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Chegg (CHGG) Acquires WriteLab, Bolsters Writing Service


Chegg, Inc. CHGG has acquired the Berkeley-based startup, WriteLab, Inc. The buyout has strengthened its writing services with new tools, features and functionality. The all-cash transaction is valued at about $15 million. Chegg will likely make an additional payment of $5 million to key employees over the next three years, either in cash or stock, provided the key employees continue their employment.

Founded in 2013, WriteLab is an artificial intelligence-enabled writing platform that teaches students grammar, sentence structure and writing style. It also offers instant feedback to support students in revising, editing and enhancing their writing skills.

Chegg emphasized the need to develop strong writing skills, as it believes "Nearly 75% of high school seniors are deficient in writing competencies," per Nathan Schultz, Chief Learning Officer at Chegg.

The company has been making strategic investments in Chegg Services that are expected to drive its profitability in the upcoming periods. The rising popularity of online and on-demand human help for different courses at high school and college levels bodes well for Chegg. The company’s strategy to deliver high-quality and low-cost educational services is also a positive.

Chegg services subscribers rose 45% to a record 2.2 million in 2017. This momentum also continued in the first quarter of 2018, as it achieved 37% year-over-year Chegg Services revenue improvement, banking on 44% subscriber growth. Management expects this momentum to continue further, as students are increasingly relying on Chegg for their educational needs. The latest addition of WriteLab is a classic example of this endeavor.

Late last month, Chegg reported first-quarter 2018 adjusted earnings of 1 cent per share, which was in line with the Zacks Consensus Estimate, increasing substantially from the prior-year quarter’s loss of 3 cents. The upside can be attributed to increased investments in new subjects, content, formats and services.

Net revenues of $76.9 million surpassed the consensus estimate of $74.4 million by 3.5% and rose 23% year over year. The uptrend was primarily backed by increase in Chegg Services revenues.

Shares of Chegg have climbed 55% so far this year, faring much better than the industry’s 8.5% gain as we can see below:

Zacks Rank & Stocks to Consider

Currently, Chegg has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are Twitter, Inc. TWTR, Workday, Inc. WDAY and AppFolio, Inc. APPF. Twitter sports a Zacks Rank #1 (Strong Buy), while Workday and AppFolio carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Twitter, Workday and AppFolio’s earnings for the current year are expected to grow 68.2%, 16.5% and 66.7%, respectively.

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