Chegg 2013 Annual Report Download - page 92

digital distribution platform of choice for these publishers. We also partner with approximately 875 colleges in
the United States to help them achieve greater efficiency in student recruiting by offering connections to
interested students. We offer leading brands compelling marketing solutions for reaching the college
demographic. As we continue to grow our platform, we believe it will become increasingly valuable to the
education ecosystem and benefit publishers, content providers, colleges, educators and brands as they connect to
our student user base.
Our digital platform is experiencing rapid growth. In 2013, 2012 and 2011, we generated net revenues of
$255.6 million, $213.3 million and $172.0 million, respectively. During the same periods, we had net losses of
$55.9 million, $49.0 million and $37.6 million, respectively. We plan to continue to invest in the long-term
growth of the company, particularly further investment in the technology that powers the Student Hub and the
Student Graph and in the development of products and services that serve students. As a result of our investment
philosophy, we cannot assure you that our newer products and services, or any other products and services we
may introduce or acquire, will be integrated effectively into our business, achieve or sustain profitability or
achieve market acceptance at levels sufficient to justify our investment.
Our strategy for achieving and maintaining profitability is centered upon our ability to expand the number of
students using our products and services and increase student engagement with our connected learning platform.
For the foreseeable future we expect to continue to invest in our print textbook business as a means of expanding
student acquisition and generating operating cash flow. To deepen student engagement we will continue to invest
in the expansion of our non-print products and digital services to provide a more compelling and personalized
solution. We believe this expanded and deeper penetration of the student demographic will allow us to drive
growth in our enrollment and brand marketing services. In addition, we believe that the investments we have
made to achieve our current scale will allow us to drive increased operating margins over time that, together with
increased contributions of higher margin non-print products and digital services, will enable us to accomplish
profitability and become cash-flow positive for the long-term. Our ability to accomplish these long-term
objectives is subject to numerous risks and uncertainties, including our ability to attract, retain and increasingly
engage the student population, intense competition in our markets, the ability to achieve sufficient contributions
from our non-print products and digital services and other factors described in greater detail in “Risk Factors.”
Our Print Textbook Business
We were founded in 2005 to help students reduce the cost of college and we launched our online print
textbook rental business in 2007. We saw that outside of tuition, fees, room and board, print textbooks are one of
the most burdensome costs of higher education, and we worked to develop a sustainable business model that
could solve this problem for students. Our core idea was to purchase textbooks, rent them to students for the
academic term at a substantial discount from list price to attract volume and realize return on our investment by
renting the same book over multiple academic terms.
We began to achieve substantial scale in 2010 when net revenues more than tripled compared to the prior
year. Leveraging the business intelligence we gained from operating at scale, in 2011, we reduced our rental
catalog to include only those titles with sufficient demand to support our economic model, contributing to the
reduced revenue growth rate during the year. At the same time, in order to continue to offer students a
comprehensive textbook selection at a substantial savings compared to retail prices available from other vendors,
we made print textbooks lacking sufficient demand to support the rental model available for purchase on our
website at a slight mark-up to our cost. This had the effect of shifting textbooks with a lower acquisition cost or
lower demand from our rental catalog to our sales catalog. We also increasingly use our website to liquidate
textbooks from our textbook library, which allows us to generate greater recovery on our textbooks compared to
bulk liquidations, while at the same time providing students substantial savings over the retail price of a new
book. We are able to adjust what we liquidate based on expected rental demand. As an example, in the second
half of 2013, we elected to optimize our textbook library more for rental than liquidation in anticipation of
greater rental demand for the winter rush cycle. This decision led to less site liquidations in that quarter of the
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