Seeking Alpha

Online textbook rental leader Chegg files for $150M IPO

  • Chegg, the leader in the growing online textbook rental space, has filed for a $150M IPO under the symbol CHGG. (S-1)
  • Chegg posted 1H revenue of $116.9M (+26% Y/Y), and a net loss of $21.2M. In 2012, the company had revenue of $213.3M, and a net loss of $43M.
  • GSV Capital (GSVC +1.1%), which has been flying high thanks to Twitter IPO hopes and rising valuations for fast-growing Internet stocks, owns a Chegg stake estimated to be worth $14M at the end of Q2 (5.6% of the firm's NAV).
  • Chegg has become a thorn in the side of Barnes & Noble (BKS -0.1%), whose college textbook business remains a cash-cow even as its standard retail and Nook ops fare poorly.
  • The rise of e-book rental services could pose a threat to the company. Amazon and (more recently) Google have launched e-book rental services for textbooks. Apple, which has put much effort into growing the iPad's education market sales, doesn't offer a rental option yet for iBooks.
Comments (5)
  • Jason Burack
    , contributor
    Comments (1824) | Send Message
     
    Anything that lowers costs of textbooks for students I am in favor of! That was a total ripoff buying textbooks in college and then having them become essentially worthless because the publisher decided to change a few sentences every year to sell a new version at a higher price.
    14 Aug 2013, 04:13 PM Reply Like
  • Stone Fox Capital
    , contributor
    Comments (6887) | Send Message
     
    Haven't done the valuation, but if CHGG becomes a big win for GSVC than the stock should soar.
    14 Aug 2013, 04:43 PM Reply Like
  • James Sands
    , contributor
    Comments (2429) | Send Message
     
    Growth near 20% past couple of years, growth accelerating to 26% recent six month y/y. What a surprise to time accelerated growth with an IPO, typical for tech companies.

     

    Could be dangerous leading into Q's 3 & 4.

     

    Company generates positive operating cash, yet spends a lot to buy textbooks and less on capex for negative free cash flow.

     

    I would question whether they are going to use this IPO for funds to cover cash burn, and if so, when will they eventually generate positive free cash flow, or will they end up using leverage eventually.

     

    Company is on pace to do near $250 million in revenue and is burning cash anywhere between $15 to $60 million a year.

     

    Leftovers from $150 million may give a few years to right the ship, unless growth slows and/or they start making acquisitions...
    14 Aug 2013, 06:45 PM Reply Like
  • Michael Bryant
    , contributor
    Comments (5776) | Send Message
     
    This is virtually a low moat business. The market is huge, but because of the low moat I would not put a lot of money on this. Don't know about you, but the main library usually had two copies of the textbook on reserve for check out. However, you only had 4 hours before you had to return or renew it.
    14 Aug 2013, 11:43 PM Reply Like
  • CarlQ
    , contributor
    Comment (1) | Send Message
     
    College pupils everywhere have felt the vicious sting of the bookstore markup on textbooks. They could be egregious, but there are methods around it, say renting one's textbooks. Amazon used to only do that for the Kindle, but now Amazon textbook rental reaches hard copies. How often have you needed more information on tips to get instant online payday loans and turned to an online search on payday loans same day deposit?" Your search is over, all of the details you need is at MatchFinancial.
    13 Feb 2014, 09:20 PM Reply Like
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