Cornering the College Space

 | Aug 20, 2013 | 2:02 PM EDT  | Comments
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Last week, Chegg filed its S-1 with the SEC to hold an initial public offering in the future with ticker "CHGG." It probably won't come public for at least another six weeks, so you have time to go the SEC website, download the S-1 and review it for yourself.

I plan to be a buyer, so I wanted to highlight why I think it's worth a look.

First and foremost, Chegg is led by Dan Rosensweig. You might remember that Dan was the No. 2 at Yahoo! (YHOO) seven years ago, back when Terry Semel was CEO.

I like Dan as a manager -- a lot. He had a handshake deal with Mark Zuckerberg to have Yahoo buy Facebook (FB) for $1 billion, but the Yahoo board got in the way of that happening. When the Yahoo investment in Alibaba was announced in 2005, it was Dan -- not Jerry Yang -- who flew to Hangzhou to be part of the press conference.

Dan was very well-liked at Yahoo. Had a couple of things gone differently, both he and Yahoo would have been in very different places right now. But those kinds of chance things happen all the time in life, and in one's career. The point is that Dan is just as talented as we would have been regarded by now if, say, Yahoo had bought Facebook.

Longtime readers will know I'm a fan Yahoo shares, and have followed the company for some time. A number of former Yahoo employees have gone on to great success, and Jeff Weiner is probably the poster child for that success, given what he's done steering the ship at LinkedIn (LNKD). There's also Brad Garlinghouse at Hightail, Caterina Fake of Hunch, Stewart Butterfield of Slack and Bradley Horowitz of Google (GOOG) Plus.

I've never asked Dan, but my guess is that he's someone who is itching to show the world that he's just as capable of a manager as his former colleagues -- including Jeff Weiner -- if not more capable.

When Rosensweig left Yahoo, he become head of Activision's (ATVI) Guitar Hero franchise. He knew Activision through Bobby Kotick, who had been a longtime member of the Yahoo board. Then, three and a half years ago, he left to become the head of Chegg -- which, at the time, rented textbooks to students.

Since he's been installed as CEO at Chegg, Dan has overseen a dramatic overhaul of the company, positioning it for the digital shift to mobile that's now well on its way. Just as Netflix (NFLX) saw the writing on the wall for its old, offline DVD-mailer business, Chegg needed to find its own future, with the assumption that college students would rely less and less on printed textbooks.

Basically, Dan has recreated Chegg to become a hub for college students. He wants them to use the site to find colleges, scholarships, hints about good professors, help with homework and, eventually, job placement post-graduation. In return, he wants to learn more about the students, both to match them to potential services and to build network effects.

The way I like to think of Chegg is as the LinkedIn for college. It's a specific niche, but one that kids -- and the people trying to reach those kids -- spend a lot of money on.

Will Chegg ever grow to be as big as generalist sites like Facebook or LinkedIn? No, but that's not the point. They can -- and want to -- own the college niche.

Chegg is going against a lot of competition. It's not just the big guys like eBay (EBAY) or Amazon (AMZN), who are going after textbooks -- it's the little niche private companies, like RateMyProfessors.com, who compete in different areas against Chegg. Rosensweig is going through with the IPO in order to get more cash and stock to buy up a lot of these little sites and integrate them. Having lots of competitors is tough, but none have as good a chance of owning the college-student space as Chegg does.

I don't expect a lot of hype about Chegg when its shares finally trade on the open market. There could be bumps along the way, as well, as the company transitions its revenue away from offline textbook rentals to online sales. However, I expect Chegg to be able to quietly grow into a very nice stock and company over the next two to three years.

I want to own it out of the starting gate, the way most of us wish we could have owned LinkedIn, Yelp (YELP) and Zillow (Z) now.

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