$0.23
$0.91
bear $0.23
base $0.49
bull $0.91
margin of safety $0.20
market price* $0.73
Business condition attached to the margin of safety
Owner earnings (operating cash flow excluding working-capital swings, less stock-based pay and capital spending) positive for the two most recent reported quarters, and cash net of debt still at or above about $30 million.
What the business is. Chegg sells online study help to college students: Chegg Study, Chegg Writing and Chegg Math, sold together as Chegg Study Pack, plus advertising and content licensing. It also has a smaller Chegg Skilling arm, made up of the Busuu language-learning platform and workforce-training programs sold to employers. In 2025 the academic services brought in $308.3 million and Skilling brought in $68.7 million. About 85% of revenue came from the United States. Why the academic business is shrinking. Chegg's own annual report names two causes. Google's AI Overviews, rolled out in August 2024, answer students' questions on Google's results page, so fewer of them reach Chegg. And students are turning to ChatGPT and similar tools for homework help. Total revenue fell from $776 million in 2021 to $377 million in 2025, and first-half 2026 revenue of $115 million was down 49% from a year earlier. Academic revenue alone fell 43% in 2025. After a strategic review, the board decided in October 2025 to keep the company independent and to reshape it around selling skills training to businesses. It cut the workforce twice in 2025, in May and October, and closed its US offices, taking $51.5 million of restructuring charges. How we measured earnings. We start from operating cash flow and remove short-term working-capital swings. We then subtract stock-based pay, because it is a real cost, and the capital spending needed to keep the business running. For Chegg that spending is mostly capitalized content and software. In 2020 and 2021 it also included print textbooks, which we count net of what the used books sold for. On this basis Chegg never earned much, even at its peak. Owner earnings were about $0.63 a share in 2021, then turned to losses in 2024 (-$0.12) and 2025 (-$0.35, including the restructuring costs). Heavy stock-based pay, more than $130 million a year in 2022 and 2023, used up most of the reported cash flow. Those years describe a business that no longer exists, so we do not base the value on the ten-year record. The first evidence from the restructured company is the first half of 2026. Owner earnings were about $17 million (about $0.15 a share), and that figure includes a roughly $3 million litigation settlement item that will not repeat. Capital spending was $4.7 million, far below the $27 million of amortization of past content and software. We accept the low spending because the academic products are now being run for cash, not rebuilt. The last full year, 2025, was a loss. We start the base case above it only because the 2025 cost cuts already show up in the actual first-half 2026 results. The trend within 2026 is still down: the second quarter showed a small net loss after a small profit in the first. Cash and debt. On June 30, 2026 Chegg held about $72 million of cash and short-term investments. Against that stood $33.9 million of convertible notes that matured on September 1, 2026. That leaves roughly $38 million after the notes are repaid. We cut this to $35 million, about $0.31 a share, to allow for lease and restructuring payments still owed on closed offices. That money is there even if the operations earn nothing more. All future cash is discounted at 6%. Base case, $0.49 a share. Academic revenue keeps falling by about half each year, as it did in 2025 and the first half of 2026. Management keeps cutting costs in step, as it has already shown it can. That gives owner earnings of about $9 million in the second half of 2026, $7 million in 2027, $3 million in 2028 and $1 million in 2029. After that the academic business has nothing left to give. Skilling's revenue fell 7% in 2025. We assume it covers its own costs but adds no value, because the filings give no profit figure for it and we do not invent one. Future cash of about $19 million plus the $35 million of net cash comes to $0.49 a share. Bear case, $0.23 a share. The decline speeds up, as it already has: revenue fell 49% in the first half of 2026, against 39% in 2025. Cost cuts lag behind, as they did in the second quarter of 2026. Owner earnings are about $4 million in the second half of 2026. Then come losses of about $6 million in each of 2027 and 2028 and $3 million in 2029, as Skilling and the costs of being a public company outlast the academic revenue. Those losses eat into the cash, leaving $0.23 a share. Bull case, $0.91 a share. Academic revenue declines at 2025's slower pace, and content licensing continues ($10.8 million in 2025). Skilling's business-to-business language sales keep growing (up $3.6 million in 2025), enough to make it modestly profitable. Owner earnings are about $11 million in the second half of 2026, $15 million in 2027, $10 million in 2028, $8 million in 2029 and about $6 million a year from 2030 through 2035. We assume nothing after that. None of the cases counts on a turnaround, a sale of the company, or new products the filings do not show. Stock listing. The share price has twice fallen below the New York Stock Exchange's $1 minimum. A December 2025 notice was cured in June 2026, and a new notice came on July 24, 2026 with a six-month cure period. The company has said it may use a reverse stock split to fix this. A split would not change what the business is worth, but a delisting would make the shares harder to trade. What could make this wrong. Most of the value is the cash, plus a short stream of earnings from a shrinking product. The result depends on how fast academic revenue falls compared with how fast costs can be cut. If Skilling proves clearly profitable, the value moves toward the bull case. If losses outlast the academic business, or the cash goes into projects that do not pay back, the value falls to the bear case or below. Margin-of-safety price. The margin-of-safety price is $0.20, just under the bear case and well below the net cash per share. The company is very small, its main product is shrinking fast, and its future cash depends on management cutting costs as quickly as revenue falls. The price applies only once owner earnings have stayed positive for the two most recent reported quarters and cash net of debt is still at least about $30 million.