Q2 2021 Chegg Inc Earnings Call
Greetings and welcome to Chegg second quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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This conference is being recorded.
At this time I'll now turn the conference over to Tracy for it.
Tracy you may now begin.
Good afternoon. Thank you for joining Chegg second quarter 2021 conference call on.
On today's call are Dan Rosensweig, co chairperson, and CEO and Andy Brown, Chief Financial Officer.
A copy of our earnings press release, along with our Investor presentation is available on our Investor Relations website, Investor Chegg Dot com.
A replay of this call will also be available on our website.
We routinely post information on our website and intend to make important announcements on our media center website at Chegg Dot Com Slash Media Center, we encourage you to make use of beach resources.
Before we begin I would like to point out that during the course of this call. We will make forward looking statements regarding future events, including the future financial and operating performance of the company. These forward looking statements are subject to material risks and uncertainties that could cause actual results to differ materially from those in forward looking statements.
Caution you to consider the important factors that could cause actual results to differ materially from those in the forward looking statements in particular, we refer you to the cautionary language included in today's earnings release and the risk factors described in Chegg Annual report on form 10-K filed with Securities and Exchange Commission on February 20.
In 2020, 1 as well as other filings with the SEC.
Any forward looking statements that we make today are based on assumptions that we believe to be reasonable as of this date.
We undertake no obligation to update these statements as a result of new information or future events.
During this call we will present, both GAAP and non-GAAP financial measures, our GAAP results and GAAP to non-GAAP reconciliation can be found on our earnings press release, and the Investor Slide deck found on the IR website Investor Day Chegg Dot Com. We also recommend you review the Investor data sheet, which is also posted on our IR website now I will turn.
The call over to Dan.
Thank you Tracy and welcome everyone to Chegg Q2, 2021earnings call.
We had strong growth the entire school year, particularly in this quarter reaffirming that students value chegg as quarter their education journey.
It is clear.
However, their learning whether online or on campus or on a hybrid model the value of Chegg to students is unquestionable.
We had a great quarter.
With total revenue growth of 30% led by 38% growth of Chegg services on adjusted EBITDA growth of 52 per cent.
Our international growth is strong and we are confident that we will exceed our initial expectations about for 1 million international subscribers for the year.
As our opportunities continue to expand we have remained focused on our efforts to reduce account sharing students have returned to campus, which allows us to reinvest even more new content the student experience and solving the big growing problems students are facing around the world.
Our financial end user results reflect our success, which allows us to once again raise both our revenue and adjusted EBITDA guidance for the remainder.
For 2021.
Over the last decade, we have focused on putting the student first.
And we believe we set the standard and how to support the modern learner share.
<unk> now serves over 30 million students monthly and if we want to build and maintain a long term relationship with students we must listen to the issues that are important to that.
They care that we operate sustainable that we invest in our employees and that we contribute to our communities. We accept this responsibility we have redoubled our efforts to build out programs that support our environment employees communities and contribute positively to the learning ecosystem.
Recent examples include the launch of honor Shield and University, which helped protect academic integrity and build an entirely new educator economy that will also increase access to high quality learning content.
These new initiatives and our continued focus on supporting learners wherever they are in their journey, a reflection of our company values, our dedication to our mission and are clearly contributing to the success of our business.
Chegg is continuously improving learning outcomes for students and we continue to add the right content and services that they need at the time they need it most.
This fall, we will be dramatically increasing discovery of content through greater personalization.
Dan thing from a focus on aligning content to textbooks to allowing students to search and discover our content and services by their courses.
We believe by adding new content and improving the discovery of content on our platform, we will positively impact student outcomes and increase the length of our relationship with our students.
Our Tam is huge and we are scaling very quickly to serve our growing global student base.
To give you a sense of our size.
We now have over 66 million step by step solutions in Chegg study to help students master their subjects and in the second quarter alone. We added 7 million new solutions that were asked and answered by our subject matter experts and more than 37% of them were asked by international subscribers.
Those questions were viewed over 360 million times.
And within our writing product over 1 million citations were created daily.
That way almost 10 million math questions were asked every single day in Q2.
The size scale and quality of what we offer is second to none.
Most importantly.
We survey our students.
And 92 per cent of them say that using chegg helps them learn their course material.
Which is why 94 per cent of them also report that using chegg helps them get them helps them get better grades.
We also believe that that this kind of support directly impacts students mental health.
89% of students reported the Chegg study helps them get their worked on with less stress and 77% said that Chegg study builds their confidence before an exam.
