Rumor has it Chegg.com, a popular US textbook website that frequently pops up in our compare textbooks search, has selected two investment banks to manage its initial public offering, or IPO. Supposedly, management has selected JP Morgan Chase and Bank of America, the countries two largest banks, to help it raise around $200 million by selling shares to the public. Most textbook publishers are publicly traded, but this is a first aside from amazon, ebay, and Barnes and Noble for a textbook merchant to list shares.
In terms of regular companies, chegg.com is rather new, being founded in 2007 as the netflix of textbooks. Chegg, which is arguably the most popular textbook rental company, plants a tree for every textbook rented, and has planted over 5 million trees. Based on this, I am estimating that chegg has probably had profits since its inception somewhere around $50 million.
The likelihood of pursuing an IPO is the amount of venture capital that chegg has received over the years. Multiple venture capitalist firms have invested in chegg, and with that money usually comes the stipulation that the company will be sold to the public to cash out the venturists. It is likely that the time has come for these venture capitalists to reap the large rewards for taking a risk on a small company. Additionally, the timing of the IPO is interesting, as it is right in the middle of public debates about the rising costs and declining rewards of education in America.
What does this mean for textbook consumers and college students? Well, current management is likely to stay with the website, but as first quarterly results come out, they will realize the pressure of public shareholders to constantly beat earnings, raise revenues and profitability, diversify revenue streams, and reduce costs. All else being equal, I believe students will be in for price hikes over time from chegg, as private owners are more likely to be satisfied with steady, stable profits, while public shareholders can just put their money in bonds or blue chips if they want reliable. Once again, this highlights the importance of comparing textbook prices, even rental textbook prices, as a smaller, private competitor may be willing to rent your textbook slightly cheaper, as it doesn’t have thousands of angry shareholders demanding higher profitability.
I look forward to analyzing the financial statements of chegg once the investment bankers begin to market the company to potential investors. Check back for future updates about Chegg becoming public. Time will tell if they continue to provide cheap rental textbooks to students.