TPG Pace Tech Opportunities Corp (NYSE:PACE) is a special acquisition corporation (SPAC) set up in 2019 that finally announced a merger acquisition to bring Nerdy public in January 2021. Nerdy is a direct-to-consumer learning platform that is part of the gig economy which has been on fire since the world turned increasingly virtual.
This online learning platform may sound like a real winner, but is PACE stock a Buy?
Nerdy is a leading marketplace that allows people to teach lessons online. It is aimed at helping any grade level from kindergarten to professional. It also enables online classrooms of up to 50,000 people, which can help traditional universities.
The company earned $120 million in the second half of 2020, aided by the move to online distance learning. It has a high customer satisfaction rating and continues growing its user base. But SPACs are getting expensive, and tech companies could be in a decline if the economy recovers.
We open a book to read about Nerdy and TPG Pace to see if this SPAC merger will teach investors about profits or give their portfolios a hard lesson in subtraction.
TPG Pace Management Team Has Stellar Track Record
TPG Pace Tech Opportunities created several SPACs over the years. Since 2011, the investment group took 56 companies public, including Spotify (SPOT), Uber (UBER), and Airbnb (ABNB). Each of these is a leader in its respective technology niche, and it shows the prior experience the company has with gig economy companies.
Its latest acquisition is Nerdy, which it’s taking public through the merger. The company will be valued at about $1.7 billion, which will give it about $300 million in cash through the acquisition.
TPG raised $450 million through its initial public offering (IPO) and another $150 million in a secondary offering. That cash is being used to fund the company’s growth and give it space to continue expanding in a world filled with other opportunities.
The company uses an artificial intelligence platform to deliver scalable online instruction through its proprietary platform. Whether it’s tutoring or professional certification needed, the system will ensure you have a qualified professional to get you through.
Online classes are taught by professionals, celebrities, and other experts in their fields, and it’s properly vetted for quality.
Millions of students of all ages and grade levels went online in 2020. The big question is how long it will take before schools return to in-classroom learning. When that happens, virtual learning may still be supported.
And companies like the University of Phoenix long ago proved online-only learning had a place in the pre-pandemic world.
This has investors frothing at the mouth to bite into this investment.
Is PACE Stock a Buy?
In spite of the merger announcement in January, there has not been a lot of market excitement for PACE nor Nerdy. The PACE market capitalization is just over $1 billion in 2021, and share prices hover between $10.00 and $12.00 for the entire year so far.
The merger should close early in the second quarter of 2021 once approved by investors on both sides. The company generated over $120 million in revenue in the second half of 2020 as the world returned to online learning.
It also grew online revenue by 87 percent in the fourth quarter of 2020, with an increase of 169 percent in paid online sessions.
However, the company’s 3,000 learnable subjects and multiple learning formats may not be enough to stay relevant. What else do investors need to worry about?
Nerdy Doesn’t Have Widespread Brand Recognition
Nerdy doesn’t have as much brand recognition as other gig economy companies, like Fiverr (FVRR) or Doordash (DASH). This is a limiting factor in its growth potential, as it needs to spend heavily to boost awareness. It also runs the Varsity Tutors brand, which utilizes the Nerdy platform for the gig economy.
The company depends on a two-sided marketplace, where it needs both high quality tutors and learners. It’s the same challenge facing companies like Uber (UBER) to become profitable years after going public.
And the announcement of going public largely flew under the radar. This year is filled with high-profile SPACs coming from every direction, and many get huge pops from $10.00 to $30.00 or even $50.00. That it didn’t happen here, which could present a discount buying opportunity.
But it could also mean the market isn’t big enough to support the company’s growth.
It also can’t be said enough that the economy will eventually return to normal. There’s no telling how valuable online learning will be when that happens. Or how much market the company will have compared to the competition.
Nerdy Faces Off Against Coursera, Udacity & More
Although it’s a leader in online learning, Nerdy isn’t the only player on the block. Companies like Skillshare, Linkedin (owned by Microsoft) and Coursera all offer online learning solutions. Udacity is also growing through its nanodegree programs.
No matter which direction it grows in, Nerdy will find more competition. Even Fiverr has some tutoring solutions accessible online.
And some schools are simply using Zoom (ZM) or Skype to complete lessons through video calls. The marketplace is fractured, and that means it’s anybody’s game. Nerdy will need to spend its money wisely if it wants to navigate to sustainable growth.
Is PACE Stock A Buy? The Bottom Line
TPG Pace Technologies is bringing Nerdy public through a SPAC acquisition in 2021. The gig economy company is an online learning platform that connects students of all ages to experts and professionals for private lessons.
Both live and pre-recorded lessons are available, and it’s a great way for people to make extra money in the gig economy.
Of course, it’s not without competition. Nerdy has to spend heavily on marketing to keep both its brands at the front of the pack, even as the market potentially deflates in recovery.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.