Online education company Chegg (NYSE:CHGG) is up more than 4% this morning with two major announcements to kick-start the sleeping giant. CHGG stock was at a three-year low by market close Friday, but is now coming back with a vengeance.
So what’s the story behind Chegg’s revival?
Chegg announced this morning it has signed an agreement to purchase language learning company Busuu for an estimated $436 million. The acquisition will have benefits on two fronts, as it both reinforces Chegg’s current language-learning resources and allows the company to expand into largely untouched international markets.
Founded in 2008, Busuu has enjoyed meteoric growth the past few years. For those unfamiliar, Busuu is a digital language learning platform that has garnered acclaim for its programs and focus on native speaker interaction. The education-tech company uses a subscriber model, similar to Chegg, and currently has more than 500,000 paid members. It’s expected to report revenue of $45 million this year with more than 20% year-over-year growth.
And that’s not the only news Chegg announced this morning, however.
CHGG Stock Buyback Announcement Sparks Optimism
In another press release this morning, Chegg announced its board of directors authorized a $300 million “accelerated share repurchase” (ASR), scheduled for the fourth quarter of 2021. According to CEO Dan Rosensweig:
“The accelerated share repurchase demonstrates the strength of our balance sheet, and it reaffirms our confidence in the long-term opportunity for Chegg, as well as our continued commitment to enhancing shareholder value.”
Stock buybacks have perpetually been considered a signal of strength for a company, and it’s no different this morning. With rumors of a fifth wave of Covid-19 hitting the United States amid omicron variant chatter, this makes sense. Chegg stands to wins big should schools and universities opt for a continued foray into online education. As such, this buyback program may be an attempt to cash in on optimistic future prospects. It also gives Chegg stock an immediate bump.
This is a change of narrative for Chegg, which has recently been on a downward trend. After hitting its all-time high of $115 in February, CHGG stock has fallen by the wayside. After a tumultuous Nov. 2 earnings report, Chegg shares fell 45% as its market capitalization fell more than $4 billion. At the time, Rosensweig attributed the bleak sales forecast to a “post-COVID hangover of mental exhaustion, an opportunity to earn more money, a reassessing of their [students’] lives.”
It’s unclear if today’s spike is the beginning of a resurgence, or just a blip in Chegg’s continued misfortune. CHGG is down close to 69% in the past three months, and is currently sitting at $26.08.
On the date of publication, Shrey Dua did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
