Intrinsic value of Chegg - CHGG

Previous Close

$26.05

  Intrinsic Value

$0.54

stock screener

  Rating & Target

str. sell

-98%

Previous close

$26.05

 
Intrinsic value

$0.54

 
Up/down potential

-98%

 
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 3.0

 

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, %
  31.80
  29.12
  26.71
  24.54
  22.58
  20.83
  19.24
  17.82
  16.54
  15.38
  14.34
  13.41
  12.57
  11.81
  11.13
  10.52
  9.97
  9.47
  9.02
  8.62
  8.26
  7.93
  7.64
  7.38
  7.14
  6.92
  6.73
  6.56
  6.40
  6.26
Revenue, $m
  336
  434
  550
  685
  840
  1,015
  1,210
  1,425
  1,661
  1,916
  2,191
  2,485
  2,798
  3,128
  3,476
  3,842
  4,225
  4,625
  5,042
  5,477
  5,929
  6,399
  6,888
  7,396
  7,924
  8,473
  9,043
  9,636
  10,253
  10,895
Variable operating expenses, $m
  384
  492
  619
  768
  938
  1,130
  1,345
  1,582
  1,841
  2,122
  2,410
  2,733
  3,076
  3,440
  3,822
  4,225
  4,646
  5,085
  5,544
  6,022
  6,520
  7,037
  7,574
  8,133
  8,713
  9,317
  9,944
  10,596
  11,274
  11,980
Fixed operating expenses, $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 operating expenses, $m
  384
  492
  619
  768
  938
  1,130
  1,345
  1,582
  1,841
  2,122
  2,410
  2,733
  3,076
  3,440
  3,822
  4,225
  4,646
  5,085
  5,544
  6,022
  6,520
  7,037
  7,574
  8,133
  8,713
  9,317
  9,944
  10,596
  11,274
  11,980
Operating income, $m
  -48
  -58
  -69
  -83
  -98
  -116
  -135
  -157
  -180
  -206
  -218
  -248
  -279
  -312
  -346
  -383
  -421
  -461
  -502
  -545
  -590
  -637
  -686
  -737
  -789
  -844
  -901
  -960
  -1,021
  -1,085
EBITDA, $m
  -18
  -23
  -29
  -36
  -44
  -54
  -64
  -75
  -88
  -101
  -116
  -131
  -148
  -165
  -183
  -203
  -223
  -244
  -266
  -289
  -313
  -338
  -363
  -390
  -418
  -447
  -477
  -508
  -541
  -575
Interest expense (income), $m
  0
  0
  1
  2
  3
  5
  7
  9
  11
  14
  17
  20
  23
  26
  30
  34
  38
  42
  47
  52
  57
  62
  67
  73
  78
  84
  91
  97
  104
  111
  118
Earnings before tax, $m
  -48
  -59
  -72
  -86
  -103
  -123
  -144
  -168
  -194
  -222
  -238
  -270
  -305
  -342
  -380
  -421
  -463
  -507
  -554
  -602
  -652
  -704
  -759
  -815
  -874
  -934
  -998
  -1,063
  -1,132
  -1,203
Tax expense, $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
Net income, $m
  -48
  -59
  -72
  -86
  -103
  -123
  -144
  -168
  -194
  -222
  -238
  -270
  -305
  -342
  -380
  -421
  -463
  -507
  -554
  -602
  -652
  -704
  -759
  -815
  -874
  -934
  -998
  -1,063
  -1,132
  -1,203