These outcomes reflect the real and tangible impact we have which we are incredibly proud of and why we believe chegg is such a beloved student brand.
As we continue to support students in their academic pursuits, we.
We will also continue to focus on helping them move from learning to earning we know students are seeking alternative pathways to gain the in demand skills employers are looking for so that they can compete in the global economy.
That is why we will continue to make investments not just in academic content, but also on professional skills based content.
As the education landscape rapidly evolves.
The tuitions are making the difficult transition to online or hybrid environments.
New challenges emerge, including the need to increase access to high quality online content.
Protect the integrity of that content and the need to create opportunities for the greatest educators and professors to share and get compensated for their content.
I want to highlight 2 of the initiatives, we already mentioned in these areas on our shield and University.
Earlier this year, we launched honest shield to block student's ability to access chegg content during specified exam periods, which supports institutions efforts around academic integrity.
As more institutions move online our goal is to increase access to even more high quality content by working with schools and faculty around the world. We are very excited about the enthusiasm our leading educators from top universities. They have the ability to work with chegg to create and add content like practice exams horse.
Study guides election nodes lab guides case studies and places through Chegg and to get compensated for their great content.
While it is still early I'm pleased to say that faculty, who have joined University educator community.
Have already earned $700000 and are helping us build an even richer and more valuable learning library for students in.
In addition to serving students faculty and institutions, we know it's important to make a positive impact beyond our core business, which is why we are aligning checks business activities and major themes of our philanthropic and community efforts with the UN sustainable development goals, including a heightened focus on quality education good.
Health and wellbeing and moving to a world with zero hunger.
To that end.
We focused on financial contributions to organizations focused on food and security and we are investing in programs.
To support the physical and mental health of our employees, we have donated to nonprofits supporting students in the U S internationally and 1 effort that we're particularly proud of that aligns with our belief to substantially reduce student debt are our programs like equity for education, which we launched in 2019.
That program is designed to pay off all our employees student debt and combined with our existing reimbursement programs.
We have contributed nearly $1 million towards paying off our employees loans and I couldn't be prouder of course, none of this would be possible without our incredible employees, who are dedicated and focused on our mission to improve student outcomes. Their tremendous work has resulted in continued recognition for our teams.
And in this past quarter, we were proud to win comparably awards for women employees diversity, our leadership team as well as being named 1 of Fortune's best place to work for millennials we.
We had a phenomenal school year, a great quarter and we believe the opportunities ahead for us are only getting bigger we're excited to take on our increase role and responsibility in our industry and with that I will turn it over to Andy Andy.
Thanks, Dan and good afternoon, everyone. We are extremely happy with our performance in the second quarter. The team continues to operate at a high level. Despite ongoing uncertainties related to the pandemic delivering beyond the high end of our expectations for both revenue and profitability.
The underlying metrics remain strong and.
And as such we are substantially raising both revenue and adjusted EBITDA guidance for the remainder of the year.
Looking at Q2 results total revenue growth, 30% during the quarter to 198 million.
By 38% growth in Chegg services revenue to $174 million with Chegg services subscribers growing to $4.9 million in the quarter.
To put this in perspective, both revenue and subscribers have more than doubled in the past 2 years as we benefit from benefited from our investments in content product technology and global penetration.
Our laser light focus and putting students first has led to a brand that is second to none with students.
We offer a trusted platform delivered hot delivers positive outcomes with services that are online on demand.
Can be accessed anywhere any place any time.
This focus has resulted in continued growth and significant leverage as once again adjusted EBITDA exceeded our guidance on increased 52 per cent year over year to $84 million almost 3 times, what we achieved just 2 years ago.
Our margin leverage is impressive given the fact that we continue to invest in new products and features expanding into new markets and increase the resilience and scalability of our products and infrastructure.
Which we believe will allow us to maintain a high top line growth rate and continue to increase margins for the foreseeable future on.
Our business model inherently support operating leverage as we scale.
Majority of our subscribers are acquired or acquired through unpaid channels.
All content is created once and then used many times.
By learners across the globe and much of our learning content, we author is relevant globally.
We believe the combination of our scale high growth high margin and continued to leverage its were not only them on exit but also the broader technology landscape.
Also during Q2, we initiated a transition to a new print textbook logistics partner, which we believe will improve our required materials cost structure once completed next year.
Looking at the balance sheet, we ended the quarter with cash and investments of approximately $2.5 billion.
