Chegg 2015 Annual Report Download - page 80

Table of Contents
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Required Materials
Our Required Materials product line includes the rental and sale of print textbooks and eTextbooks as well as the
commission we receive from Ingram. Our web-based, multiplatform eTextbook Reader, eTextbooks and supplemental course
materials are available from approximately 120 publishers as of December 31, 2015, which we offer as a rental-equivalent
solution and for free to students awaiting the arrival of their print textbook rental. This product line has been highly capital
intensive due to the resources required to maintain a print textbook rental library. As a result of our strategic partnership with
Ingram, we have exited our warehouse facilities in Kentucky and have transitioned our textbook library to Ingram’s facilities
helping to free up resources historically required by this product line. We will continue to liquidate our print textbook library
through the normal course of our operations and expect it to be fully liquidated at the end of 2016. Until that point, we will
continue to rent textbooks and recognize revenues on the textbooks that we own as rental revenues on our consolidated
statement of operations through the liquidation period. Once our entire print textbook library has been liquidated, all revenues
from print textbook rentals will be commission-based.
We have historically capitalized the investment in our print textbook library and record depreciation expense in cost of
revenues over its useful life using an estimated liquidation value. During the year ended December 31, 2015, our investment in
print textbooks, net of proceeds from textbook liquidation, was an inflow of $6.0 million and an outflow during the years ended
December 31, 2014 and 2013 of $54.7 million and $84.3 million, respectively. In the year ended December 31, 2015,
investment in our print textbooks, net of proceeds from textbook liquidations, decreased to the point where we received more in
proceeds from print textbook liquidations than we invested in new additions to our print textbook library. This is expected to
continue through 2016 as we are no longer purchasing textbooks for rental as a result of our strategic partnership with Ingram.
We use our website to liquidate print textbooks from our print textbook library, which allows us to generate greater
recovery on our print 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. We also use our
website to source, on behalf of Ingram, both new and used print textbooks for rental or resale from wholesalers, publishers and
students. Purchasing used print textbooks allows us to reduce the investments necessary to maintain the rental catalog while at
the same time attracting students to our website by offering more for their textbooks than they could generally get by selling
them back to their campus bookstore.
In the aggregate, Required Materials revenues were 69%, 78%, and 84% of net revenues during the years ended
December 31, 2015, 2014 and 2013, respectively.
Chegg Services
Our Chegg Services are experiencing rapid growth and we expect our partnership with Ingram to accelerate the growth
of these offerings by freeing up capital while allowing us to maintain our leadership and brand recognition. Our Chegg Services
for students include our connected learning platform, or the Student Hub, our test preparation service currently covering the
ACT and SAT exams, online tutoring, our Chegg Study service, College Admissions, Scholarship Services and Internship
Services. In addition, we offer enrollment marketing services to colleges, allowing them to reach interested college-bound high
school students that use our College Admissions, and Scholarship Services. We also work with leading brands, such as Dell,
MasterCard, Microsoft, PayPal, Proctor & Gamble, Red Bull, Shutterfly and Starbucks, to provide students with discounts,
promotions and other products that, based on student feedback, delight them. For example, for Red Bull, we inserted a free can
of Red Bull in select textbook rental shipments to students and Microsoft sponsored a “Free Study Week,” which included free
access to our Chegg Study service as well as additional free study materials. All of our brand advertising services and the
discounts, promotions and other products provided to students are paid for by the brands.
Students typically pay to access Chegg Services such as Chegg Study on a monthly or annual basis, while colleges
subscribe to our enrollment marketing services and brands pay us depending on the nature of the campaign. In the aggregate,
Chegg Services revenues were 31%, 22% and 16% of net revenues during the year ended December 31, 2015, 2014 and 2013,
respectively.