Online Textbook Rental Firm Chegg Files For $150 Million IPO

Online textbook rental company Chegg today filed for a $150 million initial public offering. Its proposed ticker symbol is CHGG.

The company had revenue of $149 million in 2010, $172 million in 2011 and $213 million in 2012. In the first half of 2013, Chegg had revenue of $117 million. That compares favorably to its first half 2012 revenue of $92 million. So, Chegg is growing its topline at a material, if modest pace. If we take its first-half 2013 revenue, double it, and contrast that to its full-year 2012 revenue, Chegg will have grown its net revenue by just under 10 percent.

However, in comparing first-year halves, Chegg is experiencing faster revenue growth. It’s business, relating heavily to the education market, is seasonal. The company notes this fact directly:

The fourth quarter is typically our highest performing quarter as we are recognizing a full quarter of revenue from peak volumes in August and September and partial revenue from peak volumes in December, while the second quarter typically is our lowest performing quarter as students start their summer vacations and the volume of textbook rentals and sales and purchases of supplemental materials and Homework Help decreases.

That said, Chegg is not experiencing any sort of hyper-growth.

Turning to its profitability, Chegg doesn’t have any of that. However, after a long period of increasing losses, it does appear to be hemorrhaging less money than before, which is evidenced by its growing revenue and flat expenses — this helps margins.

The company had a net loss of $26 million in 2010, $38 million in 2011, and $49 million in 2012. For the first half of 2013, Chegg lost $21 million. This compares favorably with its first half-year loss in 2012 of $32 million.

How much cash does the company have? Some, but not much compared to how much it wants to raise. The $150 million maximum that the company wants to raise through its initial public offering is a massive multiple on its current $22 million in cash and equivalents. So Chegg is looking to dramatically bolster its war chest through its offering.

The company has lost a total of $170 million to date. Chegg has raised a total of $195 million to date, not including $55 million in raised debt.

A final caveat of Chegg’s filing: The company is taking advantage of the JOBS Act, allowing it to avoid disclosing as much as other companies might, as it is classified as an “emerging growth company.” As it notes, the rules allow it to “take advantage of certain exemptions from reporting requirements that are applicable to other public companies that are not ‘emerging growth companies.’” Those exemptions include “reduced disclosure obligations regarding executive compensation,” and “compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.” Less red tape, sure, but also less disclosure to investors. That increases risk.

What Chegg must prove to investors is that its growing revenue can be converted to profits. However, given the scale of its raise compared to its current cash position, it doesn’t appear to be in a hurry to reach the black.