During the quarter, we redeemed the remaining 20 twenty-three convertible notes for approximately 91 billion, which reduces our total debt and any potential future dilution as our share price increases.
Moving to the second half of the year with the exit suite with the efforts, we made to increase engagement and reduce account sharing our students have gone back to campus, we feel even more confident to raise our revenue and adjusted EBITDA guidance for the remainder of the year.
Well full year 2021 we now expect total revenue to be between 805 and $815 million.
With Chegg services revenue between 690 and $700 million.
Gross margin between 68% 69%.
And adjusted EBITDA between 295 and 300 for them.
Reflecting an expected margin of more than 450 basis points higher in 2020.
Demonstrating the natural leverage in our model as we continue to scale.
Looking specifically at Q3, we now expect.
Revenue to be between 170 on $175 million.
With Chegg services revenue between 142 on $147 million.
Gross margin between 60, and 61% and adjusted EBITDA between forty-three on $45 million.
In closing Q2 was an excellent quarter, we delivered above the high end of our expectations, giving us confidence to substantially increase guidance for the remainder of 2021 as we enter the new academic year.
We continue to believe that our impressive growth and margin model reflects the importance of Chegg services to learners around the world.
With that I'll turn the call over to the operator for your questions.
Thank you.
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1 moment, please while we poll for questions.
Thank you. Our first question is from the line of Stephen Sheldon with William Blair. Please proceed with your questions.
Hey, thanks.
So 2 part question here on University.
1 I guess, how is traction there with faculty been so far getting them to contribute content interest there general feedback on it I think you gave the comment on 700000 that they've earned so far but just curious what else you're seeing around that and then too.
How are you thinking about the way that U verse and University will expand the breadth of content available on your platform, especially in new subject areas and the impact that could have on making a chegg subscription applicable to more students.
Yeah. This is Dan.
So I think the traction for University you have to remember we launched it it's a 2 sided marketplace. We launched it for the educators first and we haven't put it out to the students yet so 700000 and suggest that the demand for professors is quite high.
I think there is a misunderstanding that the overwhelming majority of professors that talk to us we're thrilled with us because they recognize that how many students need help particularly students that don't come from wealthy families or go to a wealthy schools don't have availability of tutoring. This is the most high quality affordable scalable support that they can get and so.
Thousands of teachers more than that have always supported us. So this is the first opportunity for them to contribute their content and actually get paid for it. So they're ecstatic. So the demand has been quite high the number of advisers has exceeded our expectations, but we really haven't launched it yet to the student.
The objective has always been to acknowledge that no 2 students learn the same way or no student learns to different subjects. The same way. So I'm subjects require Ah study guide some require flashcard some require practice tests depend on what the subject is where the students along it and so we wanted to expand not only the category.
That we're in but the way content can be accessed for categories that were already in and so we're seeing all of those things so far at the very very very early stage for us.
And so with the goal of this from a business perspective, obviously the primary goal is to help students get massive material better and do better.
And this will do that because having what when we survey them they've always wanted content directly from professors. So this is a great marriage reported professors have wanted to do on what students want to see the second thing is it can expand the number of categories, where in the third thing is it will expand the type of services or content, we have within the category all of that you have done well.
Well not only increase our continue the extraordinary subscriber growth that we're seeing but extraordinary retention that we're seeing so it will have a positive impact over time on book.
Great. Thank you.
Yes. Thank you.
The next question is from the line of Jeff Silber with BMO capital markets. Please proceed with your questions.
Thank you so much on I know in the past you've said that it doesn't really matter much whether students are on campus for remote but I'm just curious what you're seeing in terms of fall enrollment where students are going to be attending and if the delta variant is having any impact on that thanks.
Right.
I'm sorry on the.
Delta variant.
<unk>.
What we've said for months now is that is low.
Long as the students studying it.
It doesn't matter, where they are studying it doesn't matter if they're studying on campus. It doesn't matter for doing hybrid it doesn't matter if they're doing it remote.
And what we have done is we have gone in and looked at.
Students from all of those vectors and every 1 of them is performing similarly, so that has always been our premise that where the pandemic has affected our business with 2 areas..1 domestically it was reducing account share and because of proximity and then we had a technological solution for the average it Andy you had put in his prepared remarks is working because we're able to monitor.
Just to go back to campus. So we're really comfortable with that effort being sustainable because it has been.
On a large percentage of students went back.
And so the variant doesn't really affect our business at all and certainly not in any negative way as it is certainly affects for students and their mindset and their mental health and those are very important to chegg and we care deeply about those things, but as long as the students are attending a class it doesn't affect us and we're also seeing early stages suggests.
