Chegg.com is taking its Textbook Rental Business Public

Rumor has it Chegg.com, a popular 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.

What does the sale of McGraw Hill Textbooks mean for your wallet?

With the sale of Mcgraw Hill’s Education division to Apollo Global Management LLC for $2.4 Billion in cash, how will your college textbooks be affected? First, it is important to understand who Apollo Global management is; a private equity firm that specializes in flipping distressed businesses with outside investors money while maximizing profit.

McGraw Hill sold its textbook and education division due to its lower profit margin compared to the company’s Financial analytics businesses. This business has never quite been a focus for McGraw Hill and management did not have the focus to compete with a rise digital content and the used textbook and rental textbook market. Furthermore, I believe some actions by the company were viewed as exploitative by those in higher education, weakening its sales growth ability. McGraw Hill operated in a business segment where the ultimate customers do not have a choice over the product they buy, but failed to navigate this market successfully.

Apollo Management has detailed its plan for the company to move towards a more financial information model. It is highly likely that textbook content, revamps, and quality will fall, while Apollo takes advantage of the economics of this market, by riding out its ability to continue to sell textbooks while raising prices for a certain period of time. I would not be surprised if the company attempted to partner with universities and bookstores in order to lock in customers while having more control over used textbooks in the secondary market like amazon and ebay.

Eventually, I believe that the sale of McGraw Hill Education to Apollo Management will lead to an initial increase in prices of new McGraw Hill textbooks, a crack-down on the import of international editions or a complete disbandment of that entire operation, less used editions in the secondary textbook market, and eventually a decline in the use of McGraw Hill textbooks while Apollo puts the cash flow from this business to other uses. The fall of a major textbook publisher could lead to an increase in the prices of its competitor’s books due to less competition.

So, in the end, what does this mean for current college students and textbook buyers? You need to be absolutely sure you are seeking out the cheapest textbook prices online. By comparing textbooks prices for all of the reputable textbook websites, you can be sure that this profit pinching of McGraw Hill Textbooks will not affect you.