Chegg, Inc.

Greetings. Welcome to Chegg's 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. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll now turn the conference over to Tracy Ford. Tracy, you may now begin.

Good afternoon. Good afternoon. Thank you for joining Chegg's second quarter 2021 conference call. On today's call are Dan Rosenzweig, 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.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.com slash media center. We encourage you to make use of these 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. We 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's annual report on Form 10-K filed with the Securities and Exchange Commission on February 22, 2021, 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 reconciliations can be found in our earnings press release in the investor slide deck found on the IR website, investor.cheg.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's Q2 2021 earnings call. We had strong growth the entire school year, particularly in this quarter, reaffirming that students value Chegg as quarter of their education journey. It is clear wherever they are learning, whether online, on campus, or in 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 and adjusted EBITDA growth of 52%. Our international growth is strong, and we are confident that we will exceed our initial expectations of over 1 million international subscribers for the year. As our opportunities continue to expand, we have remained focused on our efforts to reduce account sharing as students have returned to campus, which allows us to reinvest in even more new content, the student experience, and solving the big growing problems students are facing around the world. Our financial and user results reflect our success, which allows us to once again raise both our revenue and adjusted EBITDA guidance for the remainder of 2021. Over the last decade, we have focused on putting the student first, and we believe we set the standard in how to support the modern learner. Chegg 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 them. They care that we operate sustainably, 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 help protect academic integrity and build an entirely new educator economy that will also increase access to high quality learning content. These new initiatives, and are continued focused on supporting learners wherever they are in their journey, are reflections of our company values, are 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, Advancing 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. In Mathway, 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% of them say that using Chegg helps them learn their course material. which is why 94% of them also report that using Chegg helps them get better grades. We also believe that this kind of support directly impacts students' mental health. As 89% of students reported that Chegg Study helps them get their work done with less stress, and 77% said that Chegg Study builds their competence 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 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 in professional skills-based content. As the education landscape rapidly evolves, institutions are making the difficult transition to online or hybrid environments. New challenges have emerged, 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 two of the initiatives we already mentioned in these areas, Honor Shield and University. Earlier this year, we launched Honor Shield to block students' ability to access CHEG 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 of leading educators from top universities to have the ability to work with Chegg to create and add content like practice exams, course study guides, lecture notes, lab guides, case studies, and quizzes 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 $700,000 and are helping us build an even richer and more valuable learning library for students. In addition to serving students, faculties, and institutions, we know it's important to make a positive impact beyond our core business, which is why we are aligning Chegg's 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 well-being, and moving to a world with zero hunger. To that end, we focused our financial contributions to organizations focused on food insecurity, and we have invested in programs that support the physical and mental health of our employees. We have donated to nonprofits supporting students in the U.S. and internationally, and one effort that we are 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 one of the Fortune's best place to work for millennials. We had a phenomenal school year, a great quarter, and we believe the opportunities ahead for us are only getting bigger. We are excited to take on our increased 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 as such, we are substantially raising both revenue and adjusted EBITDA guidance for the remainder of the year. Looking at Q2 results, total revenue grew 30% during the quarter to 198 million, driven by 38% growth in CHEGS services revenue to 174 million, with check 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 two years, as we've benefited from our investments in content, product, technology, and global penetration. Our laser light focus in putting students first has led to a brand that is second to none with students. Because we offer a trusted platform that delivers positive learner outcomes with services that are online, on demand, that can be accessed anywhere, anyplace, anytime. This focus has resulted in continued growth and significant leverage. As once again, adjusted EBITDA exceeded our guidance and increased 52% year over year to 84 million. Almost three times what we achieved just two 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. Our business model inherently supports operating leverage as we scale. The majority of our subscribers are acquired through unpaid channels Our content is created once and then used many times by learners across the globe, and much of our learning content we offer is relevant globally. We believe the combination of our scale, high growth, high margin, and continued leverage is rare, not only among edtech, 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 2023 convertible notes for approximately $91 million, 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 efforts we made to increase engagement and reduce account sharing as 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. For full year 2021, we now expect total revenue to be between 805 and 815 million, with check services revenue between 690 and 700 million, gross margin between 68 and 69%, and adjusted EBITDA between 295 and 300 million, reflecting an expected margin of more than 450 basis points higher than 2020, demonstrating the natural leverage in our model as we continue to scale. Looking specifically at Q3, we now expect total revenue to be between 170 and 175 million, with check services revenue between 142 and 147 million, gross margin between 60 and 61%, and adjusted EBITDA between 43 and 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. At this time, we'll now be conducting a question and answer session. If you'd like to ask a question, please press star 1 from your telephone keypad and a confirmation tone indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question is from the line of Steven Sheldon with William Blair. Please receive your questions.