Increased enrollment anyway, mostly work for community colleges of the 500000 students are they that didn't go back almost all of them worked for them community colleges and all of them are because they also lost their jobs because the economy is so robust and jobs are coming back theyre coming back to school as well.
Alright, thanks, so much for the color.
Yeah.
The next question is from the line of Ryan Macdonald with Needham and company. Please proceed with your questions.
Hi, good afternoon, and thanks for taking my question, Dan I'm, just curious as you're going through this university are building out the pieces and structure for that are you. How are you sort of finding the professors to bring on to the platform are you going to University by University are focusing more on adjunct faculty on just love to hear more color there.
Yeah really fair question and nice to hear for me right.
So.
What did we initially target we initially targeted very popular subjects.
For our professors at very popular schools for Chegg.
And we also did it for them community colleges, we did it for large state schools and we also did it from name brand colleges Stanford Heartburn those kinds of schools. We have had participants on our advisory board from all of them.
And we've had content.
Come through uploaded to us from all of those kinds of schools. So really are targeting was where you would imagine it should be initially was where we would see a high volume of interest for students, which is the large state schools and where the brand recognition of the professor from the school would validate the quality of the content in the minds of students and other professors.
So we're seeing all of those we do have a team who does reach out we built a self service marketplace. You can all grow share we've created a great video, which explains it easily we have lots of endorsement from people from all sorts of colleges on it already it's absolutely picking up momentum, but it's super early remember, we haven't even exposed to content to students yet so.
This is the first part is just professors wanting to participate.
Did I answer Ryan did you want more yeah. That's excellent. Thank you very much.
Alright, Brian Shea.
It's on.
Our next question is from the line of Mike Grondahl with Northland Securities. Please proceed with your questions.
Yeah, Thanks, guys and congratulations on the June quarter.
Any update on the bundle and how that's performing kind of against your expectations.
Yeah, I'll start and Andy will put some numerical color around it.
The bundle has been excellent.
So how do we define excellent.
We launched it earlier than we expected that was helpful are.
For a higher percentage of people are taking it than we originally had anticipated.
International is performing similarly to the U S, which was entirely not expected.
And user behavior is very similar to previous subscribers that had gotten just regular chegg study. So every 1 of those is extraordinarily positive.
That really reveals itself and the fact that our Arco has substantially increased and we expect continued our pool increases as a result of that which was always the plan. We're really proud of the fact that when everybody else raises their rates Chegg has never taken our prices up even once and yet we've been able to take our per well.
Every year and this is just another example of what's giving students choices and so next year on year after a larger percentage of our base.
Will that renews will now be bundled subscribers. So the ARPA will continue to grow so.
It has been not a surprise and that's why we launched it but we're really thrilled with the results.
Great Andy what do you do you have any data to add or otherwise no I, yeah, Mike No I think I think Dan Dan nailed it that the bundle is clearly exceeded our expectations youre seeing that in our our increased arc to and it was always.
Or is the goal that we see continued increases now through for a period.
For for several years and it's starting to real itself now that we have a critical mass of Chegg study pack uses so yes all is good.
Great. Thank you.
Yeah.
It's why by the way, Mike we can grow revenue at 38% on Chegg services and grow EBITDA, 32% I mean I have been fortunate to work on some of the greatest models on the Internet. This is 1 that I've not experienced where the more we invest the faster we grow the lower the cost of customer acquisition and the higher the retention and the greater yield.
For every single subscriber we have and it's really starting to manifest itself that when you look at not only the EBITDA margin growth.
Which was phenomenal this quarter and if you look at the guidance that Andy has given for the rest of the year. It just keeps getting better and that's after we continue to make significant investments.
Our next question is from the line of Josh Baer with Morgan Stanley. Please proceed with your question.
Thanks for the questions I get asked Dan 1 maybe quick 1 mentioned 30 million students that you.
That interact with Chegg on a monthly basis, just hoping you could break that down for US are we thinking about all the freemium products and high school, representing a big portion of that and then maybe as far as the writing tools and en masse way and then Chegg services subscribers.
Yeah, well, that's what we have so it's still there.
The 1 that they can't use for free.
Is.
Is chegg study or Chegg study pack because that's just the paid subscriber service. So the overwhelming majority of our free users use everything ranging from internships dot com to the free writing product too to the premium part of math way all the things that I think you appropriately listed.
We're also building on a section called Chegg life, which is has our chegg money program.
