Educational technology company Chegg (NYSE: CHGG) made a splash yesterday when it announced plans to purchase online language-learning startup Busuu. The deal is worth roughly $436 million and will be completed as an all-cash purchase.
With the company down almost 60% this month, and over 70% year-to-date (YTD), will this purchase turn things around for Chegg? Let’s take a closer look.
Why does this matter to investors?
An underwhelming November earnings report saw Chegg stock crash, now sitting a long way off — 78%, to be exact — the all-time highs seen in February of this year. However, the stock bounced back yesterday following news of this purchase.
The acquisition of Busuu will be seen by many as a clever business move for the education company. Busuu has grown rapidly since being founded in 2008 and has garnered much praise and acclaim for its focus on native speaker interaction. With over 500,000 paying subscribers, and expectations of solid year-over-year growth, this purchase should certainly be seen positively by investors.
Chegg president and CEO Dan Rosensweig hailed the deal as a “unique opportunity to expand our business while also adding tremendous value to our existing users.” Rosensweig sees it as a tremendous opportunity to accelerate Chegg’s growth in lucrative international markets.
So should I buy Chegg stock?
While the news of this purchase is certainly a boon for any investors, it must be noted that it’s not the only reason behind Chegg’s sudden upturn of almost 3% yesterday. The company also announced plans for an “accelerated share repurchase” for the current quarter. Stock buybacks are generally considered a strong sign for a company, so this news undoubtedly had a part to play in reversing Chegg’s fortunes, however minorly.
In terms of investing in the ed-tech firm, the path remains uncertain. It’s clear that the company is making moves to offset its recent losses and investors should be buoyed by the steps being taken. However, much work is still needed to offset the losses encountered in Q3. If Chegg can return to profitability and growth this quarter though, there could be strong buy potential for the stock.
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Financial Writer at MyWallSt
Pádraig’s favorite stock is Nike. Growing up as a sports fanatic, seeing Nike collaborate with athletes like Jordan, Lebron, and Ronaldo inspired him and cemented the brand in his mind. Now, despite having failed miserably in his attempts to earn a fabled Nike sponsorship, he still believes in the innovation and creativity behind Nike and is convinced they will only grow stronger as the world's leading sports brand.