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Chegg (CHGG) Rises on Busuu Buyout Plan & Repurchase Program

Zacks Equity Research
·4-min read

Chegg, Inc.’s CHGG shares gained 2.84% during the trading session on Nov 29, 2021, after the online education company announced plans to acquire a language learning platform, Busuu, along with an accelerated share repurchase (ASR) plan.

Busuu Buyout in the Cards

Chegg intends to buy Busuu, the online language learning startup established in Europe in 2008, for approximately $436 million (€385 million). The all-cash transaction, which is expected to close early in the first quarter of 2022, is approved by the companies’ boards of directors.

With courses in 12 different languages to more than 500,000 paying subscribers, this content-rich education platform is designed for individuals keen on learning a new language. This platform is used across a broad age range, both in and out of formal education, and provides corporate language training to hundreds of organizations. It has a state-of-the-art approach that combines self-paced courses (developed by an in-house team of experts) with instant feedback from a global community of native speakers. Notably, Busuu has more than 20,000 new registrations daily.

Chegg expects Busuu’s full-year 2021 revenues to be $45 million with year-over-year growth estimated at greater than 20%. The company expects the $17-billion digital language market to triple in size over the next five years and the latest Busuu-buyout to enhance its total available market (TAM) globally.

ASR Program Proposal

Chegg has entered into a proposed ASR transaction to buy back $300 million of Chegg’s common stock. The company plans to enter into an ASR transaction with a financial institution during the fourth quarter of 2021.

The proposed ASR transaction will be effective following Chegg’s previously announced $1.0-billion securities repurchase program. As of Sep 30, 2021, Chegg had $665.5 million available for buybacks under this program. The repurchase program has no expiration date.

Share Price Performance

Chegg’s shares plummeted more than 45% on Nov 2 after it reported lackluster third-quarter 2021 results, wherein earnings met the Zacks Consensus Estimate but revenues missed the same. The quarterly results showed a surprising drop in subscriber count, majorly missing the holiday sales forecast. So far this year, shares of Chegg have declined 71.5%, compared with the Zacks Internet – Software industry’s decline of 15.6%.

Concerning the ASR program, Chegg’s CEO, Dan Rosensweig, said “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."

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Zacks Rank & Key Picks

Chegg currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks from the broader Computer and Technology sector include Google-parent Alphabet GOOGL, Diodes DIOD and PTC Inc. PTC, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

For Alphabet, earnings estimates for 2021 have moved upward by 43 cents to $108.29 per share in the last seven days. The company’s 2021 earnings are likely to witness growth of 84.8%.

Alphabet’s earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 41.5%. The GOOGL stock has rallied 66.1% in the year-to-date (YTD) period.

For Diodes, earnings estimates for 2021 have moved upward by 6.3% to $5.06 per share over the last 30 days. The company’s 2021 earnings are likely to witness growth of 115.3%.

Diodes’ earnings beat the Zacks Consensus Estimate in the preceding four quarters, the average surprise being 10%. Shares of DIOD have rallied 53.6% YTD.

Although PTC Inc.’s shares have declined 7.7% YTD, its fiscal 2022 earnings estimates have been revised upward by 28 cents to $4.19 per share in the last 30 days, depicting analysts’ optimism over its prospects.

The company’s earnings for the current year are likely to witness growth of 5.5%. PTC Inc.’s earnings beat the Zacks Consensus Estimate thrice in the preceding four quarters while missing the same on one occasion, the average surprise being 47.8%.


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