And we see ourselves as solving big student problems and they started with the cost and it was the need for academic support now for need for skills, and then there's life skills, particularly financial support for health and other things. So the number of things that we can bring to students that will grow both our free audience on our subscriber on answered pretty substantial over the next cut.
For years because of the needs of students Unfortunately are growing.
And so so where theyre coming from you're right of course, because we have we have.
Flashcards, which do extraordinarily well for high school, but we're also seeing a lot of international people picking up now writing product en masse.
Now that they know whats for in check so we're seeing lots of great places, where the funnel is growing but I wouldn't point to wanting to place over the other.
Great and if I could just.
Ask 1 on the efficiency that you were speaking to you had more than 100 per cent of the topline revenue beat flow to EBITDA.
So I was just hoping for a little bit more.
Color on some of the sources of leverage as far as EBITDA outperformance.
Yeah. That's a good question, Josh I mean, if you take a look at it just at a very macro level, both from a content standpoint, and a particularly on marketing standpoint, we get significant leverage points right. So when you think about our content, particularly in the stem area, whether or not you know it gets.
He gave it gets done once and then used multiple times and it can be used not just with our domestic students has also used across the globe and so we're seeing a lot of leverage of the content that was originally developed or are created as part of our our our U S business, just being leveraged to oversee and so it is a huge leverage point, there and and the other.
Side of this is that when you think about on marketing no more than 85% of our students that come to our platform through unpaid sources. Unlike a lot of other internet companies, what they have to buy that track. We don't we don't have to buy.
Very little of our traffic so we see a lot of leverage across that and so and it's not just about this quarter. If you take a look at what we've done over the last couple of years I mean, we mentioned in the earnings call. You know, we're going to see 400, 450 bps a year over year margin increase I.
EBITDA margin increase.
And as we look at on model as we go beyond this year. We also believe that we'll continue to see.
Our leverage.
On margins for the foreseeable future. So it's just inherent in our model right, where it isn't inherent in a lot of other or other businesses.
Yeah, it's price. Thank you Eddie laid it out perfectly, but I think for every every technology and software company like Chegg.
The dream is always to build a platform company, where you become the bird clearly chegg has done that that lowers the cost of customer acquisition for sure. It gives her name recognition, which means your high virality and referrals all of those things are helpful. But in the ideal world you would want to on the customer Chegg does you want your customer on the consumer to be the same person.
That's the way it is for Chegg you'd want to on the data you'd want to on the payment relationship you'd want to own the channel of distribution it'd be right Dan have nobody would be able to block you directly from your customer or hold your wallboard and renegotiated deal.
And then if you can get all of that and on your content you.
You get the business model that Chegg has and.
So we own 99 per cent of all of our content. So we are actually dependent on nobody for our future success.
And so we're able to listen to the words students says we're able to respond to it we don't have to wait for anybody to let US we don't have to go to somebody else to fix it and we don't have to go get content that we don't have because we have those hundreds of thousands of experts who control our content anytime we want and it's a very unique model and I just think.
People really don't get it yet, but when you turn around you just asked the right question how did the entire be dropped to the bottom line and then when you look at that ratio to free cash flow. It just keeps getting better and it's not because we're not investing we are it's just a model. This is what the model is.
Thanks.
Thank you thank.
Thank you your next question.
So on the line of Brent Thill with Jefferies. Please proceed with your question.
Good afternoon, just following on the theme of margin.
Many have asked you know why not make bigger investments on hold the margin on.
Where you're at in fuel kind of the next level of growth are you, indicating with Guinea now close to 40% margin that.
You can you can keep that great topline growth without sacrificing the bottom line. So you can actually achieve both without having installed for margin.
Well, Yeah, you just nailed it Brent I mean, we are not starving investment back where we're investing more and more more the net we have before if you just go back over the last 2 or 3 years ago.
We almost almost doubled our opex from what 2018 I guess it would've been so we are making significant investments both on developing our technology developing new products.
We've already talked about a couple of days University and.
And so forth and so yeah, we are absolutely, making massive investments we leaned in particularly a lot, particularly the middle of last year and we continue to make those investments both both for our domestic business and in particular international so.
I think it's just it's just a matter of the fact that we've got enough other leverage points that you're seeing the type of margin expansion that.
That we're seeing but we are absolutely investing for future growth and like I said, we we truly believe that the investments that we are making now will allow us to continue to be high growth and high leverage.
For several years to come.