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
  383
  494
  626
  780
  956
  1,155
  1,378
  1,623
  1,892
  2,183
  2,496
  2,831
  3,186
  3,563
  3,959
  4,376
  4,812
  5,267
  5,743
  6,238
  6,753
  7,289
  7,845
  8,424
  9,025
  9,650
  10,300
  10,975
  11,678
  12,409
Adjusted assets (=assets-cash), $m
  383
  494
  626
  780
  956
  1,155
  1,378
  1,623
  1,892
  2,183
  2,496
  2,831
  3,186
  3,563
  3,959
  4,376
  4,812
  5,267
  5,743
  6,238
  6,753
  7,289
  7,845
  8,424
  9,025
  9,650
  10,300
  10,975
  11,678
  12,409
Revenue / Adjusted assets
  0.877
  0.879
  0.879
  0.878
  0.879
  0.879
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
  0.878
Average production assets, $m
  150
  193
  245
  305
  374
  451
  538
  634
  739
  853
  975
  1,106
  1,245
  1,392
  1,547
  1,710
  1,880
  2,058
  2,244
  2,437
  2,638
  2,848
  3,065
  3,291
  3,526
  3,770
  4,024
  4,288
  4,563
  4,848
Working capital, $m
  -41
  -53
  -67
  -83
  -102
  -123
  -146
  -172
  -201
  -232
  -265
  -301
  -339
  -378
  -421
  -465
  -511
  -560
  -610
  -663
  -717
  -774
  -833
  -895
  -959
  -1,025
  -1,094
  -1,166
  -1,241
  -1,318
Total debt, $m
  18
  39
  64
  94
  128
  166
  209
  256
  307
  363
  423
  488
  556
  628
  704
  784
  868
  955
  1,047
  1,142
  1,241
  1,344
  1,450
  1,562
  1,677
  1,797
  1,922
  2,051
  2,186
  2,327
Total liabilities, $m
  74
  95
  120
  150
  184
  222
  265
  312
  363
  419
  479
  543
  612
  684
  760
  840
  924
  1,011
  1,103
  1,198
  1,297
  1,399
  1,506
  1,617
  1,733
  1,853
  1,978
  2,107
  2,242
  2,383
Total equity, $m
  309
  399
  506
  630
  773
  934
  1,113
  1,312
  1,529
  1,764
  2,017
  2,287
  2,575
  2,879
  3,199
  3,536
  3,888
  4,256
  4,640
  5,040
  5,456
  5,889
  6,339
  6,807
  7,292
  7,797
  8,322
  8,868
  9,436
  10,027
Total liabilities and equity, $m
  383
  494
  626
  780
  957
  1,156
  1,378
  1,624
  1,892
  2,183
  2,496
  2,830
  3,187
  3,563
  3,959
  4,376
  4,812
  5,267
  5,743
  6,238
  6,753
  7,288
  7,845
  8,424
  9,025
  9,650
  10,300
  10,975
  11,678
  12,410
Debt-to-equity ratio
  0.060
  0.100
  0.130
  0.150
  0.170
  0.180
  0.190
  0.200
  0.200
  0.210
  0.210
  0.210
  0.220
  0.220
  0.220
  0.220
  0.220
  0.220
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
  0.230
Adjusted equity ratio
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808
  0.808

