Chegg (CHGG), a book rental company, does not believe in the future of book rentals. Sure, the company made $60.5 million from that business last year, but CEO Dan Rosensweig knows the future Chegg, which went public seven months ago, is not in book rentals. That’s why he’s been busy transitioning Chegg into new businesses, selling a variety of digital services to Chegg’s 13 million active users. The company hopes to leverage the data it has around its members to pair them with service providers in the recruiting, financial aid, study aid, and school supply industries.
It sounds viable, but Wall Street has not been convinced. Chegg’s shares currently trade at a 55% discount to their IPO price.
But there’s hope: The street reacted positively to the company’s latest development. Today, Chegg announced it acquired InstaEDU, an online tutoring service, for $30 million. Shares of Chegg traded slightly up by 3.33% today.
InstaEDU is the seventh acquisition Chegg has made in the last four years. Because of Chegg’s large audience of students, the company has become an attractive acquirer for early stage ed-tech startups. “We’re able to take smaller companies and put them on steroids because of our reach and our data,” Rosensweig says.
Founded in 2011, InstaEDU provides on-demand online tutoring services for students, who pay by the minute. The company had raised a total of $5.1 million in venture funding from Social + Capital Partnership, Battery Ventures, and angel investors. It was in the process of raising its Series B round of funding at a valuation of around $30 million when Chegg made its offer.
The two companies had already integrated their software together months ago, and through that partnership, Chegg referred 75,000 potential customers to InstaEDU. “Once they plugged it into Chegg, they saw they could be a major global player and knew they were going to need Chegg one way or another,” Rosensweig says. With the acquisition, Chegg will offer tutoring services alongside its study tools (acquired through a company called Cramster), college admissions guides for high schoolers (acquired through a company called Zinch), and local deals on school supplies (acquired through a company called Campus Special).
Still, a public company under transition is a tricky sell to investors. Rosensweig understands that it may take time for Chegg’s stock to turn around. “Its not unfair to say investors prefer simple stories. Chegg is not a simple story yet, but it’s becoming that,” he says. Three years ago, Chegg made 100% of its revenue from textbook rentals. Last quarter, digital products made up 24% of total revenue. Chegg plans to bring in more than $100 million in revenue from digital-only products this year, Rosensweig says.
The company will continue its acquisition streak, seeking out startups offering education-related services that have supply but need demand. “We will look at services that could use a turbo charge, with our brand and our reach,” Rosensweig says. “More and more of them are recognizing that without reach it will be difficult to scale on their own.”
In the meantime, Chegg isn’t giving up on textbook rentals entirely. That’s what the site is known for, after all, and that reputation has helped the company register new users, and ultimately, grow its digital business faster, Rosensweig says.
