Chegg 2014 Annual Report Download - page 82

Table of Contents
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The following table sets forth our net revenues for the periods shown, in addition to revenue details for our print
textbook business and digital offerings business (dollars in thousands):
Year Ended December 31, Change in 2014 Change in 2013
2014 2013 2012 $ % $ %
Print textbooks . . . . . . . . . . . . . . . . . . . . . . $ 213,657 $ 203,077 $ 185,169 10,580 5% 17,908 10%
Digital offerings . . . . . . . . . . . . . . . . . . . . . 91,177 52,498 28,165 38,679 74 24,333 86
Net revenues. . . . . . . . . . . . . . . . . . . . . . . . $ 304,834 $ 255,575 $ 213,334 $ 49,259 19% $42,241 20%
Net revenues in the year ended December 31, 2014 increased $49.3 million, or 19%, compared to the same period
during 2013. Of this increase, digital offerings revenue increased $38.7 million, or 74%, while print revenue increased $10.6
million or 5% from 2013. The increase in digital offerings revenue was due primarily from growth in new memberships of our
Chegg Study service, an increase in eTextbook volumes, growth in our enrollment marketing services, revenues from
acquisitions completed in 2014, and our partnership with Ingram. The increase in print textbook revenue is primarily due to an
increase in just in time sales during our peak rush period with an offsetting decrease in rental revenue in the period as compared
to 2013. As we anticipate renting or selling fewer textbooks from our own textbook library as a result of our partnership with
Ingram, we expect that our future print revenue will decrease and we anticipate that our digital offerings will continue to grow
at a rate greater than our overall revenue growth in future periods.
Net revenues in the year ended December 31, 2013 increased $42.2 million, or 20%, compared to 2012. The year-
over-year increase in net revenues was the result of an 86% increase in digital offerings due to growth in new memberships for
our Chegg Study service, growth in our enrollment marketing services as we reach more universities, and an increase in
eTextbook volumes. digital offerings represented 21% of net revenues during 2013 and 13% of net revenues during 2012. The
increase was also the result of a 16% increase in print textbook rental volumes, partially offset by a reduction in price per rental
unit.
Cost of Revenues
The following table sets forth our cost of revenues for the periods shown (dollars in thousands):
Year Ended December 31, Change in 2014 Change in 2013
2014 2013 2012 $ % $ %
Cost of revenues(1) . . . . . . . . . . . . . . . . . . . . $ 210,985 $ 175,060 $ 145,669 $ 35,925 21% $ 29,391 20%
(1) Includes share-based compensation expense of: $ 617 $ 1,185 $ 542 $ (568) (48)% $ 643 119 %
Cost of revenues in the year ended December 31, 2014 increased $35.9 million, or 21%, compared to the same period
during 2013. The increase in absolute dollars and as a percentage of revenues for the year ended December 31, 2014 was
primarily due to an increase in textbook depreciation of $5.4 million, write-offs related to our textbook library of $4.7 million,
the cost of digital content of $4.4 million, and higher warehouse personnel costs of $0.5 million. The cost of digital content
increased during the year ended December 31, 2014 due to our expansion of digital content solutions made available to
students. In addition we experienced an increase in the cost of textbooks purchased of $16.2 million, which was primarily
driven by increased unit shipments and we had higher order fulfillment costs of $4.4 million, which is primarily comprised of
shipping and handling expenses. As we move towards Ingram fulfilling print textbooks, we anticipate our total gross margins
will be more in-line with margins we experience for digital offerings today.
Cost of revenues in the year ended December 31, 2013 increased $29.4 million, or 20%, compared to the same period
during 2012. The increase in absolute dollars and as a percentage of revenues for the year ended December 31, 2013 was
primarily due to an increase in order fulfillment and payment processing costs of $10.3 million, textbook depreciation of $7.6
million and cost of digital content of $2.5 million. The increase in order fulfillment costs, in particular eTextbook fees and
payment processing fees, is directly attributable to the increase in textbook unit volumes during 2013. Textbook depreciation
increased primarily due to our purchases of textbooks during the year. The cost of digital content increased during the year due
to our expansion of digital content solutions made available to students. In addition, we experienced an increase in the cost of
textbooks purchased on a just-in-time basis of approximately $5.3 million, which was primarily driven by an increase in the
number of units sold. We also experienced increased costs of approximately $2.7 million associated with hiring temporary
personnel to assist with higher transaction and textbook volumes during 2013 and higher write-offs of $1.3 million. Cost of
revenues as a percentage of net revenues was flat from 2013 to 2012.