And so Brexit you know people have asked US that question I think fairly for the last couple of years and so here's what's happened in the last 2 years Chegg has grown 100% and our margins have increased so you can't grow at that rate and an EBIT for the rest of you know for this year I think we're expecting our chegg services revenue to grow.
So at 34% that growth rate is higher than pre COVID-19 growth rate on top of a base that is 100% larger.
So, we're clearly not starving anything and holding back growth.
Seeing extraordinary growth right, now and and will never be afraid and we'll always communicate should we choose to make additional investments but.
I think Andy said it best we're investing more than we ever had in our results. The results are just showing in our business and we're excited about it.
Yeah and price.
The margin improvement I think given given the magnitude of day of the race everyone wanted to drill in on it just as a quick follow up on the international business. We were we're all searching for more on mile markers I know you've given the low.
Mile marker on on customers or users, but is there any timing in terms of breaking out more detail as it relates to the overall revenue and any other metrics that that we can get on the international business.
We're not breaking out the metrics, but let me give you some some color, which I think will be really positive.
Which is obviously, we're growing obviously, we're going to exceed.
Our best guess is we assume we're going to exceed that number. So what are we looking for we're not only looking for growth. We're looking for sustainability of that growth both by countries and in the countries. We're in high renewal rates and high take rates of study pack.
So you'd be hard pressed.
To see a difference between an inner international.
Subscribers' behavior to a U S subscribers behavior.
That again is why youre seeing our numbers, so outperforming and particularly the profit margin. So outperforming is because the bundle is holding up better than we had originally expected at this early stage of its growth.
So the color would be that international subscribers love Chegg as much as U S subscribers. Their take rates are very similar theyre early renewal rates are very similar so utilization is very similar.
And it changes by country of which content that they access more than other countries on countries and more business. Some countries are more stem. Some countries are more science, but the actual behavior once they're in the subscriber base is really positive and very similar.
Great. Thank you.
Thank you I appreciate the question.
The next question is from the line of Doug I'm on its with J P. Morgan. Please proceed with your question.
Thanks for taking the questions.
Dan you talked about increased discovery of content.
Shifting from textbooks to courses.
Just hoping you could elaborate on that a little bit more was that a reference to university and building up that content or is that it or is it a different change in the user experience and then I've a follow up as well.
And we'll take a follow up actually great question, because what we intimated on the call was that we are evolving the user experience University.
Isn't necessarily are directly connected to that it's just 1 other content pools that students will be able to access 1 other 1 of the opportunities you have as a company when you get 66 million pieces of.
Our solutions in 1 area or 10 million questions in math or a million writing is.
We've grown so rapidly and we continue to grow so rapidly that many students don't know everything that chegg has to offer it really depends on the door that they've come in.
And so youll hear us talking about it a lot more as the year on into next year progresses, which is a greater personalization experience.
Which if you think back down to the my Yahoo days, which is how do you make Yahoo. What you want it to be in this case, how does check be more would you want it to be well. Some students don't know everything that we have on their way to discover that they want to use it more that helps with retention.
Second thing is.
We should really only be bringing students the things that they need and we should be bringing it to them before they even ask.
So that is a big start of our future.
And the other thing is theres a lot more forms of content like video and other areas, which students really enjoy depending on the subject are depending on who they are that you will start seeing over the course of the next year, just getting bigger and bigger and bigger and we will have more to talk about that.
As the year progresses.
And as we go into next year, but all of it is how do I discover more of what Chegg already has and how does chegg get access to more content that students really want that we don't currently have.
And that helps both with user growth and user retention. So there is an ROI on both of those things and it's super exciting.
Okay, Great that's helpful.
And then just on the subscribers I guess this is kind of a 2 parter.
But I was hoping you could just talk about the account sharing a little bit more just I guess, how far along do you feel like you are in terms of reducing the count sharing I think it's been you know the efforts you have been for more than a year, but I know the dialogue has been turned to different degrees at different times.
And if we look at the <unk> subscribers on a sequential basis. It looks like the additions are kind of similar to Q2.
<unk> 19, a little bit higher, but obviously of cortisol for book much bigger base right on a on a sequential basis I guess do you feel like the cadence is now that you're kind of Comping things are you back into.
You know what could be more seasonal type of cadence just given the school year and everything looking forward just trying to get your views there.
There's a lot there to unpack and let me try the first part let me have Andy sort of talk about the second part.
So.
On the seasonality what change in the seasonality was literally schools closed for 2 weeks and then suddenly they pop back open and then suddenly account share in Wisconsin, and so we've lapped that.
So well.