Hey, thanks. It's a two-part question here on Uversity. One, I guess how is traction there with faculty been so far getting them to contribute content and just their general feedback around it? I think you gave the comment on 700,000 that they've earned so far, but just curious what else you're seeing around that. And then two, how are you thinking about the way that 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 the traction for university, you have to remember we launched it. It's a two-sided marketplace. We launched it for the educators first, and we haven't put it out to the students yet. So 700,000 suggests that the demand from professors is quite high. You know, I think there's a misunderstanding that the overwhelming majority of professors that talk to us are thrilled with us because they recognize that how many students need help, particularly students that don't come from wealthy families or go to wealthy schools or 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 advisors has exceeded our expectations. But we really haven't launched it yet to the student. The objective has always been to acknowledge that no two students learn the same way, or no student learns two different subjects the same way. Some subjects require study guides, some require flashcards, some require practice tests, depending on what the subject is, where the student is along it. And so we want to expand not only the categories that we're in, but the way content can be accessed for categories that we're already in. And so we're seeing all of those things so far at the very, very, very early stage of this. And so the goal of this from a business perspective, obviously the primary goal is to help students master the material better and do better. And this will do that because when we survey them, they've always wanted content directly from professors. So this is a great marriage of what professors have wanted to do and what students want to see. The second thing is it can expand the number of categories we're in. The third thing is it will expand the type of services or content we have within a category. All of that, if done well, will not only increase or continue the extraordinary subscriber growth that we're seeing, but the extraordinary retention that we're seeing. So it will have a positive impact over time on both.

Great. Thank you.

Yep. Thank you.

Next question is from the line of Jeff Silver with BMO Capital Markets. Pleased to see you with your questions.

Thank you so much. I know in the past you've said that it doesn't really matter much whether students are on campus or 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.

I'm sorry. On the Delta variant, what we've said for months now is that as long as the student is studying, it doesn't matter where they're studying. It doesn't matter if they're studying on campus. It doesn't matter if they're 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 those vectors, and every one of them is performing similarly. So that has always been our premise that where the pandemic has affected our business was two areas. One, domestically, it was reducing account sharing because of proximity. And then we had a technological solution for that, which Andy had put in his prepared remarks, is working because we're able to monitor students to go back to campus. So we're really comfortable with that effort being sustainable because it has been. And a large percentage of students went back. And so the variant doesn't really affect our business at all. certainly not in any negative ways. It certainly affects the students and their mindset and their mental health, and those are very important to check, and we care deeply about those things. But as long as those students are attending a class, it doesn't affect us. And we're also seeing early stages suggest increased enrollment anyway. Mostly we're for community colleges. Of the 500,000 students or so that didn't go back, almost all of them were from community colleges, and all of them are because they also lost their jobs. But because the economy is so robust and jobs are coming back, They're coming back to school as well.

All right. Thanks so much for the call.

You bet.

The next question is from the line of Ryan McDonald with Needham & 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 Uversity, building out the pieces and structure for that, How are you sort of finding the professors to bring onto the platform? Are you going university by university or focusing more on adjunct faculty? Just love to hear more color there.

Yeah, really fair question and nice to hear from you, Ryan. So what did we initially target? We initially targeted very popular subjects from professors at very popular schools for CHEG. We also did it from community colleges. We did it from large state schools. And we also did it from name brand colleges, Stanford, Harvard, those kinds of schools. We have had participants on our advisory board from all of them. And we've had content come through, come uploaded to us from all those kinds of schools. So really our targeting was where you would imagine it should be initially, was where we would see a high volume of interest from 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 go see it. We've created a great video which explains it easily. We have lots of endorsements 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 the content to students yet. So this is the first part is just professors wanting to participate. Did I answer, Ryan? Or did you want more?

Yeah, that's excellent. Thank you very much.

All right, Ryan. See you in a few minutes.

Our next question is from the line of Mike Grondahl with Northland Security. Please proceed with your questions.

Yeah. Thanks guys. And congratulations on the June quarter. Um, any update on the bundle and how that's performing kind of, um, against your expectations?

Yeah, I'll start and Andy will put some numerical color around it. Um, the bundle has been excellent. So how do we define excellent? We launched it earlier than we expected. That was helpful. A higher percentage of people are taking it than we originally had anticipated. International is performing similarly to the US, which was entirely not expected. And user behavior is very similar to previous subscribers that had gotten just regular check study. So every one of those is extraordinarily positive. That really reveals itself in the fact that our ARPU has substantially increased. And we expect continued ARPU increases as a result of it, 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 ARPU up every year. And this is just another example of what's giving students choices. And so next year and the year after, a larger percentage of our base will that renews will now be bundled subscribers. So the ARPU will continue to grow. So it has been not a surprise. That's why we launched it, but we're really thrilled with the results.

