ZACKSยท2025-10-30 15:30Core Insights - The education technology (EdTech) sector is experiencing a transformation, with companies like Chegg and Duolingo showcasing different trajectories within this shift [1][2] - Chegg is facing challenges with declining subscriptions and revenues, while Duolingo is demonstrating strong growth and profitability [7][8] Chegg Overview - Chegg's core business is under pressure, with subscriptions dropping 40% year over year to 2.6 million in Q2 2025, leading to a 36% decline in total revenues to $105 million [3][6] - The company is focusing on two emerging businesses: Busuu, which saw a 15% year-over-year revenue increase, and Skills, targeting a $40 billion market [4][6] - Chegg is undergoing a major restructuring, including a 45% workforce reduction, to improve cash flow and focus on skilling initiatives, with expected revenues of $70 million in 2025 [6][12] - Despite the challenges, Chegg's adjusted EBITDA was $23 million at a 22% margin, indicating strong cost control [3][6] Duolingo Overview - Duolingo reported a 41% revenue increase to $252.3 million in Q2 2025, with daily active users rising 40% to 47.7 million [7][8] - The company is successfully upselling users into higher subscription tiers, benefiting from AI enhancements [9][10] - Duolingo's financial guidance remains strong, with bookings growth expected to exceed 32% for the full year 2025 [11][19] - The company is expanding its total addressable market with new subjects, such as a Chess course, which has surpassed one million daily active users [10][19] Stock Performance and Valuation - Chegg's stock has risen 44.2% in the past six months due to restructuring efforts, while Duolingo shares are down 31.8% amid market pressures [12][15] - Chegg's market capitalization is approximately $113.7 million, trading at 0.32X forward sales, reflecting investor caution [15][22] - In contrast, Duolingo has a market cap of around $12.5 billion, trading at 10.09X forward sales, indicating confidence in its growth trajectory [15][22] Analyst Expectations - Analysts maintain cautious expectations for Chegg, forecasting a 36.7% revenue decline in 2025 and a projected loss per share of 11 cents [17][19] - Duolingo's estimates show a projected EPS of $3.16 for 2025, with revenue expected to climb 36.2% [19][21] - The contrasting analyst sentiment highlights the divergent paths of the two companies, with Duolingo seen as a high-visibility growth compounder [19][22] Investment Outlook - Chegg is viewed as a turnaround story with potential upside, but revenue stability remains uncertain [22][24] - Duolingo is recognized for its robust operating performance and expanding profitability, making it a more favorable long-term investment [23][24]