UPDATE 2-Textbook rental firm Chegg's shares slump 20 pct in debut

Wed Nov 13, 2013 12:52pm EST

* Shares open at $11, below IPO price of $12.50

* Hit a low of $10, valuing the company at about $863 mln (Adds CEO comments)

By Neha Dimri

Nov 13 (Reuters) - Shares of Chegg Inc, whose main business is renting textbooks, fell as much as 20 percent in their debut on Wednesday after the company priced its initial public offering well above the expected range.

Chegg's IPO of 15 million shares was priced at $12.50 each, higher than the expected range of $9.50-$11.50.

"(The) income statement just does not support that high a price," said Francis Gaskins, a partner at IPO research company IPODesktop.com. "They were losing too much money and topline revenue is not increasing that much."

Chegg posted revenue of $213.3 million for 2012, up 43 percent from 2010. However, its net loss widened by 88 percent to $49 million in the period.

The company's shares opened at $11 on the New York Stock Exchange, 12 percent below their IPO price. The stock fell to a low of $10 in heavy trading, valuing the company at about $863 million.

Chegg, whose name is derived from the chicken-and-egg conundrum, would have been valued at more than $1 billion at its IPO price.

The company rents textbooks from its library of nearly 180,000 titles, sourced from publishers including Pearson, McGraw Hill, Wiley and MacMillan.

Chief Executive Dan Rosensweig told Reuters on Wednesday that the stock's opening-day performance was a reflection of the overall market, and that he did not believe the company mispriced its offering.

"We took the best guidance of two of the best banks in the world. There were indications we could have priced higher, we opted not to do that," he said in an interview.

"The capital that we raised puts us in a position to create more value than we could yesterday," he said.

Chegg will use some of the money it raised to expand its business through acquisitions, Rosensweig said, noting that the company has not acquired any other firms for two years because it had needed to use its balance sheet to purchase textbooks.

Santa Clara, California-based Chegg was co-founded by Aayush Phumbhra while he was a student at Iowa State University.

Under CEO Rosensweig, a former executive at Yahoo Inc , Chegg has built an online platform for homework note-sharing, class planning, finding professors and tutors, and even recruiting for athletics.

Launched nationally in the United States in 2007, Chegg has raised more than $200 million in venture funding and debt. Its investors include Insight Venture Partners, Foundation Capital, Gabriel Venture Partners and Kleiner Perkins Caufield & Byers.

The company says it reaches about 30 percent of all college students in the United States and 40 percent of college-bound high school seniors.

Chegg plants a tree for every textbook it rents or sells and has planted more than 5 million trees to date, according to its website.

J.P. Morgan and Merrill Lynch, Pierce, Fenner & Smith were the lead underwriters of the offering. (Additional reporting by Aman Shah and by Alexei Oreskovic in San Francisco; Editing by Kirti Pandey and Krista Hughes)

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