Shares of Chegg Inc (CHGG.N), 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.
Santa Clara, California-based Chegg was co-founded by Aayush Phumbhra while he was a student at Iowa State University.
Under CEO Dan Rosensweig, a former executive at Yahoo Inc (YHOO.O), 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; Editing by Kirti Pandey)