IPO Report: Chegg (CHGG)

Chegg (CHGG) is the leading student-first connected learning platform, empowering students to take control of their education to save time, save money and get smarter.

Nine other operating companies are scheduled for this week. The full IPO calendar can be found at IPOpremium.

CHGG scheduled a $158 million IPO on the NYSE with a market capitalization of $977 million at a price range midpoint of $10.50 for Wednesday, November, 13, 2013.

The S-1 with price ranges wsa filed October 31, 2013.  Manager, Joint managers: J.P. Morgan, BofA Merrill Lynch.  Co-Managers: Jefferies & Co., Piper Jaffray, Raymond James, BMO Capital Markets

Overview

CHGG now reaches 30% of all college students and serves 40% of all college-bound high school seniors in the United States

For the nine months ended September 2013 compared to the year earlier period: 

·         revenue was up 23% to $178 million;

·         loss decreased to $50 million from a loss of $57 million;

·         adjusted EBITDA was up 283% to $23 million. 

·         Deferred revenue compared to December 31, 2012 was up 260% to $72 million.

Valuation

Glossary

Conclusion

CHGG is the largest it its market segment, top line revenue is increasing at a 23% clip, EBITDA is up, deferred revenue is up, and losses are decreasing, but the gross margin was only 32% for the 12 months ended December, 2012.

The rating on CHGG is a buy.

Business

CHGG is the leading student-first connected learning platform, empowering students to take control of their education to save time, save money and get smarter.
CHGG is driven by its passion to help students become active consumers in the educational process.
CHGG’s integrated platform, called the Student Hub, offers products and services that students need throughout the college lifecycle, from choosing a college through graduation and beyond. CHGG’s Student Graph builds on the information generated through students’ and other participants’ use of CHGG’s platform to increasingly enrich the experience for participants as it grows in scale and power the Student Hub.
By helping students learn more in less time and at a lower cost, CHGG helps them improve the overall return on investment in education.
In the twelve months ended September 30, 2013, more than seven million students used CHGG’s platform and approximately 1.2 million students used our mobile application.

CHGG has 180,000 unique titles in its print textbook library available for rent. CHGG also offers more than 100,000 eTextbook titles. CHGG has the ability to fulfill 90% of the textbook searches that students perform on CHGG’s website.

The Chegg Study service helps students solve problems and master challenging concepts on their own. CHGG also offers free services to students, such as helping high school students find colleges and scholarship opportunities and helping college students decide which courses to take and find supplemental materials.

These and other free services CHGG offers are designed to round out the Student Hub as a one-stop destination for critical student needs.

In the twelve months ended September 30, 2013, students completed 3.8 million transactions on CHGG’s platform, CHGG rented or sold over 5.5 million print textbooks and eTextbooks and approximately 418,000 students subscribed to CHGG’s proprietary Chegg Study service. CHGG now reaches 30% of all college students and serves 40% of all college-bound high school seniors in the United States

Intellectual property

As of September 30, 2013, CHGG had one patent and 36 patent applications pending, primarily in the United States.

Competition

CHGG faces competition from college bookstores, some of which are operated by Follett and Barnes & Noble, online marketplaces such as Amazon.com, eBay.com and Half.com and providers of eTextbooks such as Apple iTunes, CourseSmart, Blackboard and Google, as well as various private textbook rental websites.
Many students purchase from multiple textbook providers, are highly price sensitive and can easily shift spending from one provider or format to another.
As a consequence, CHGG’s print textbook business competes primarily on price. CHGG’s eTextbook business competes on price, selection and the functionality and compatibility of our eTextbook Reader across a wide variety of desktop and mobile devices. With respect to the other non-print products and services that CHGG offers to students, CHGG’s competitors include companies that offer students study materials and educational content such as publishers, Web Assign and other smaller tutorial services.

5% stockholders

Ace Limited  17.4%

Entities affiliated with Foundation Capital 6.5%

Entities Affiliated with Gabriel Ventures    10.3%

Entities Affiliated with Insight Venture Partners  14.3%

KPCB Holdings 11.7%

MOOS LLC   8.2%

Use of proceeds

CHGG expects to net $136.8 million from its IPO.  Proceeds are allocated to repay $31 in debt for or general corporate purposes.