In $187.5M IPO, Chegg Debuts On NYSE In Twitter’s Shadow, As Shares Slump 15 Percent

It’s been a long-time in coming, but eight-year-old education company, Chegg, debuted this morning on the New York Stock Exchange under the ticker symbol “CHGG.” In the days prior, Chegg priced its initial public offering at $12.50/share, outpacing its expected range of $9.50 to $11.50, raising $187.5 million in total at a valuation of close to $1.1 billion.

Chegg is the first company to arrive on the public markets after Twitter’s noisy debut last week, in which the veteran microblogging service priced at $26/share and raised $1.8 billion at a lofty valuation of up to $18 billion. Twitter quickly saw the price of its stock vault to around $41/share, where it’s remained since.

Chegg, however, hasn’t fared quite so well. The company’s stock has slumped since its debut this morning and is currently down 15 percent to $10.56 as of writing. The education company sold 15 million shares in its IPO.

Founded in 2005 and operating under the Textbookflix.com domain, Chegg began as a company focused solely on textbook rental, becoming one of the first well-known companies to bring textbook rental online, and to a wide audience. However, with pressure from Apple, Amazon and a bevy of others moving into the textbook and book rental market – along with the market itself going digital – Chegg has undergone a re-positioning over the last few years, culminating with its IPO today.

Moving away from its sole focus on textbooks, the company has been looking to go after education technology’s “Holy Grail” – to become the “OS for students,” or in Chegg’s words, “an academic hub.” As we wrote earlier this year, this means that the company has added course reviews and planners, course search and tutoring, scholarship help and more. In turn, knowing that this means nothing without students having access to these services on mobile (and on more than one platform), Chegg has been looking to diversify its portfolio of mobile offerings.

Having already launched “Chegg Flashcards,” the company’s original, flagship app, which allowed students to rent and purchase digital textbooks, Chegg debuted a new iOS app earlier this year called Textbook Solutions, and partnered with Coursera help it distribute class materials for the popular MOOC provider. At the time, Chegg CEO Dan Rosensweig highlighted the company’s evolving plans by saying that the company’s vision was to “become the leading connected learning platform,” which echoed what CTO Chuck Geiger had told us earlier this year:

Chegg’s demographics still skew more towards higher ed, but as the company has grown, it’s been seeing a larger portion of its user base made up of high school students. It still makes the majority of its revenue from students buying and renting textbooks, but, again, through its acquisitions of Zinch, 3D3R and CourseRank (to name a few), it’s been slowly diversifying.

As my colleague Alex Wilhelm wrote in August, thanks to these changes, the company has been able to stay afloat – and raise $187.5 ahead of its debut. This was based on revenue of $149 million in 2010, $172 million in 2011, $213 million in 2012 and $117 million in the first half of 2013. Compared to the $92 million in revenue it generated in the first half of 2012, Chegg has been on an upward swing, growing its top line at a “material, if not modest pace,” as Alex wrote at the time.

Historically, Chegg has spent its fair share of time “in the red,” and has struggled in its efforts to become profitable. However, after years of heading in the wrong direction, the company has been able to stem its losses over the last year, as losses from the first half of 2013 were pegged at $21 million, which compare favorable from its loss of $32 million in the first half of 2012.

Moreover, Chegg said it earned $22.7 million for the nine months ended September 30th, which is up nearly fourfold from last year, while the company losses narrowed 12 percent to $50 million over those 9 months.

Part of the reason for this about-face is that Chegg has been able to continue to grow revenue and keep expenses flat and – more than the fact that it has 180,000 textbooks in its catalog – the company says that it now reaches 30 percent of college students in the U.S. and 40 percent of college-bound high school seniors. That’s a valuable demographic for would-be advertisers.

So, while Chegg had lost $170 million as of August (which has since increased), it has been able to offset those losses by raising $195 million (and $55 million of debt) over its eight-year history from Kleiner Perkins, Insight Venture Partners and a host of other Silicon Valley investors. And in another positive note for the company, according to the New York Times, the majority of those investors are holding onto their shares as the company plans to dedicate the $187.5 million raised in the run up to its IPO towards “building the company.”

That being said, the NYT reports that Chegg co-founder Aayush Phumbra will be paring down his stake by about 23 precent (to two million shares), which comes on the heels of the news that another Chegg co-founder, Osman Rashid, had managed to sell his most recent company, Kno, for much less than the $75 million it had raised.