The coronavirus pandemic has altered the very fundamentals of the way people live, procure and consume. There have been dynamic changes across every aspect of living, and education has been no exception. With millions of children affected by school closures worldwide due to the pandemic, the need for online education has become more pronounced.
The unprecedented health crisis, which triggered restrictions and trends like social distancing, has created a world that is more focused on technology. In fact, the education industry has been trying to integrate technology for quite some time now, and the pandemic has only accelerated the trend. The online education market is estimated to reach $350 billion by 2025, according to a ResearchAndMarkets report.
A significant surge in the use of language apps, virtual tutoring, video conferencing tools and online learning software has been witnessed since the outbreak of COVID-19 as schools and colleges moved to remote learning. In fact, revenues of Zoom Video Communications ZM, which provides videoconferencing services, for the May-July period increased fourfold to $663.5 million as people continue to use it for work, education and keeping in touch.
Despite the best efforts of authorities worldwide to normalize day-to-day living, apprehensions regarding the deadly virus are far from gone. Even though few schools and colleges have opened doors in the United States, there has been a worrying spike in cases. According to a report by the American Academy of Pediatrics released on Sep 29, children of all ages account for 10% of all U.S. cases, up from 2% in April.
Chegg Shows the Way
Chegg, Inc. CHGG, which is one of the leading direct-to-student learning platforms, has benefited from this trend as evident from its second-quarter 2020 revenues of $153 million that improved 63% year over year.
The company offers Chegg Services, comprising digital products and services including Chegg Study that helps students learn concepts on their own, Chegg Writing that enables generate sources in required formats and Chegg Tutors that help students find human help on the platform via its network of live tutors. It also offers other services like Chegg Math, Thinkful and Chegg Prep. The services witnessed rapid adoption amid the pandemic. Chegg Services revenues increased 57% year over year to $126 million in the last-reported quarter.
The prospects of the company look bright as evident from the words of CEO Dan Rosensweig, “Chegg was built with a belief that learning would move increasingly online, and we have always bet on that inevitability."
3 Other Stocks in Focus
With several universities moving majority of their classes online for the fall semester, the demand for online education is likely to remain high. In fact, California State University, the United States’ largest four-year public university system, has decided to cancel all classes at its 23 campuses for the fall semester, and move online. Given this scenario, it may be prudent to invest in stocks that are well positioned to capitalize on the prospects in the online education space on the back of their sound fundamentals.
Charles Town, WV-based American Public Education, Inc. APEI offers online and campus-based postsecondary education through its subsidiaries. The company provides 121 degree programs and 111 certificate programs in various fields of study. Notably, majority of its students serve the U.S. military. Online programs are well-suited for the uncertain and taxing work schedules of military personnel who are often required to travel and relocate. Hence, its courses have been designed specifically to suit online studies and its faculty is also instructed specially for online teaching. It reported second-quarter 2020 revenues of $82.1 million, which improved 16.4% year over year.
Notably, the Zacks Consensus Estimate for its current financial-year sales suggests an improvement of 9.9% from the year-ago period. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
K12 Inc. LRN, which is based in Herndon, VA, is a technology-based education company that offers educational services, online curriculum and software systems to aid students. It primarily provides these services to students in kindergarten through 12th grade (K-12) in the United States and internationally. The company reported revenues of $268.93 million in fourth-quarter 2020. K12 CEO and chairman Nate Davis believes the company is “positioned to deliver double-digit growth in both revenue and adjusted operating income in the coming year.”
The Zacks Consensus Estimate for its current financial-year sales indicates growth of 38.9% from the year-ago period. The company flaunts a Zacks Rank #1.
Lincoln Educational Services Corporation LINC is a leading provider of career-oriented post-secondary education services to high school graduates and working adults in the United States. Headquartered in West Orange, NJ, the company’s Lincoln Empowered suite offers more than 170 online core and elective PreK-12 courses. In second-quarter 2020, student starts were up 15.2%; Transportation and Skilled Trades improved 13.5% and Healthcare and Other Professions segment increased 18.8%. Notably, it maintained a higher enrolled population through successful transition to remote learning.
The Zacks Consensus Estimate for its current financial-year sales suggests an improvement of 2.9% from the year-ago period. The company carries a Zacks Rank #2 (Buy).
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