Which education and training services stock is a better buy?

E-learning refers to learning and/or training using electronic devices such as computers and other devices. With the onset of the COVID-19 pandemic, the online learning industry has grown exponentially due to the closure of schools and universities around the world.

According to Facts and factorsthe global e-learning market size is expected to reach $374.3 billion, growing at a CAGR of 14.6% between 2020 and 2026. Therefore, companies that offer e-learning services should benefit from it in the long term.

In today’s article, I will analyze and compare two education and training services stocks, Chegg, Inc. (CHGG) and 2U, Inc. (OF THEM), to determine which currently presents a better buying opportunity.

Based in Santa Clara, CA, Chegg operates a direct-to-student learning platform that supports students through different solutions, including Chegg Services, Chegg Study, Chegg Writing, and more. Founded in 2008, 2U, Inc. is a Maryland-based company that provides online training services. The Company operates through two business segments: Degree Program and Alternative Degrees.

Year-to-date (YTD), CHGG stock is down 8%, while TWOU shares have plunged around 52%.

RECENT DEVELOPMENTS

January 13, Arvind Ramnani, Piper Sandler analyst, took Chegg from “Overweight” to “Neutral”.The analyst noted that the shares look more attractive after an industry-wide sell-off. Additionally, Ramnani believes the company the main growth levers remain intact while still trading below pre-pandemic levels. However, the company reduced its price target on CHGG to $43 from $54.

February 15, William Blair analyst Stephen Sheldon downgraded 2U to “Market Perform” from “Outperform.” The analyst said TWOU’s disappointing forecast for 2022 could keep the stock in a range. The company has also seen a series of downgrades from other analysts.

Recent‌ ‌Quarterly‌ ‌Performance‌ ‌&‌ ‌Analysts’‌ ‌Ratings‌ ‌

Chegg’s total revenue for its fourth quarter of 2021 was flat year-over-year, rising just 1% year-on-year to $207.5 million. However, the company exceeded Wall Street revenue estimates of $12.3 million. The lion’s share of CHGG’s revenue is made up of Chegg Services. In the fourth quarter, Chegg Services segment revenue increased 6% year-over-year to $187.2 million, due to lower account sharing, increased global awareness and penetration. Additionally, CHGG released fourth quarter non-GAAP EPS of $0.38, beating analyst consensus of $0.07.

However, the company’s adjusted EBITDA was $78 million, compared to $87.87 million in the fourth quarter of 2020.

For the next quarter, analysts expect CHGG’s EPS to be $0.24, down 13.11% year-over-year. Additionally, analysts expect its FQ1 revenue to rise 2.38% to $203.10 million.

2U, Inc recently disclosed its fourth quarter 2021 results, and although the company beat the Wall Street consensus, its shares fell more than 50% on the disappointment of the 2022 forecast. In the fourth quarter, the company’s total revenue increased by 13.1 % year-on-year to hit $243.6 million, slightly beating the Wall Street consensus of $0.6 million. Revenue from its degree programs segment increased 17% year-on-year to $152.4 million, while revenue from the alternative degree segment increased 8% year-on-year to $91.2 million . Additionally, 2U posted non-GAAP EPS of $0.20, beating analyst consensus by $0.05.

As for TWOU’s forecast, the company sees its fiscal 2022 revenue and net loss to be between $1.05 billion and $1.09 billion and $235 million and $215 million, respectively. Its adjusted EBITDA is expected to be between $70 million and $90 million, indicating 20% ​​growth at the midpoint.

Currently, Wall Street expects TWOU EPS to decline 98.14% YoY in Q1 to ($0.24). However, analysts see its fourth-quarter revenue at $253 million, indicating an 8.83% year-over-year increase.

Options Market Sentiment Comparison

Looking at the July 15, 2022 options channel for both CHGG and OF THEM, we can define the sentiment of the options market by analyzing the call/put ratio. In the case of CHGG, the ratio of open calls to open puts at the strike price of $30.00 is 2.17x, implying bullish sentiment in the options market. As for TWOU, the ratio of open calls to open puts at the strike price of $10.00 is 0.24x, which shows strong bearish market sentiment.

Conclusion

While Chegg and 2U should benefit from the growth of the e-learning industry in the long term, I think Chegg seems like a better investment based on its superior financials, better growth prospects and favorable sentiment. of the options market.


Shares of CHGG were trading at $28.64 per share on Tuesday morning, up $0.35 (+1.24%). Year-to-date, the CHGG is down -6.71%, compared to a -8.47% rise in the benchmark S&P 500 over the same period.

About the Author: Oleksandr Pylypenko

Oleksandr Pylypenko has more than 5 years of experience as a financial analyst and financial journalist. Previously, he was a contributing editor to Seeking Alpha, Talks Market and Market Realist. Continued…

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