I believe we're well past that that's good news for in terms of being able to figure out the model.
And those things in terms of the growth rates I think what's really positive.
In our mind.
As our growth rates for Chegg services are higher now than they would have been at 19 and it's on top of a much higher base.
A lot of that has to do with international growth and a lot of it has to do with.
Eliminating account share on the account share in question and this is where.
It was just 1 of those weird scenarios, where it was hard to explain to people that really wasn't COVID-19 that caused people to come to chegg. It was the fact that so many people were using chegg, but not enough for them or we're using and we're paying for it.
So I don't I don't know that where we really are in that cycle. What I do know is we specifically reviewed students that went back to campus schools that were open IP addresses that were on those campus and we know that our efforts are holding up very strong.
So no one's ever going to be perfect in this space, but it is absolutely in our mind sustainable.
Based on all the evidence that we currently seen for students that have already gone back to campus for the first 6 months for this year. So it's really all good news for US Andy I don't know if you want to add to that or not yeah. Yeah. Let me let me just add 1 other thing there Doug and so you're absolutely right on the seasonality very similar to <unk> back in 2019, I think the other thing that when you.
Start to look at this Q2 it is all organic growth right. So what the.
For the prior 3 quarters, we had the addition of math way. So this is truly organic growth on when you look at it I mean, we're basically at $2.2 million subscribers in Q2 of 2019 and went out for 9 so it's well more than double but I do think the.
The kind of the trends that you'd seen back in 2019 or are more relevant now that we've done that lapping.
Okay. Thank you that's helpful.
Yep.
Yeah.
Our next question is from the line of Jason <unk> with Keybanc capital markets. Please proceed with your questions.
Yeah. Thanks for taking my question, maybe on 1 guidance related question for Andy you're raising the full year services Guide Alright 15 million.
Much more than the <unk> beat here, but what gives you confidence in the raise at this point on the euro versus maybe waiting until seeing some of these back to school trends, maybe could you maybe quantify it or break it down is it is it just some trends you're seeing into the summer that retention is an international study pack you know help us frame the continent. Thank you yeah.
Yeah. So I mean, I mean, the fact of the matter is you know obviously there have been some unknowns over the last won't call. It for 4 quarters, but we're getting significantly more clarity.
As to you know how our students reacting, particularly around things like account sharing and things like that so as we started to look at the business week and remind let remind you. We are a subscription business. So it's a very large part of our revenue comes from existing subscribers and those subscribers are very predictable.
Right. So the renewal rates are very predictable and so as we looked at all of the data going into you know into the summer and into the fall.
Felt very confident in being able to provide a I'll call it a robust guidance and and so yes.
We felt we felt very comfortable with it.
Excellent. Thank you.
Thank you.
Our next question is from the line of Alex Fuhrman with Craig Hallum. Please proceed with your questions.
Great. Thanks for taking my question I was wondering if you can talk a little bit more about the new personalization efforts are gonna have rolling out it sounds like you're certainly moving away towards organizing your content more around check books. So just curious if you can talk about more kind of where you see that that evolution going.
And and you know as of today, how many of your students I guess are looking at content more oriented towards towards what textbook referenced it.
Yeah. So.
I don't we're going to talk a lot more about this later on this year because it's a very important.
Transformation for us.
It has been rolled out to a very small percent of U S subscribers only because we never do anything that screws up the student.
And so we do it's a small small amounts and we test it and then we make adjustments and then we roll it out similar to what we did with the bundle and other things we've done in the past. So we're very very very judicious in the good thing about our business is there so much momentum and it really has to do anything.
This is more what we should be doing on what students will benefit from which will help our business even more than it is today. So historically, we've been oriented around the textbook pretty much exclusively the <unk>.
<unk> book, we can help you, but as textbooks become less important.
And as as learning content from institutions that we're serving now that we didn't do before like online institutions or community colleges as curriculum evolves Chegg has always had the expectation and we have all the content. It's just how you organize it so more students.
<unk> are looking for content organized not just around the textbook we won't go away from that because there is an overwhelming demand for that but around the course itself.
And so if you think about the course, it could be chemistry, whatever and there could be chemistry specific class at your specific school, which is the Holy Grail.
And so the evolution will be from where we are to that Northstar overtime and so the idea is you will be able to personalize over time around the way you. The students think about your class where school or your subject.
And get access to the kinds of content in the format that you like it whether it would be a step by step solution, whether it be help from an individual whether it'd be video based whether it be text space, whether it be audio based I mean, the number of things that chegg can add to this to the services that we have it's just.
