Shares of Barnes & Noble Education (BNED) are under pressure on Wednesday as California State University said that classes at its 23 campuses would be canceled for the fall semester and will take place almost exclusively online. Commenting on the news, Needham analyst Ryan MacDonald told investors that this is a negative for B&N Education since the company manages on-campus bookstores for five of the 23 universities.
FALL 2020 OPERATIONAL PLANS: California State University, the country's largest four-year public university system, has announced that it is canceling classes at its 23 campuses and moving the instruction to almost exclusively online. In a statement, Chancellor Timothy White said that, "This approach to virtual planning is necessary for many reasons. First and foremost is the health, safety and welfare of our students, faculty and staff, and the evolving data surrounding the progression of COVID-19 – current and as forecast throughout the 2020-21 academic year. This planning approach is necessary because a course that might begin in a face-to-face modality would likely have to be switched to a virtual format during the term if a serious second wave of the pandemic occurs, as forecast. Virtual planning is necessary because it might not be possible for some students, faculty and staff to safely travel to campus. Said another way, this virtual planning approach preserves as many options for as many students as possible. Consequently, our planning approach will result in CSU courses primarily being delivered virtually for the fall 2020 term, with limited exceptions for in-person teaching, learning and research activities that cannot be delivered virtually, are indispensable to the university's core mission and can be conducted within rigorous standards of safety and welfare. There will be hybrid approaches and there will be variability across the 23 campuses due to specific context and circumstances."
NEGATIVE FOR BARNES & NOBLE: Pointing out that the university system includes 23 schools with over 300,000 students, Needham analyst Ryan MacDonald told investors that he sees the news as a negative for Barnes & Noble as the company manages on-campus bookstores for five of the 23 universities. While Barnes & Noble runs approximately 773 physical university bookstores and also sells course materials online, this will likely impact general merchandise sales for the company, the analyst contended. Furthermore, MacDonald argued that this also increases the risk of a domino effect in which additional large university systems could follow suit and move predominantly online.
While not direct beneficiaries, the news is a potential positive for 2U (TWOU) and Chegg (CHGG), the analyst contended. MacDonald pointed out that 2U does not currently work with any of the schools in the California State University system, but increased movement online could create opportunities for 2U and other Online Program Management, or OPM, vendors. If the other university systems in California - University of California and California Community College- follow the Cal State system’s lead, 2U would be in position to assist existing partners like UC Davis and UC Berkeley with the move online, he said, adding that California also has 80 private universities, including 2U partner USC.
Regarding Chegg, MacDonald believes the company is a potential beneficiary given that it has already seen an increased demand for its Chegg Study solution and chat-based tutoring offering during the spring semester with universities closed as students look for online alternatives to on-campus tutors. While he would note there is not a direct correlation, his view is that Chegg usage trends should remain strong regardless of on-campus or online education as long as student enrollment remains consistent.
PRICE ACTION: In morning trading, shares of Barnes & Noble Education have dropped over 6% to $1.40.