Great. Andy, did you have any data to add or otherwise?

No, I, I, Yeah, Mike, no, I think Dan nailed it. The bundle has clearly exceeded our expectations. You're seeing that in our increased ARPU. And it was always the goal that we see continued increases in ARPU for several years. And it's starting to reveal itself now that we have a critical mass of Chegg Study Pack users. So, yeah, all is good. Great.

Thank you.

It's why, by the way, Mike, we can grow revenue at 38% on Chegg services and grow EBITDA at 52%. I mean, I have been fortunate to work in some of the greatest models on the internet. This is one that I've not experienced where the more we invest, the faster we grow, the lower the cost of customer acquisition, the higher the retention, and the greater yield for every single subscriber we have. And it's really starting to manifest itself now 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 Barrett with Morgan Stanley. Please proceed with your question.

Thanks for the question. I'm going to ask Dan one maybe quick one. You 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 then Massway and then Chegg services subscribers?

Yeah, well, that's what we have. So the one that they can't use for free is Chegg Study or Chegg Study Pack because that's just a paid subscriber service. So The overwhelming majority of our free users use everything ranging from internships.com to the free writing product to the freemium part of Mathway, all the things that I think you appropriately listed. We're also building on a section called Chegg Life, which has our Chegg Money program. We see ourselves as solving big student problems, and they started with the cost, and it was the need for academic support. Now it's the need for skills, and then there's life skills. particularly financial support, mental health, and other things. So the number of things that we can bring to students that will grow both our free audience and our subscriber audience are pretty substantial over the next couple of years because the needs of students, unfortunately, are growing. And so where they're coming from, you're right, of course, because 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 and math now that they know it's from Chegg. So we're seeing lots of great places where the funnel is growing, but I wouldn't point to one place over the other.

Great. And if I could just ask one on the efficiency that you were speaking to. You had more than 100% of the top-line revenue beat flow to EBITDA. So I was just hoping for a little bit more color on some of the sources of leverage there. 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 particularly a marketing standpoint, we get significant leverage points, right? So when you think about our content, particularly in the STEM area, whether or not it gets It gets done once and then used multiple times, and it can be used not just with our domestic students, it's also used across the globe. And so we're seeing a lot of leverage of that content that was originally developed or created as part of our U.S. business just being leveraged overseas. And so it's a huge leverage point there. And the other side of this is that when you think about our marketing, more than 85% of our students that come to our platform are through unpaid sources. unlike a lot of other internet companies where they have to buy that traffic. We don't have to buy very little of our traffic. And so we see a lot of leverage across that. And it's not just about this quarter. If you take a look at what we've done over the last couple of years, and we mentioned in the earnings call, we're going to see 450 bits year over year margin increase, EBITDA margin increase. And as we've look at our model as we go beyond this year, we also believe that we'll continue to see leverage in our EBITDA margins for the foreseeable future. So it's just inherent in our model, right, where it isn't inherent in a lot of other businesses.

Yeah, it's... Thank you. Andy laid it out perfectly, but I think for every technology and software company like Chegg, the dream is always to build a platform company where you become the verb. Clearly, Chegg has done that. That lowers the cost of customer acquisition for sure. It gives high name recognition, which means you have high virality and referral. All those things are helpful. But in the ideal world, you'd want to own the customer. Chegg does. You want your customer and the consumer to be the same person. That's the way it is for Chegg. You'd want to own the data. You'd want to own the payment relationship. You'd want to own the channel of distribution and have nobody be able to block you directly from your customer customers. or hold you up or renegotiate a deal. And then if you can get all that and own your content, you get the business model that Chegg has. And so we own 99% of all of our content. So we are actually dependent on nobody for our future success. And so we're able to listen to what the student 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 can fill out 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 ask the right question. How did the entire beat drop 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 the model. This is what the model is.

Thank you. Thank you. Our next question is from the line of Brent Thill with Jefferies. Pleased to see you. It's your question.

Good afternoon. Just following on the theme of margin, many have asked, you know, why not make bigger investments to hold the margin where you're at and feel kind of the next level of growth? Are you indicating with getting now close to 40% margins that you can keep that great top-line growth without sacrificing the bottom line So you can actually achieve both without having to stall at the margin.

