Chegg Struggles to Find their Footing

According to the College Board, the average annual cost of textbooks and supplies for students has grown 50% over the last decade to $1,200 per year. Online text book rental service Chegg hopes to reduce the costs of these books by enabling students to rent out books at a more affordable price instead of purchasing them.

Chegg’s Financials
Santa Clara, California-based Chegg may have begun as a Craigslist-like service before focusing on their textbook rental offering. But recently, they have focused on expanding beyond that. They now offer value-added services such as a social network for students.

Chegg has seen strong financial growth over the past years. Revenues have improved from $172 million in 2011 to $213.3 million in the year 2012. However, losses have increased during this time from $37.6 million to $49 million. In the year 2013, revenues improved 20% to $255.6 million and losses increased to $55.9 million.

More recently, Chegg reported third quarter revenues of $81.5 million, growing 32% over the year. Chegg continues to make losses and saw an adjusted EBITDA loss of $16.8 million and a non-GAAP net loss of $18.1 million.

By segment, digital revenues grew 102% over the year to $26.2 million and accounted for 32% of the quarter’s revenues compared with 21% contribution a year ago. Print revenues grew 14% to $55.3 million.

Chegg estimates the current quarter revenues to be $82 million-$87 million with digital revenues of $27 million-$30 million. They expect to report an adjusted EBITDA of $12 million-$15 million for the quarter.

Chegg’s Partnerships
Chegg has entered into several strategic partnerships to improve their market offerings. They recently announced a tie-up with Fanatics, an online retailer of officially licensed sports merchandise. The tie-up will help them deliver college gear to students and alumnus through Chegg’s site.

They also tied up with Blackboard Inc that will allow Chegg to make available its self-service learning services including Chegg Study, Chegg Tutors, and Chegg Career Center through Blackboard’s teaching and learning environment.

Chegg’s Acquisitions
Earlier this quarter, Chegg announced the acquisition of Internships.com for an estimated $11 million. The acquisition is part of Chegg’s focus to move away from their core business of textbook rental. Internships.com is a leading student-focused internship marketplace. At the time of the acquisition, Internships.com had a network of over 2 million students, 380 university tie-ups, and over 90,000 internships from 60,000 companies. The acquisition will help Chegg address the college recruiting market, which is estimated to be worth $5 billion.

Last quarter, Chegg acquired student tutoring marketplace InstaEDU for $30 million. InstaEDU is an on-demand online tutoring service for students. The company charges their students by the time spent for each session and provides them with access to tutors in over 2,500 subjects. Through the acquisition, Chegg will be able to offer InstaEDU’s services to their portfolio of over 15 million students. Chegg leveraged the acquisition to recently release a live online college counseling platform.

Earlier this year, they also acquired Campus Special, a digital platform focused on student deals. The acquisition is estimated to have cost them $17 million. Students from over 500 college campuses were able to use Campus Special to search for local and national retailers and order and pay for food ordered through their site. They earned revenues based on the food orders placed on their platform along with advertising.

Chegg has been trying very hard to improve their stock’s performance. Till last year, Chegg was venture funded with $252 million in funding from investors including Kleiner Perkins Caufield & Byers, Insight Venture Partners, Primera Capital, Manatt Venture Fund, Lucas Venture Group, Foundation Capital, GSV Capital, Ace Limited, TriplePoint Capital, Pinnacle Ventures, and Gabriel Venture Partners.

Last year, Chegg raised $150 million by listing on the NYSE at a list price of $12.50 at a valuation of $1.1 billion. However, the stock has taken a beating since then. It fell 23% on the day of listing to recover marginally to a high of $9.80. Their stock is trading at $6.76 with a market capitalization of $566.82 million.