Posted: 11/13/2013 07:41:30 AM PST
Updated: 11/13/2013 07:48:58 AM PST
SANTA CLARA -- Wall Street investors proved Wednesday their enthusiasm for Twitter does not extend to all Silicon Valley tech companies debuting on the public market.
Educational-services company Chegg saw its price fall in its first trades Wednesday morning after an initial public offering that brought in nearly $200 million. After pricing its debut shares at $12.50 -- $1 higher than its proposed range, the same as Twitter -- the stock sold for $10.66 in its debut on the New York Stock Exchange under the symbol CHGG. In the first half-hour of trading, the price ranged from $10.31 to $11.15, failing to come within spitting distance of the IPO price.
After Twitter shot more than 70 percent higher in its first day of trading Thursday, a 'pop' that the San Francisco company has mostly retained in the days since, some observers decried a possible bubble forming around the valuations for Silicon Valley tech companies.
'What's going on is hysteria for the moment,' Larry Chiagouris, a professor of marketing at Pace University's Lubin School of Business in New York, said at the time.
Unfortunately for Chegg, which is also similar to Twitter because it aims for consumer dollars instead of the enterprise market, that hysteria did not extend to its market debut. However, the Santa Clara company still brought in $187.5 million by selling 50 million shares, and received an initial valuation of more than $1 billion.
Founded in 2005 by a group of Iowa State students, the company's name refers to the chicken-and-egg dilemma of students who need jobs to pay for college, but have difficulty getting good jobs without an education. Chegg's co-founders hoped to get around that problem by helping users cut their college costs; textbooks and supplies cost students roughly $1,200 a year, the company states in its IPO filing.
Chegg sought to change the system for dispersal of college textbooks: While bookstores typically sell textbooks to college students and buy them back for a much smaller price at the end of a semester, Chegg began renting the textbooks to students for a smaller per-semester fee.
By leveraging the Web, Chegg was able to expand its presence nationwide, and has also grown its offerings to include study help and assistance for high school students looking to gain entry to college. Chegg has managed to capture the attention of an audience of young men and women that advertisers crave: The company said in its prospectus that it reaches 30 percent of all college students and 40 percent of college-bound high school seniors.
Chegg has landed some $200 million from the likes of Floodgate, Foundation Capital and Kleiner Perkins Caufield & Byers. The company's board also includes ex- Netflix ( NFLX) CFO Barry McCarthy and 49ers CEO John York. CEO Dan Rosensweig took the company's reins in 2010 after stints at Yahoo ( YHOO), ZDnet and Activision's Guitar Hero division.
Chegg's net losses grew each of the past three full years, but the company also managed to increase revenues sequentially as well. In 2012, Chegg lost $49 million on revenues of $213.3 million, and the Santa Clara company lost $50.4 million in the first nine months of this year while generating revenues of $178.5 million.
The company is selling all but 600,000 shares in its IPO, with the rest belonging to cofounder Aayush Phumbhra, who will retain nearly 2 million shares after the IPO. Chegg's other cofounder, Osman Rashid, sold an education-focused startup he founded after Chegg to Intel ( INTC) for an undisclosed amount last week.
Contact Jeremy C. Owens at 408-920-5876; follow him at Twitter.com/jowens510.
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