Yeah, you just nailed it, Brent. I mean, we are not starving investment. In fact, we're investing more and more than ever we have before. If you just go back over two or three years ago, we almost doubled our OpEx from, what, 2018, I guess it would have been. So we are making significant investments both on developing our technology, developing new products, I mean, we've already talked about a couple of these, university 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 in our domestic business and in particular international. So I think 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 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, Brad, 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 two years, Chegg has grown 100% and our margins have increased. So You can't grow at that rate. And even for this year, I think we're expecting our tech services revenue to grow at 34%. That growth rate is higher than pre-COVID growth rate on top of a base that is 100% larger. So we're clearly not starving anything and holding back growth. We're seeing extraordinary growth right now. And we'll 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, and the results are just showing in our business, and we're excited about it.

Yeah, impressive margin improvement, I think, given the magnitude of the raise. Everyone wanted to drill in on it. Just as a quick follow-up on the international business, we're all searching for more mile markers. I know you've given the the mile marker 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 we can get on the international business?

We're not breaking out the metrics, but let me give you 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 new 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 international subscriber's behavior to a U.S. subscriber's behavior. That again is why you're 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. The color would be that international subscribers love Chegg as much as US subscribers. Their take rates are very similar. Their early renewal rates are very similar. Their utilization is very similar. You know, it changes by country of which content that they access more than other countries. Some countries are 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.

Yep. Thank you. I appreciate the question.

The next question is from the line of Doug Ammons with J.P. Morgan. Please proceed with your question.

Thanks for taking questions. Dan, you talked about increased discovery of content by shifting from textbooks to courses. Just hoping you could elaborate on that a little bit more. Was that a reference to Uversity in building up that content, or is it a different change in the user experience? And then I have a follow-up as well.

Yep, and we'll take that follow-up, Doug. Actually, great question, because what we intimated on the call was that we are... evolving the user experience. Uversity isn't necessarily or directly connected to that. It's just one of the content pools that students will be able to access. One of the opportunities you have as a company when you get 66 million pieces of solutions in one 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, and you'll hear us talking about it a lot more as the year and into next year progresses, which is a greater personalization experience, which, if you think back, Doug, to the My Yahoo days, which is, how do you make Yahoo what you want it to be? In this case, how does Chegg be more what you want it to be? Some students don't know everything that we have and then when they discover it they want to use it more and that helps with retention. The 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. And so that is a big start of our future. And the other thing is there's a lot more forms of content like video and other areas which students really enjoy depending on the subject or 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'll 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's an ROI on both of those things, and it's super exciting.

Okay, great, that's helpful. And then just on subscribers, I guess this is kind of a two-parter, but I was hoping you could just talk about account sharing a little bit more, just I guess how far along you feel like you are in terms of reducing account sharing. I think it's been, the efforts here have been for more than a year, but I know the dial has been turned to different degrees at different times. And if we look at the 2Q, subscribers on a sequential basis, you know, it looks like the additions are kind of similar in 2Q to 2Q of 19, a little bit higher, but obviously, of course, off of a much bigger base, right, on a sequential basis. I guess, you know, do you feel like the cadence is, you know, now that you're kind of comping things, are you back into, you know, what could be a 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, and let me have Andy sort of talk about the second part. So on the seasonality, what changed in the seasonality was literally schools closed for two weeks, and then suddenly they popped back open, and then suddenly account sharing was gone. And so we've laughed at that. So I believe we're well past that. That's good news 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 is our growth rates for Chegg services are higher now than they would have been in 2019, and it's on top of a much higher base. And a lot of that has to do with international growth, and a lot of that has to do with eliminating account sharing. On the account sharing question, and this is where, you know, it was just one of those weird scenarios where it was hard to explain to people that it really wasn't COVID that caused people to come to Chegg. It was the fact that so many people were using Chegg, but not enough of them who were using it were paying for it. And so 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've currently seen for students that have already gone back to campus in the first six months of 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, let me just add one other thing there, Doug. And so you're absolutely right on the seasonality, very similar to back in 2019. I think the other thing that when you start to look at this Q2, it's all organic growth, right? So in the prior three quarters, we had the addition of Mathway. So this is truly organic growth. And when you look at it, I mean, we're basically at 2.2 million subscribers in what, Q2 of 2019, and we're now at 4.9. So it's well more than doubled. But I do think the kind of the trends that you'd seen back in 2019 are more relevant now that we've done that mapping.

Okay. Thank you. That's helpful.

Yep. Our next question is from the line of Jason Salino with KeyBank Capital Markets. Please proceed with your questions.

Yep. Thanks for taking my question. Maybe one guidance-related question for Andy. You know, you're raising the full year services guide by $15 million. You know, that's much more than the, you know, 2Q beat here. But what gives you confidence in the raise at this point in the year versus maybe waiting until seeing some of these back-to-school trends? Maybe could you maybe quantify it or break it down? Is it just some trends you're seeing into the summer? Is it retention? Is it international? Is it study-packed? You know, help us frame the confidence. Thank you.

