Chegg announced a strategic partnership with book distributor Ingram along with its second quarter 2014 results on Monday. With results better than expected and a partnership that will immediately liberate $25 million of Chegg’s capital, shares were up 9% in afterhours trading.
The second quarter results also once more indicate the ongoing transition of Chegg into a purely digital business as stated by Chegg’s CEO Dan Rosensweig in the press release.
Chegg will gradually transfer the ownership of its print inventory to Ingram starting with 10%. As part of the deal Chegg will earn 20% commission of each textbook related transition and will book this revenue as digital revenue according to re/code.
“People care about our digital revenue, not our print revenue.” – Dan Rosensweig, CEO Chegg
Chegg will also control the pricing, customer service and retain the relationship with its students as the transactions still take place on the platform and the shipping boxes will remain Chegg branded.
Nevertheless, print revenue was up one last time for Chegg, 5% compared to Q2 2013 as it reached $45.8 million.
Digital revenue grew 54% year-over-year to $18.7 million and is now responsible for 29% of all revenues, which is 7% up from Q2 2013. According to TechCrunch InstaEDU has increased its digital sales by 15% since its acquisition by Chegg in June.
Chegg also sees a 64% year-over-year growth in members who use two or more services out of its portfolio, mobile users grow 18% year-over-year.
Textbook rentals play an ever decreasing role for Chegg. According to TechCrunch only 30% of Chegg users are still renting physical textbooks which is quite a difference compared to the situation four years ago when textbook rentals was a highly attractive market for Chegg. Steven Carpenter did a tear down of Chegg’s business model in June 2010 on TechCrunch linked below.
Today Chegg and especially its investors can’t get out of this market fast enough, as it seems. In an interview Rosensweig confirmed
“Investors would prefer that we not commit capital to something that won’t be around forever.”
Besides liberating capital from maintaining a stock of physical textbooks, the partnership with Ingram should also lead to other savings for Chegg. Though not explicitly mentioned in the press release, there will most likely be layoffs of staff currently working in the Kentucky warehouse and fulfillment of the textbook shipping in general. In the end, Chegg could also sell its infrastructure as soon as Ingram is responsible for 100% of the distribution.
- Chegg and Ingram Form Strategic Alliance Accelerating Chegg’s Transition to Digital Revenue | PR Newswire
- Chegg Reports Second Quarter 2014 Results | PR Newswire
- Chegg Finds Partner to Handle Its Textbooks | New York Times
- Chegg Will Unload Textbook Inventory to Give Investors What They Want | re/code
- Chegg Strikes Distribution Partnership With Ingram Books, Announces 15% Boost In Earnings From Digital Services | TechCrunch
- Chegg Shares Jump on Earnings, New Business Model | Fox Business
- TC Teardown: Chegg Is A Money Machine | TechCrunch
- The Future is Digital: Chegg Quarter 1 2014 Results | EDUKWEST
- HEDLINE: Chegg acquires InstaEDU for $30 million | EDUKWEST