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Chegg Buys Math App Startup Cogeon to Drive Student Outcome

Zacks Equity Research

Chegg, Inc. CHGG — a well-known California-based education provider — recently finalized a strategic acquisition deal with Berlin-based Cogeon GmbH, a provider of adaptive math technology and developer of the math app, Math 42.

The acquisition, which was announced on Oct 18, was somewhat not reflected in Chegg’s share price movement. In fact, on Oct 19, shares of Chegg lost around 0.8% to end at $15.69.

The Deal

The buyout of the math app startup, owned by Brothers Maxim and Raphael Nitsche, was closed for 12.5 million euros (approximately $15 million). Chegg also announced that Nitsche will receive an additional 10.7 million euros in cash and stock over the next three years.

Buyout Synergies

The buyout will help Chegg provide self-guided and individualized math solutions to more students, making student outcome more efficient.

In line with Chegg’s mission, the acquisition will facilitate the company’s plans to leverage on Cogeon's unique A.I.-driven math technology that would enhance potentiality of Chegg Study. The company further plans on launching an integrated product, Chegg Math, in the second half of 2018. However, Chegg does not expect this acquisition to materially impact its 2017 operations.

Notably, both education and workforce space in the United States is plagued by a large-scale deficiency in math-based knowledge and skills. In response to this, Chegg has been focused on acquiring various self-guided tools to assure a qualitative development of its students.

The company also focuses on delivering high-quality and low-cost educational products and services for students. Chegg provides its students with online, on-demand human help for different courses at college and high school levels. All these factors are the major determinants for the company’s growth, as is reflected in its robust top-line performance.

In fact, in the last reported quarter, net revenue was $56 million, up 6.3% year over year. Net revenue also surpassed the Zacks Consensus Estimate of $53 million by 5.7%. The company reported adjusted loss of 4 cents in second-quarter 2017, narrower than the consensus estimate of a loss of 5 cents.

Stock Price Movement

Shares of Chegg have massively outperformed its industry year to date. The stock has rallied 112.6% compared with the industry’s gain of 23.4%. Furthermore, the company’s earnings for the current quarter and year are projected to increase 90.5% and 157.1%, respectively. The company also surpassed earnings estimates in three of the trailing four quarters, with an average positive surprise of 41.48%.




 

However, over the last 60 days, current-year earnings estimates moved down 8% for this Zacks Rank #4 (Sell) company.

Stocks to Consider

A few better-ranked stocks in the industry are eGain Corporation EGAN, HubSpot, Inc. HUBS and MINDBODY, Inc. MB.

While eGain Corporation flaunts a Zacks Rank #1 (Strong Buy), HubSpot and MINDBODY carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

eGain Corporation’s current-year earnings are expected to grow 4.6%.

Current-year earnings for HubSpot are likely to increase 123.7%.

MINDBODY’s estimated growth rate for current-year earnings is pegged at 75.7%.

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