When it comes to technology-based stocks, there are few that have great potentials even in this bearish market for investors who are clever and sharp! With proper growth interpretation and stock analysis, one can comprehensively evaluate the risk factors and pick the right stocks to invest in, even during times of a global economic crisis like now.
Chegg Inc is in a sector that is historically resilient to economic slowdowns. Chegg is a leader in online education, providing students with a variety of digital products, content, and academic services for better grades and career opportunities. Chegg operates in the education sector which has been deemed to be resilient to recessions, with historical evidence.
The Chegg stocks have declined around 25% since mid-February 2020, amidst the coronavirus sell-off. This dip might, in fact, be an excellent buying opportunity, taking into consideration three key reasons, that might just make Chegg as one of the leaders in online education, amidst this coronavirus crisis, performing excellently in the market during and after the economic slowdown.
Chegg operates within Education Sector: A resilient market
The education market is a counter-cyclical and relatively resilient market, even during such times of global slowdown. Chegg is one of the most unique assets in the market. It is one of the few pure-play technology companies that bases its business on virtual learning, and the market has very limited alternatives with almost no pure-play public competitors.
A look at the very similar comparables in the private sector can help how the education sector has fared in past recessions.
Princeton Review, which can be taken as a proxy for private, US-focused education spend, in 2009, grew to $239 million, from $139 million in 2008, which is a growth of almost 70%. Although the growth tapered in 2010, it still showed strong growth during the crisis. Kaplan’s test prep also showed a growth of 3% in 2008.
Public spending on education immediately after a crisis is also considerable, along with the fact that Chegg provides an excellent opportunity amidst the current stay-at-home situations among these COVID-19 scenarios.
Effective Management team at Chegg
Effective management has turned Chegg into a successful digital venture with over $100 million+ subscription business. It has a range of digital products with 4 million paid subscribers and an approximate addition of 1 million subscribers each year.
Financially stable business with a strong core and lots of cash for M&A
Chegg offers support for 38k+ textbooks and has been building for years.
Some key operating leverages are:
● 13% of revenue as S&M
● 80% of customers are sourced from unpaid marketing.
● $1.1 billion in cash for additional growth
● Strong growth in foreign markets of Canada, the UK and Australia Chegg is expected to show resilient financial results amidst the effect of virus and can be an intelligent investment with expected ARPU growth, through meaningful bundle adoption in 2020.