Nov. 13 (Bloomberg) -- Chegg Inc., which rents textbooks and provides digital homework help to college students, tumbled 23 percent in its stock market debut.
The shares fell $2.82 to $9.68 at the close in New York. Chegg, based in Santa Clara, California, and co-founder Aayush Phumbhra sold 15 million shares at $12.50 yesterday, above the offering range, to raise $187.5 million.
“I can’t control what the market is doing or the tape on a daily basis,” Dan Rosensweig, chief executive officer of Chegg, said in an interview today. “We’ll just keep focusing on creating long-term value.”
Chegg, which rented or sold more than 5.5 million digital and hard-copy textbooks in the year through September, has yet to turn a profit. While sales rose 23 percent to $178.5 million in the first nine months of 2013 from a year earlier, the company reported a loss of $50.4 million for the same period.
The IPO is the first of a technology or Internet company since Twitter Inc. debuted Nov. 7. The microblogging service has climbed 64 percent from its IPO price. Companies have raised $6.9 billion in technology and Internet IPOs in the U.S. this year, with shares of the issuers up an average of 56 percent through yesterday, data compiled by Bloomberg show.
Rosensweig, a former Yahoo! Inc. executive, joined Chegg in 2010 and shifted the company to digital products, acquiring startups focused on e-textbooks, online homework help and question-and-answer forums.
Chegg’s digital business accounted for about 21 percent of revenue in the nine months ended Sept. 30. The gross margin, or profit left after costs of goods sold, is 80 percent in the digital products, Rosensweig said. For the company as a whole, the margin is closer to 30 percent. As digital sales accelerate, Chegg’s profitability will improve, he said.
“We’re leveraging the base we built with textbooks to grow these new businesses,” he said.
The company plans to use most of the funds raised in the IPO for debt repayments and investments, while 1 percent of the proceeds will fund the Chegg Foundation, which benefits education-related activities, the prospectus shows.
JPMorgan Chase & Co. and Bank of America Corp. managed the sale. Chegg is listed on the New York Stock Exchange under the symbol CHGG.
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