Chegg 2015 Annual Report Download - page 57

Table of Contents
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In addition:
• we may not generate sufficient financial return to offset acquisition costs;
• we may encounter difficulties or unforeseen expenditures in integrating the business, technologies, products,
services, operations and personnel of any company that we acquire, particularly if key personnel of the acquired
company decide not to work for us;
• an acquisition may disrupt our ongoing business, divert resources, increase our expenses and distract our
management;
• an acquisition may delay adoption rates or reduce engagement rates for our products and services and those of
the company acquired by us due to student uncertainty about continuity and effectiveness of service from either
company;
• we may encounter difficulties in, or may be unable to, successfully sell or otherwise monetize any acquired
products and services; and
• an acquisition may involve the entry into geographic or business markets in which we have little or no prior
experience.
Acquired companies, businesses and assets can be complex and time consuming to integrate. For example, we recently
expanded into internships with the acquisition of Internships.com in October 2014. We are currently in the process of
transitioning the Internships.com users to the Chegg platform and integrating this brand into the Chegg platform. We may not
successfully transition these users to the Chegg platform.
In addition, we have made, and may make in the future, acquisitions that we later determine are not complementary
with our evolving business model. For example, in 2014 we acquired a print coupon business, which we later determined to no
longer support or expand and as a result, in 2014 recorded an impairment charge of $1.6 million related to the write-off of
acquired intangible assets.
We may pursue additional acquisitions in the future to add specialized employees, complementary companies,
products, services or technologies. Our ability to acquire and integrate larger or more complex companies, products, or
technologies in a successful manner is unproven. We may not be able to find suitable acquisition candidates, and we may not be
able to complete acquisitions on favorable terms, if at all. To finance any future acquisitions we may issue equity, which could
be dilutive, or debt, which could be costly, potentially dilutive, and require substantial restrictions on the conduct of our
business. If we fail to successfully complete any acquisitions, integrate the services, products, personnel, operations or
technologies associated with such acquisitions into our company, or identify and address liabilities associated with the acquired
business or assets, our business, revenues and operating results could be adversely affected. Any future acquisitions we
complete may not achieve our goals.
Ingram purchases, and we price, textbooks based on anticipated levels of demand and other factors that we estimate based
on historical experience and various other assumptions. If actual results differ materially from our estimates, our gross
margins may decline.
The print textbook rental distribution model requires our fulfillment partner, Ingram, to make substantial investments
in their textbook library based on our expectations regarding numerous factors, including ongoing demand for these titles in
print form. To realize a return on their investments, we must rent each purchased textbook multiple times, and as such, we are
exposed to the risk of not achieving financial return targets set forth in our agreement with Ingram, which could result in
additional payments to Ingram and adversely affect our results of operations. We typically plan the textbook purchases based on
factors such as pricing, our demand forecast for the most popular titles, estimated timing of edition changes, estimated
utilization levels and planned liquidations of stale, old or excess titles in the print textbook library. These factors are highly
unpredictable and can fluctuate substantially, especially if pricing pressure becomes more intense, as we have seen in recent
rush cycles, or demand is reduced due to seasonality or other factors, including increased use of eTextbooks. We rely on a
proprietary model to analyze and optimize the purchasing decisions and rely on inputs from third parties including publishers,
distributors, wholesalers and colleges to make our decisions. We also rely on students to return print textbooks to Ingram in a
timely manner and in good condition so that we can re-rent or sell those textbooks. If the information we receive from third
parties is not accurate or reliable, if students fail to return books or return damaged books, or if we for any other reason forecast
demand inaccurately and cause Ingram to acquire insufficient copies of specific textbooks, we may be unable to satisfy student
demand or we may have to incur significantly increased costs in order to do so, in which event our student satisfaction and
results of operations could be affected adversely. Conversely, if we attempt to mitigate this risk and cause Ingram to acquire
more copies than needed to satisfy student demand, then our textbook utilization rates would decline and we may be required to
make additional payments to Ingram and our gross margins would be affected adversely.