Chegg 2013 Annual Report Download - page 94

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Components of Results of Operations
Net Revenues
We derive our revenue from the rental or sale of print textbooks and from non-print products and digital
services, net of allowances for refunds or charge backs from our payment processors, who process payments
from credit cards, debit cards and PayPal.
We primarily generate revenue from the rental of print textbooks and to a lesser extent, through the sales of
print textbooks through our website purchased by us on a just-in-time basis. Rental revenue is recognized ratably
over the term of the rental period, generally two to five months. Revenue from selling textbooks on a just-in-time
basis is recognized upon shipment and has comprised less than 6% of our consolidated revenues on average over
the three years ended December 31, 2013. Our customers pay for the rental and sale of print textbooks on our
website primarily by credit card, resulting in immediate settlement of our accounts receivable. Net revenues from
the rental or sale of print textbooks represented 79%, 87% and 93% of our net revenues in 2013, 2012 and 2011,
respectively, reflecting increasing growth in our non-print products and digital services business.
We also generate revenue from non-print products and digital services that include eTextbooks,
supplemental materials and our Chegg Study service that we offer to students, enrollment marketing services that
we offer to colleges and advertising services that we offer to brands. Non-print products and digital services are
offered to students through monthly or annual subscriptions or memberships, and we recognize revenue ratably
over the subscription or membership period. We generally offer memberships to our Chegg Study service for
$14.95 per month and $74.95 per year but may change our pricing for this service in the future. As with the
revenue from print textbooks rentals, revenue from eTextbooks is recognized ratably over the contractual period,
generally two to five months or at time of the sale, and our customers pay for these services through payment
processors, resulting in immediate settlement of our accounts receivable. For additional information about these
products and services and other services that we offer to students for free, such as our Courses service and
College Admissions and Scholarship Services, see “Business—The Student Hub.”
Marketing services include enrollment marketing services and brand advertising, which we offer either on a
subscription or on an a la carte basis. Enrollment marketing services connect colleges and graduate schools with
students seeking admission or scholarship opportunities at these institutions. Brand advertising offers brands
unique ways to connect with students. Revenue is recognized ratably or as earned over the subscription service
period, generally one year. Revenue from enrollment marketing services or brand advertising delivered on an a la
carte basis, without a subscription, is recognized when delivery of the respective lead or service has occurred. For
these services, we bill the customer at the inception, over the term of the customer arrangement or as the services
are performed. Upon satisfactory assessment of creditworthiness, we generally grant credit to our enrollment
marketing services and brand advertising customers with normal credit terms, typically 30 days.
Deferred revenue primarily consists of advance payments from students related to rentals, subscriptions and
memberships that have not been recognized and marketing services that have yet to be performed. Deferred
revenue is recognized as revenue ratably over the term or when the services are provided and all other revenue
recognition criteria have been met.
Cost of Revenues
Our cost of revenues consists primarily of expenses associated with the delivery and distribution of our
products and services. Cost of revenues related to print textbooks include textbook depreciation expense,
shipping and other fulfillment costs, the cost of textbooks sold, payment processing costs, write-offs and
allowances related to the textbook library and all expenses associated with our distribution and customer service
centers, including personnel and warehousing costs. The cost of textbooks sold, shipping and other fulfillment
costs and payment processing expenses are recognized upon shipment, while textbook depreciation is recognized
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