Chegg 2013 Annual Report Download - page 61

or disruptions in our business during these peak periods will have a disproportionately large impact on our annual
operating results and the potential future growth of our business.
As a result of this seasonality, which corresponds to the academic calendar, our revenue fluctuates
significantly quarter to quarter depending upon the timing of where we are in our “rush” cycle and sequential
quarter-to-quarter comparisons of our revenue and operating results are not likely to be meaningful. In addition,
our operating results for any given quarter cannot be used as an accurate indicator of our results for the year. In
particular, we anticipate that our ability to accurately forecast financial results for future periods will be most
limited at the time we present our second quarter financial results, which will generally occur midsummer and
precede the “fall rush.” In addition, our non-print products and digital services are relatively new and, as a result,
we have limited experience with forecasting revenues from them. If we fail to meet our forecasts or investor
expectations regarding these future results, the value of your investment could decline.
The fourth quarter is typically our highest performing quarter as we are recognizing a full quarter of revenue
from peak volumes in August and September and partial revenue from peak volumes in December, while the
second quarter typically is our lowest performing quarter as students start their summer vacations and the volume
of textbook rentals and sales and purchases of supplemental materials and Chegg Study decreases. Because of
our reliance on the academic calendar, we expect this seasonal fluctuation of sequential revenue decline from the
fourth to the first then second quarters, followed by sequential increases in the third and fourth quarters, to
continue in future periods.
We base our operating expense budgets on expected net revenue trends. Operating expenses, similar to
revenue and cost of revenues, fluctuate significantly quarter to quarter due to the seasonality of our business and
are generally higher during the first and third quarters as we incur textbook acquisition, shipping, other
fulfillment and marketing expense in connection with our peak periods at the beginning of each academic term.
Because our revenue is concentrated in the fourth quarter and expenses are concentrated in the first and third
quarters, we have experienced operating losses in the first and third quarters and operating income in the fourth
quarter. As a result, sequential comparison of our financial results may not be meaningful. In addition, a portion
of our expenses, such as office space and warehouse facility lease obligations and personnel costs, are largely
fixed and are based on our expectations of our peak levels of operations. We may be unable to adjust spending
quickly enough to offset any unexpected revenue shortfall. Accordingly, any shortfall in net revenues may cause
significant variation in operating results in any quarter. If we are unable to accurately forecast and respond to
student demand for textbooks, our reputation and brands will suffer and the market price of our common stock
would likely decline.
If our efforts to attract new students and increase student engagement with our platform are not successful,
our business will be adversely affected.
The growth of our business depends on our ability to attract new students to use our products and services
and to increase the level of engagement by existing students with our connected learning platform. The
substantial majority of our revenue depends on small transactions made by a widely dispersed student population
with an inherently high rate of turnover primarily as a result of graduation. Many of the students we desire to
attract are accustomed to obtaining textbooks through bookstores or used booksellers. The rate at which we
expand our student user base and increase student engagement with our platform may decline or fluctuate
because of several factors, including:
• our ability to consistently provide students with a convenient, high quality experience for selecting,
receiving and returning print textbooks;
• the pricing of our textbooks for rental or sale in relation to other alternatives, including the textbook
prices offered by publishers or by other competing textbook rental providers;
• the quality and prices of the non-print products and digital services that we offer to students and those
of our competitors;
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