Chegg (CHGG) stock is up 17% this morning. Apparently, an investment firm Galloway Capital Partners issued a SEC filing stating that they now own 5% of the company.

Additionally, a letter was written with the following contents by Galloway. “At present levels, the market appears to be incorrectly pricing the business as though it is in financial distress. The Company maintains a strong balance sheet, is expected to exit the year with net cash and no debt, and, in our view, has no credible risk of financial distress,”

The Chegg thesis has always been that on a sum-of-the-parts basis the company is worth more than their reported results. Chegg bought language learning company Busuu a while back for over $400M back. Busuu doesn’t meaningfully generate profits, so it has to be valued on a revenue basis. Because Chegg has a core product near the end of its lifecycle, its hard to value Chegg’s two other businesses, one of them Busuu.

The problem with the Chegg thesis is that the language learning sector valuations have crashed with the emergence of AI as a competitive threat. So its unclear what Busuu could or should be valued at. Also, Busuu is in the midst of a pivot from a consumer to enterprise offering.

So good luck to the folks at Galloway. They probably are on the right track that Chegg has some value worth more than the stock price. They can sunset the core product (which still generates cash flow) and then sell the leftovers. They could raise more capital and buy other orphaned edtech companies. There’s lots of optionality with Chegg.

As for those of you reading this, Chegg is highly speculative and probably not fit for retail investors.

Every quarter we see a deterioration of the core business. I’m waiting for when the end is near for the legacy product. Investors will be able to likely buy this company at the cheap for its remaining parts.