Chegg 2013 Annual Report Download - page 60

continues to evolve. While our revenue has grown in recent periods, this growth may not be sustainable and we
cannot assure you that we will be able to achieve profitability. To achieve profitability, we may need to change
our operating infrastructure and scale our operations more efficiently. For example, we may need to reduce our
costs or implement changes in our print textbook and non-print products and digital services models to improve
the predictability of our revenue. If we fail to implement these changes on a timely basis or are unable to
implement them due to factors beyond our control, our business may suffer. If we do achieve profitability, we
may not be able to sustain or increase such profitability.
We operate in a rapidly changing market and our business model is evolving. If we do not successfully adapt
to known or unforeseen market developments, our business and financial condition could be materially and
adversely affected.
The market for our connected learning platform is still unproven and rapidly changing. Historically, we
generated the majority of our revenue from our print textbook business. In 2013, this business accounted for 79%
of our revenue. The print textbook rental business is highly capital intensive and presents both business planning
and logistical challenges that are complex. Our investments in and the growth of our print textbook rental
business are subject to risks as a result of changes taking place in the publishing industry and the increasing shift
towards digital content. To the extent eTextbooks increase in popularity and demand for print textbooks declines,
we anticipate that more and more eTextbooks will be published and distributed in the retail market, which could
reduce the demand for print textbooks and materially and adversely affect our operating results. For example,
publishers have significant flexibility in pricing eTextbooks due to their low production costs and may change
their pricing strategies in the future, especially in light of increasing competition in the print textbook market and
the rising costs of education. If the retail price of eTextbooks were to be significantly lower than print textbooks,
consumers may purchase eTextbooks directly from the publisher or other retailers rather than use our print
textbook or eTextbook services. In the short term, this would have a negative effect on our ability to utilize our
print textbook library and could decrease revenue. In addition, the transition to eTextbooks will greatly reduce
the capital requirements that currently serve as a barrier to entry in the textbook distribution market, may result in
increased competition and may require us to make significant changes to our business model.
In recent years we have added and plan to continue to add new non-print products and digital services to our
platform to diversify our sources of revenue, which will require us to make substantial investments in the
products and services we develop or acquire. New non-print products and digital services may not achieve
market success at levels that recover our investment or contribute to profitability. Because non-print products and
digital services are not as capital intensive as our print textbook rental service, the barriers to entry for existing
and future competitors may be lower and allow for even more rapid changes to the market. Furthermore, the
market for these other products and services is relatively new and may not develop as we expect. If the market
for our non-print products and digital services does not develop as we expect, or if we fail to address the needs of
this market, our business will be harmed. We may not be successful in executing on our evolving business model,
and if we cannot provide an increasing number of products and services that students, colleges, universities or
other academic institutions and brands find compelling, we will not be able to continue our recent growth and
increase our revenue, margins and profitability. For all of these reasons, the evolution of our business model is
ongoing and the future revenue and income potential of our business is uncertain.
Our business is highly seasonal and our reliance on a concentration of activity at the beginning of each
academic term exposes our business to increased risk from disruption during peak periods and makes our
operating results difficult to predict.
We derive a majority of our net revenues from print textbook rental and, to a lesser extent, sale transactions,
which occur in large part during short periods of time around the commencement of the fall, winter and spring
academic terms. In particular, we experience the largest increase in rental and sales volumes during the last two
weeks of August and first two weeks of September and to a lesser degree in December and in January. The
increased volume of orders that we have to process during these limited periods of time means that any shortfalls
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