Yeah, so, I mean, the fact of the matter is, you know, obviously there have been some unknowns over the last, we'll call it three or four quarters, but we're getting significantly more clarity as to, you know, how our students are reacting, particularly around things like account sharing and things like that. So as we started to look at the business, and let me remind you, we are a subscription business, so 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, we felt, you know, very confident in being able to provide a, you know, I'll call it a robust guidance. And so, yes, you know, we felt very comfortable with it.

Excellent.

Thank you.

Thank you. Our next question is from the line of Alex Furman with Craig Helm. 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 you're going to have rolling out. It sounds like you're certainly moving away towards organizing your content more around textbooks. So just curious if you can talk about more kind of where you see that evolution going. And as of today, how many of your students, I guess, are looking at content more oriented towards what textbook it's referenced to?

Yeah. So 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 a student. And so we do it to small amounts, and then 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. We're very, very, very judicious, and the good thing about our business is there's so much momentum in it, we don't have to do anything. this is more what we should be doing and what students will benefit from, which will help our business even more than it's today. So historically, we've been oriented around the textbook pretty much exclusively. You know the textbook, we can help you. But as textbooks become less important and 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 are looking for content organized not just around the textbook, we won't go away from that because there's an overwhelming demand for that, but around the course itself. And so if you think about the course, it could be chemistry whatever, and then it 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 North Star over time. And so the idea is you will be able to personalize over time around the way you, the student, think about your class, your school, or your subject, and get access to the kinds of content in the format that you like it, whether it be a step-by-step solution, whether it be help from an individual, whether it be video-based, whether it be text-based, whether it be audio-based. I mean, the number of things that Chegg can add to the services that we have is just enormous. 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 and all of them are going to be dependent more on themselves than 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 student. So as long as we stay exclusively focused on the needs of the student, they direct us where to go. We don't have to guess. And they've been increasingly asking for it organized around their specific courses and then specific classes. And so it's a really exciting time for us. We've been investing in it for a long time. It's just we just literally are just starting, so there's not much to say on it yet, except we think it's going to have a significant impact the next several years.

Great. That's really helpful. Thank you.

Yep. I really appreciate all the questions on it because this is big. It's exciting.

Thank you. Our final question today is from the line of Brian Peterson with Raymond James. Please proceed with your questions.

Hi, this is Jessica O'Brien. I just wanted to know about Smash Away, which was recorded a year ago. I just wanted to know what you learned from the business. What have you seen as success? How are you going forward?

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. Just wondering about MassWay, which you acquired a year ago. What have you learned from the business? What has been working really well, and what are you seeing going forward in integrating InterTag?

Yeah. Well, we've been thrilled. I mean, I don't know how else to say it, except it's far exceeded our expectations, and I expect that it will be for the next several years. The question for us is, Because we knew it was the best asset out there. We waited six years to get it. And the founders and the team that has built it have remained, and they're extraordinary. And just the statistic 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 within music, math is relevant. So math is universal, even though everybody, particularly my daughters, hate it. But math matters. And so what did we learn? We didn't learn that math matters. We knew that. We didn't learn that math was great because we knew that. What we realized, and what Andy has said call over call over call, is when we acquire a company, we look for companies where our brand, our reach, our data, our technology, our commerce systems, our payment systems, Our retention efforts, our CRM stuff, all could 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 use to monetize our writing products, which is why we're able to offer so much of the stuff that we do free. Well, that system has also been applied to the Mathway system, which increased viewability. and increase CPMs. 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 Mathway team for being so open to it. You know, it's sad to say we haven't even met them in person yet. You know, they're right outside, they're in Pennsylvania, and we just haven't met them 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 have been under-resourced, that we can grow them faster and make them more profitable and relatively quickly, and that's where we have done the best with acquisitions.

Thank you. This concludes our question and answer session. I'll turn the floor right to management for closing remarks.

So, look, there's not a lot to say. We obviously had a... spectacular school year. And I say school year, because remember, it ends 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. The things that we've invested in terms of user experience, content, integration, technology, 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 outside of Pennsylvania or in Pennsylvania become part of the Chegg family. We're 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. They're 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 modern economy, to reduce their debt. You know, 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. The value is incredible. Our growth on top of higher numbers, I think, reflects that. The 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. You know, we will do the same, and we'll see you on the next earnings call. So thanks.

This concludes today's conference. Let me disconnect your lines at this time. Thank you for your participation.