Needham has reiterated a Hold rating on Chegg (NYSE:CHGG) after the education technology company posted fourth-quarter 2025 results that beat reduced forecasts. The research firm highlighted Chegg’s strategic refocus and the better-than-expected quarterly performance, while cautioning that meaningful progress will take time.
The stock is trading at $0.75 and has declined by more than 46% over the past year, according to InvestingPro data. Needham pointed to a material change in how Chegg intends to run its business going forward: the company is prioritizing business-to-business growth through its Chegg Skilling division and positioning the legacy Chegg Study business primarily as a source of cash flow.
Margins remain a positive datapoint in Needham’s assessment. The firm noted that Chegg reported gross profit margins of 68.23% even as revenue pressures persist. Management has set explicit financial targets tied to the strategic shift, including a goal of generating positive free cash flow in 2026 and exiting that year free of debt, while continuing to invest to expand the Skilling business at double-digit rates.
Still, Needham stressed that Chegg faces "a long road to recovery." The research house flagged the skills market as "highly competitive and rapidly evolving," saying it will require "multiple quarters of execution" under the new strategy before it would consider moving to a more positive rating on the stock.
Chegg’s reported fourth-quarter 2025 results showed an earnings per share (EPS) of -$0.01, beating the analyst forecast of -$0.08. Revenue for the quarter came in at $73 million, above the projected $71.19 million. The company’s earnings call underscored those figures but did not include any material announcements related to mergers or acquisitions.
Analyst coverage remains stable in the short term: firms have not issued recent upgrades or downgrades. Market watchers and Needham alike are focused on Chegg’s ability to sustain and build on the current financial trajectory amid challenging conditions.
Contextual summary
Needham’s Hold reflects a measured view: the firm supports Chegg’s shift to a B2B orientation through Chegg Skilling and acknowledges healthy gross margins, but it wants to see consistent execution over several quarters before changing its rating. Management’s financial goals for 2026 - positive free cash flow and no debt at year-end - are central to that assessment.
Key points
- Needham maintained a Hold rating on Chegg after Q4 2025 results beat lowered expectations.
- Chegg is prioritizing B2B growth via Chegg Skilling while treating Chegg Study as a cash generator; gross margins are 68.23%.
- Management aims to achieve positive free cash flow in 2026 and be debt-free at the end of 2026 while growing Skilling at double-digit rates.
Sectors impacted
- Education technology - strategic shift within Chegg affects sector dynamics.
- Professional training and B2B learning services - Chegg Skilling’s growth trajectory is relevant.
- Equity markets - Chegg’s stock performance and rating updates influence investor sentiment in small-cap edtech names.
Risks and uncertainties
- Execution risk - Needham requires multiple quarters of consistent execution on the new strategy before improving its view.
- Competitive landscape - The skills market is described as highly competitive and rapidly evolving, which could pressure growth and margins in the Skilling business.
- Financial targets dependency - Management’s goals for 2026 (positive free cash flow and zero debt) are pivotal; failure to meet these targets would affect the company’s recovery narrative.
Additional earnings detail
Chegg’s Q4 results included EPS of -$0.01 versus an expected -$0.08 and revenue of $73 million compared with a $71.19 million projection. There were no notable M&A disclosures in the earnings call, and analyst firms have not issued recent rating changes.