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Stock Market Wrap-Up: Forget Zoom -- This Stock's Schooling the Coronavirus Bear Market

By Dan Caplinger – May 5, 2020 at 5:06PM

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This industry has escaped many investors' attention, but one company showed its potential today.

Tuesday was another good day on Wall Street, with investors taking solace from prospects for a rebound in economic activity as businesses in some states start to open their doors. Some are fearful about the potential for COVID-19 cases to jump higher if governments are too early in lifting their lockdown orders, but for now, market participants seem more willing to take that risk than deal with the certainty of longer stoppages for the U.S. economy. The Dow Jones Industrial Average (^DJI -1.71%), S&P 500 index (^GSPC -1.51%), and Nasdaq Composite (^IXIC -1.51%) were all modestly higher on the day.

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Data source: Yahoo! Finance.

Throughout the coronavirus crisis, investors have looked for stocks that stand to benefit from the challenges that the pandemic has created. Zoom Video Communications (ZM -1.18%) has been an obvious winner, because many people working remotely are using the video collaboration service to interact. The online education industry has gotten less attention, but a report today from Chegg (CHGG -2.59%) showed the potential that companies in that space have to offer their services and solutions during the crisis.

Graduating with flying colors

Shares of Chegg skyrocketed 32% on Tuesday, reaching an all-time high. The online education specialist shocked a lot of investors with its performance, and even shareholders were pleasantly surprised at how well the company is doing. Since the market top on Feb. 19, Chegg is now outperforming Zoom stock.

Many people know Chegg best for its college textbook rental service. The unit plays an important role in helping students keep their costs low on one of the most expensive aspects of higher education. However, Chegg only gets between 20% and 25% of its overall revenue from college textbooks.

Lineup of people wearing black college gowns and hats.

Image source: Getty Images.

Much more important is Chegg's service segment. That includes assistance for students of all ages with writing, math, and studying practices, as well as online tutors to help those who want a one-on-one approach.

With the coronavirus sending millions of students home for remote learning, Chegg was there to help fill the void and supplement what teachers were giving students in their remote instruction. Chegg provided a lot of extra help in the first quarter of 2020, and investors liked what they saw from the company.

A booming industry

Chegg reported a 35% jump in revenue during the first quarter compared to year-ago levels. The services division saw a 33% rise in sales.

CEO Dan Rosenweig explained Chegg's response to the coronavirus crisis. The company entered into a partnership with Verizon Communications (VZ -1.73%) to offer students in need the ability to get free access to Chegg resources to help them finish their semesters online. In addition, with many students also having lost their jobs and needing to expand ways to earn income, Chegg's Thinkful work skills program got a big boost, and the company is expanding its curriculum while looking for ways to offer scholarships and other financial assistance.

Chegg sees even stronger performance ahead. The company projected second-quarter subscriber growth to top 45%, accelerating from its first-quarter pace.

Beyond the second quarter, Chegg isn't as comfortable making predictions. With many schools looking at potentially continuing to teach remotely during the fall, it's tough to project how long the positive trends helping Chegg will last. Nevertheless, just like Zoom, Chegg is doing what it can to take advantage of favorable exposure while it can -- and it hopes the good will it generates will pay off in the long run.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Zoom Video Communications. The Motley Fool recommends Verizon Communications and recommends the following options: short May 2020 $120 calls on Zoom Video Communications. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Chegg Stock Quote
$21.07 (-2.59%) $0.56
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$28,725.51 (-1.71%) $-500.10
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,585.62 (-1.51%) $-54.85
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$37.97 (-1.73%) $0.67
NASDAQ Composite Index (Price Return) Stock Quote
NASDAQ Composite Index (Price Return)
$10,575.62 (-1.51%) $-161.89
Zoom Video Communications Stock Quote
Zoom Video Communications
$73.59 (-1.18%) $0.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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