11:03 AM EDT, 08/06/2024 (MT Newswires) -- Chegg's ( CHGG ) Q2 financial results topped market estimates but its Q3 revenue outlook fell short, indicating the company likely faces a "tough road" ahead, Morgan Stanley said in a note to clients Tuesday.

Late Monday, the company reported Q2 adjusted earnings of $0.24 per share, down from $0.28 a year earlier, while revenue fell to $163.1 million from $182.9 million. The results, however, topped analysts' estimates.

For Q3, the company expects revenue of $133 million to $135 million. The market consensus was for $142 million, according to Morgan Stanley.

"Given current demand challenges, the path to return to growth requires optimism not supported by anything we are seeing yet," the brokerage said. "We continue to observe negative trends in reported subscriber growth and revenue, Q3 guidance below consensus and pointing to further deterioration across revenue growth."

Morgan Stanley lowered its price target on the Chegg ( CHGG ) stock to $3 from $3.25, with an equal-weight rating.

"Ultimately, in order to get positive on shares, we would need to see signs of subscriber growth stabilization, and we do not think there is an urgency to own the stock given the data we are seeing and the tough road ahead," according to the note.

Chegg ( CHGG ) shares fell over 22% in recent trading.

Price: 2.28, Change: -0.66, Percent Change: -22.35