December 11th, 2021

How to Invest in Digital Learning

Dear Retail Investor,

I was taking a leisurely drive back to California from the East Coast, primarily staying at Airbnbs along the way.

My last Airbnb host, Maria, rented me a room in her Las Cruces, New Mexico home.

She’s a 60-something woman of Mexican descent.

I arrived early in the afternoon, and after I settled in she offered to make me lunch.

I accepted, and during the meal we chatted for about an hour.

That’s how I learned she’s a former schoolteacher and psychologist who invested in real estate.

Now she rents out several houses, as well as two rooms in her home to Airbnb guests.

Much of our conversation revolved around the political situation in the U.S., and the country’s great ideological divide.

She’s extremely conservative and has deep disdain for the primary school educational system in Las Cruces.

The seeds for her disdain were planted decades ago when her three children were in grade school.

At the time, New Mexico had passed a bill mandating certain teaching practices that conflicted with her conservative values.

So she pulled her kids out of school and homeschooled them.

Her kids did well as homeschoolers.

In fact, they received scholarships at area colleges and are now very successful professionals.

Why am I telling you this story?

Because homeschooling and digital learning are experiencing explosive growth.

Obviously the 2020 Covid lockdowns have played a huge role in this trend.

Many parents, forced to work from home or who were no longer able to go to work because of the lockdowns, suddenly found themselves helping their kids do schoolwork remotely.

The homeschooling trend was already growing years before Covid lockdowns

Until 2019, the number of homeschooled students had been growing by between 2% to 8 each year.

From 2019 to the fall of 2020, the percentage of homeschooled students changed from 3.4% to 9%.

According to a study by the United States Census Bureau (USCB), by early 2021 at least 5 million American parents had decided to educate their children entirely from home.

That’s up from 3.2 million parents in February 2020.

The USCB also says more than 11% of U.S. households were homeschooling as of March 2021.

That’s double from the September 2020 percentage of 5.4%.

A big driver of this trend?

Besides Covid, many parents across the country have lost faith in traditional schools.

Some want more individualized learning options for their kids.

And of course others fear exposing their children to Covid-19.

Now you might think their homeschooled kids are being deprived of a “real” education.

But there’s lots of data out there that says homeschooled kids fare better than their public school counterparts.

For one, homeschoolers scored 15% to 30% higher than public school students on standard achievement tests.

Two, up to 24.5% of homeschoolers have enrolled in at least one – if not more – grades above their age level.

Three, homeschooling academic statistics show that the achievement gap for homeschoolers gets much wider by fifth grade.

What about college?

Studies show that 66.7%  of homeschooled children graduate from college, compared to 62.5% of public school children.

So is there an investment opportunity for retail investors like you to capitalize on homeschooling and digital learning?

Oh yeah.

There are several relatively small-cap companies working to help parents homeschool their kids or help college students learn digitally.

I’ll talk about two – Stride Inc. (NYSE: LRN) and Chegg Inc. (NYSE: CHGG)

Stride is a $1.54 billion technology-based education company.

It provides proprietary and third-party online curriculum, software systems and educational services to facilitate individualized learning, primarily for K-12 students. 

Chegg is a $3.8 billion company that’s become a destination for high school and college students looking for online educational support.

Here’s a sample of their offerings:

  • Solutions to millions of homework problems
  • A textbook marketplace where students can buy, sell, and rent textbooks
  • A plagiarism and grammar checker for papers
  • An expert Q&A service

The COVID-19 pandemic led to massive growth for Chegg. Year-over-year revenue increased by 57% in 2020, and its number of subscribers increased by 67% during that time.

Chegg is also good at retaining subscribers thanks to its pricing model.

It allows people who subscribe to Chegg’s services an affordable monthly price of less than $20 and scores highly in customer satisfaction ratings.

Unfortunately, enrollments are way down for the current semester, which forced the company to warn investors on Nov. 2 that it would miss its revenue targets.

Investors clearly hated the news,

As a result, they bid the stock down 49% the day the company issued the warning (Nov. 8, 2021).

However, that could be giving investors with a higher risk appetite the chance to get the stock at a discount.

Well, that’s it for this issue of The Diary.

I’ll close by saying that homeschooling paid off bigtime for Maria’s kids.

And it could pay off for retail investors like you who get in on the right small cap educational stock.


Doug Fogel
Contributing Editor, Dear Retail











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