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Chegg (CHGG) to Acquire Thinkful, Boost Skill-Based Programs

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Chegg, Inc. (CHGG - Free Report) has inked a deal to acquire an online skills-based learning platform, Thinkful, Inc. The company expects to close the acquisition early in fourth-quarter 2019 for approximately $80 million in cash.

Buyout Benefits

The company projects this acquisition to add nearly $2 million to total fourth-quarter revenues, post the effect of the fair-value adjustment. Owing to the buyout, it will likely incur approximately $4 million adjusted EBITDA loss during the quarter. Nonetheless, the said metric will be at a breakeven level in 2020, and add profits in 2021 and beyond.

For 2019, Chegg now expects total revenues within $400-$404 million (versus $398 million-$402 million expected earlier) and Chegg Services revenues in the $332-$334 million range compared with $330-$332 million projected earlier. It anticipates adjusted EBITDA between $117 million and $120 million compared with $121-$124 million anticipated earlier.

Founded by Darrell Silver and Daniel Friedman in 2012, Thinkful offers cost-effective high-quality outcomes-focused professional courses with live experts’ discussion across America. Notably, 85% of its graduates get jobs in their field of study within six months of graduating their program.

Per the International Labor Organization prediction, while skilled workforce shortages may rise in the future as a negative impact of rapid automation in most developed countries, the recent buyout will enable Chegg to expand the market-leading direct-to-student learning platform with affordable and high-quality courses that are focused on in-demand technical skills.

Strength in Chegg Services

Chegg has been making strategic investments in Chegg Services that are expected to drive profits in the upcoming periods. The rising popularity of online courses at various levels bodes well for the company. Its strategy of delivering high-quality and low-cost educational services is also encouraging.

In 2017, Chegg Services’ subscribers had surged 45%, followed by 34% increase in 2018. The company was able to sustain the momentum in the first and second quarters of 2019 as well, with subscribers improving 31% and 30% year over year, respectively. Management expects the momentum to continue, as students are increasingly relying on Chegg for educational requirements.

Notably, shares of Chegg have outperformed the industry in the past year. The stock has gained 23.1% compared with the industry’s growth of 3.3%. Furthermore, the company’s earnings for the current and next year have jumped 62.5% and 37.9%, respectively. The solid price performance and earnings growth expectation are primarily backed by its strategic initiatives and differentiated courses. We believe the trend will continue in the upcoming quarters as well, given the above-mentioned tailwinds.



Zacks Rank & Other Key Picks

Currently, Chegg carries a Zacks Rank #2 (Buy). Other top-ranked stocks from the same industry include Digital Turbine, Inc. (APPS - Free Report) , HubSpot, Inc. (HUBS - Free Report) and NIC Inc. , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Digital Turbine and HubSpot’s earnings growth rate for the current year is projected at 150% and 57.3%, respectively.

NIC surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with the average being 22.1%.

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