Chegg, Inc. CHGG acquired StudyBlue, Inc. — an online studying platform for high school and college students — for approximately $20.8 million in an all-cash transaction. Chegg’s shares closed Monday at $28.41, up 2.2% from Friday’s closing price.
Chegg’s second-quarter and full-year guidance will not have any material impact due to the acquisition. However, the company expects a restructuring charge of approximately $1 million in 2019, for facility consolidation.
Buyout Benefits
The acquisition will enhance Chegg’s content offering as StudyBlue will add a significant number of subjects to its existing offering, with a vast and diverse content.
StudyBlue's content assists students to create their own materials including flashcards and collections of concepts. Studies show that 37% of students used online flashcards in 2017, up from 29% a year ago. Of these students, one in two stated that flashcards were their primary study source.
Together, StudyBlue and Chegg are expected to boost the number of subscribers and provide better experience to students.
Strength in Chegg Services
StudyBlue will become part of Chegg Service. In May 2018, Chegg acquired an artificial intelligence (AI)-enabled writing platform, WriteLab, Inc. The buyout has strengthened the company’s writing services with new tools, features and functionality. WriteLab is also part of Chegg Services.
The company has been making strategic investments in Chegg Services that are expected to drive profits in the upcoming periods. The rising popularity of online help for different courses at high school and college levels bodes well for the company. The company’s strategy to deliver high-quality and low-cost educational services is also a positive.
Chegg Services subscribers surged 45% to a record 2.2 million in 2017. The company was able to sustain the momentum in the first quarter of 2018, with Chegg Services revenues improving 37% year over year on 44% subscriber growth. Management expects the momentum to continue further, as students are increasingly relying on Chegg for their educational requirements. The latest addition of StudyBlue and WriteLab is a classic example of this endeavor.
Meanwhile, shares of Chegg have massively outperformed the industry year to date. The stock has surged 74.1% compared with the industry’s rally of 16.7%. Furthermore, the company’s earnings for the current quarter and the year are projected to increase 33.3% and 42.9%, respectively. The company also surpassed earnings estimates in three of the trailing four quarters, with an average positive surprise of 25.5%. However, over the last 60 days, current-year earnings estimates have been stable, limiting upside potential for this Zacks Rank #3 (Hold) stock.
Stocks to Consider
A few better-ranked stocks in the industry are eGain Corporation EGAN, BlackLine, Inc BL and Benefitfocus, Inc BNFT.
While eGain flaunts a Zacks Rank #1 (Strong Buy), BlackLine and Benefitfocus carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
eGain’s current-year earnings are expected to grow 12.7.3%.
Current-year earnings for BlackLine are likely to rally 150%.
Benefitfocus surpassed earnings estimates in three of the trailing four quarters, with an average positive surprise of 32.4%.
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