10.2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $410.634 million for Chegg, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 115.843 million for Chegg, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Chegg, Inc. at the current share price and the inputted number of shares is $4.8 billion.

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