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -48
  -59
  -72
  -86
  -103
  -123
  -144
  -168
  -194
  -222
  -238
  -270
  -305
  -342
  -380
  -421
  -463
  -507
  -554
  -602
  -652
  -704
  -759
  -815
  -874
  -934
  -998
  -1,063
  -1,132
  -1,203
Depreciation, amort., depletion, $m
  30
  35
  40
  47
  54
  62
  71
  81
  92
  104
  103
  116
  131
  147
  163
  180
  198
  217
  236
  257
  278
  300
  323
  346
  371
  397
  424
  451
  480
  510
Funds from operations, $m
  -18
  -24
  -31
  -40
  -49
  -60
  -73
  -86
  -101
  -118
  -135
  -154
  -174
  -195
  -217
  -241
  -265
  -291
  -318
  -345
  -374
  -405
  -436
  -468
  -502
  -538
  -574
  -612
  -652
  -693
Change in working capital, $m
  -10
  -12
  -14
  -16
  -19
  -21
  -24
  -26
  -29
  -31
  -33
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
Cash from operations, $m
  -8
  -12
  -17
  -23
  -31
  -39
  -49
  -60
  -73
  -87
  -102
  -118
  -136
  -155
  -175
  -196
  -219
  -242
  -267
  -293
  -320
  -348
  -377
  -407
  -438
  -471
  -505
  -540
  -577
  -615
Maintenance CAPEX, $m
  -12
  -16
  -20
  -26
  -32
  -39
  -48
  -57
  -67
  -78
  -90
  -103
  -116
  -131
  -147
  -163
  -180
  -198
  -217
  -236
  -257
  -278
  -300
  -323
  -346
  -371
  -397
  -424
  -451
  -480
New CAPEX, $m
  -36
  -44
  -52
  -60
  -69
  -78
  -87
  -96
  -105
  -114
  -122
  -131
  -139
  -147
  -155
  -163
  -170
  -178
  -186
  -193
  -201
  -209
  -218
  -226
  -235
  -244
  -254
  -264
  -275
  -286
Cash from investing activities, $m
  -48
  -60
  -72
  -86
  -101
  -117
  -135
  -153
  -172
  -192
  -212
  -234
  -255
  -278
  -302
  -326
  -350
  -376
  -403
  -429
  -458
  -487
  -518
  -549
  -581
  -615
  -651
  -688
  -726
  -766
Free cash flow, $m
  -56
  -71
  -89
  -109
  -132
  -156
  -184
  -213
  -245
  -278
  -314
  -352
  -392
  -433
  -477
  -522
  -569
  -618
  -669
  -722
  -778
  -835
  -894
  -956
  -1,020
  -1,086
  -1,156
  -1,228
  -1,303
  -1,381
Issuance/(repayment) of debt, $m
  18
  21
  25
  30
  34
  38
  43
  47
  52
  56
  60
  64
  68
  72
  76
  80
  84
  87
  91
  95
  99
  103
  107
  111
  115
  120
  125
  130
  135
  140
Issuance/(repurchase) of shares, $m
  123
  149
  178
  211
  246
  283
  324
  366
  411
  457
  491
  541
  592
  646
  701
  757
  815
  876
  938
  1,002
  1,068
  1,137
  1,208
  1,282
  1,359
  1,439
  1,523
  1,609
  1,700
  1,794
Cash from financing (excl. dividends), $m  
  141
  170
  203
  241
  280
  321
  367
  413
  463
  513
  551
  605
  660
  718
  777
  837
  899
  963
  1,029
  1,097
  1,167
  1,240
  1,315
  1,393
  1,474
  1,559
  1,648
  1,739
  1,835
  1,934
Total cash flow (excl. dividends), $m
  84
  99
  115
  131
  148
  165
  183
  200
  218
  235
  237
  253
  269
  285
  300
  315
  330
  345
  360
  375
  390
  405
  421
  438
  455
  473
  492
  511
  532
  553
Retained Cash Flow (-), $m
  -123
  -149
  -178
  -211
  -246
  -283
  -324
  -366
  -411
  -457
  -491
  -541
  -592
  -646
  -701
  -757
  -815
  -876
  -938
  -1,002
  -1,068
  -1,137
  -1,208
  -1,282
  -1,359
  -1,439
  -1,523
  -1,609
  -1,700
  -1,794
Prev. year cash balance distribution, $m
  157
  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
  118
  -50
  -64
  -80
  -98
  -118
  -141
  -166
  -193
  -222
  -254
  -288
  -323
  -361
  -400
  -442
  -486
  -531
  -578
  -627
  -679
  -732
  -787
  -845
  -904
  -966
  -1,031
  -1,098
  -1,168
  -1,241
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
  113
  -46
  -55
  -66
  -76
  -86
  -95
  -104
  -111
  -117
  -121
  -123
  -123
  -121
  -118
  -112
  -106
  -98
  -89
  -80
  -70
  -61
  -52
  -43
  -35
  -28
  -22
  -17
  -13
  -9
Current shareholders' claim on cash, %
  93.5
  88.0
  83.1
  78.8
  74.9
  71.5
  68.3
  65.5
  62.9
  60.5
  58.4
  56.4
  54.5
  52.8
  51.1
  49.6
  48.1
  46.7
  45.4
  44.2
  43.0
  41.8
  40.7
  39.7
  38.6
  37.7
  36.7
  35.8
  34.9
  34.1

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 (CHGG)

Valuation Ratios
P/E Ratio -56.9
Price to Sales 9.4
Price to Book 10.8
Price to Tangible Book
Price to Cash Flow 95.6
Price to Free Cash Flow -2389
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 $255.066 million for the last fiscal year's total revenue generated by Chegg. The default revenue input number comes from 0001 income statement of Chegg. 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 31.8% 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, 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.
    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 115.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 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 5.4% for Chegg.

Corporate tax rate of 27% is the nominal tax rate for Chegg. 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 44.5%.

Life of production assets of 9.5 years is the average useful life of capital assets used in Chegg 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 -12.1%. 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 - $391.062 million for Chegg - 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 113.96 million for Chegg 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 at the current share price and the inputted number of shares is $3.0 billion.

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COMPANY NEWS

▶ [$$] Tuesday's Stocks to Watch   [09:04AM  The Wall Street Journal]
▶ Chegg: 3Q Earnings Snapshot   [05:03PM  Associated Press]
▶ Chegg Reports Q3 2018 Financial Results   [04:05PM  PR Newswire]
▶ Vote to Bring Liam Payne to Your School   [09:00AM  PR Newswire]

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