Enormous I I really think that people don't understand yet how big this market is.
On a global scale and I'll remind people 50% of the world's population is below the age of 30.
And all of them are going to need to learn all of them are going to be dependent more on themselves that on any government or any system, which I think literally you can see we have arguments over teacher vaccine or not teacher vaccine.
Rather than what's important to the students so as long as we stay exclusively focused on the needs of the students. They direct us where to go we don't have to guess and they've been increasingly asking for it organize around their specific courses and then specific classes and so it's a really exciting time for us we've been investing in for a long time. It's just we just literally are just starting so theres not much to say.
Hey on it yet.
Except we think there is going to have a significant impact for next several years.
Great that's really helpful. Thank you.
I really appreciate all the questions on it because we're this is big so exciting.
Thank you for a final question today is from the line of Brian Peterson with Raymond James. Please proceed with your questions.
Hi, This is Jessica.
Hi, Brian.
Hum.
No other oh.
Or are you at all.
I just wanted to know how hot.
Loans in the business what have you.
For you.
They're going for.
I'm not sure we heard all of that question would you mind repeating it it just didn't come through as clearly as I would like.
Sorry.
I'm just wondering about math when you acquire a year, though.
What have you learned from the business like what has been working really well on what do you what are you seeing going for integrating into chegg.
Well, we've been thrilled.
I mean, I don't know how else to say it.
It's far exceeded our expectations and I expect that it will be for the next several years for question for US is because we knew it was the best asset out there we weighted 6 years to get it.
And the founders and the team that has built it.
Have remained and they are extraordinary.
And adjusted to think we gave today about 10 million math questions. A day tells you how important math is on a global scale I mean, even when you're taking the sciences or medical you need to know math.
Even with Emusic math is relative to the math is universal, even though everybody, particularly my daughter's hate it.
But mass matters and so what did we learn we didn't learn that math matters. We knew that we didn't learn that math, where it was great because we knew that what we realize what Andy said call over call over calls when we acquire a company we look for companies, where our brand our reach our data our technology, our commerce systems are.
Payment systems, our retention efforts, our CRM stuff all could leverage to be leveraged to grow those companies faster and make them more profitable and that's exactly what's happened. We also when we acquired our writing company.
We also have an AD system, which we used to monetize.
Our writing products, which is why we're able to offer so much of the stuff that we do free.
That system has also been applied to.
For the math way system, which have increased for your ability and increase CPM and so what we hoped would happen happened a lot faster than we thought and I really credit the team for doing that particularly the math way team for being so open to it.
It's sad to say, we haven't even met them in person yet.
On the right outside.
They are in Pennsylvania, and we just haven't met him in person. So they've been spectacular. So we know that when chegg buys companies that have a great product market fit that have been around for a while that had been under resource that we can grow them faster and make them more profitable and relatively quickly and that's where we have done the best for their physicians.
Thank you.
This concludes our question and answer session I'll turn the floor back to management for closing remarks.
So look theres not on what to say, we obviously had a spectacular school year and I say school year, because remember it ends that are in the middle of May So we're ramping up for the next school year.
And we expect enrollment to be better, although we expect more students to be on campus, although we're agnostic to where they are dead.
The things that we've invested in terms of user experience content integration technology or have had amazing rois as you can see and none of this would have been possible without the incredible teammates that we have chegg.
Has seen very little turnover, which we're grateful for we've seen new companies that we've acquired in Canada and in.
Outside of Pennsylvania, and Pennsylvania.
Some part of the Chegg family, we are grateful for all their voting to give us all these incredible awards, but the reason all of that matters is because the mission. We're on is a lot bigger than people think the needs of college students are unfortunately, expanding theyre not getting smaller the need for low cost high quality support.
Across every subject in every country seems to be going up and we have a brand who as Andy pointed out in the minds of students is second to none and the value. We provide is second to none. So we're on a mission to improve student outcomes to make them more relevant to the modern.
Society to reduce their call a modern economy to reduce their debt.
And we think only now investors are starting to understand what students have always understood, which is chegg is awesome for what it does the Tam is big for value was incredible.
Our growth on top of higher numbers I think for Flexpath to margins that we see are not by design. This is just what this business yields which gives us the freedom and the flexibility to invest in even greater growth going forward and so the mission just has become more important to us the energy level is super high and we just want to get back to work. So I want to thank you all for joining.
US on this call everybody stay safe.
We will do the same and we will see on the next earnings call. So thanks.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.