Last August Chegg, which has developed a number of services for college students, announced that it had formed a strategic alliance with Ingram Content Group to accelerate its transition to digital. On Monday, Chegg signed a new multi-year agreement that builds on its earlier alliance with Ingram and allows the company to exit the physical textbook market.
Under the arrangement, which is expected to be ratified by both boards soon, Ingram handle sourcing and fulfillment for physical textbooks, and will be responsible for all new net book investments, starting May 1. Chegg will continue to market textbooks under its brand, but will close its warehouse operations by the end of the year.
“This deal represents a significant milestone for Chegg that we expect will pay big dividends for students and shareholders alike,” said Dan Rosensweig, chairman and CEO of Chegg in a press release. “Our free cash flow and overall gross margin picture will change dramatically for the better, and we will have the flexibility on our balance sheet to accelerate our investments in the high grown, high margin digital services that enable today’s self-directed learners.”
Chegg said that with its deal with Ingram it expects that by the end of 2016 it with generate all of its revenue from digital services to students. In 2014, 30% of its $305 million in revenue came from digital with the remainder generated by the rental of print textbooks. Despite the 19% increase in total sales in the year, Chegg's net loss rose to $64.7 million from $55.8 million in 2013. The company believes that by getting out of the physical distribution business it will improve its path to profitability built around student services.
For its part, Ingram was excited about the expanded partnership. “We are pleased to enter into this long-term relationship with Chegg based on the shared success we’ve had during the past two semester’s textbook rushes,” said John Ingram, chairman and CEO of Ingram Content Group.