Detailed investment analysis of Chegg

1. The Bull Thesis For Chegg
With Our Proprietary Sum Of The Parts Valuation
Why Would I Invest In A Textbook Rental and Sale Company?

2. Disclaimer
• The analyses and conclusions of Diamond Technology Management, an unregistered
investment advisor, contained in this presentation are based on publicly available information.
• Diamond Technology Management recognizes that there may be confidential information in
the possession of the companies discussed in the presentation that could lead these companies
to disagree with our analysis.
• Diamond Technology Management has a long position in Chegg. It is possible that there will
be developments in the future that cause Diamond Technology Management to change its
position regarding the companies discussed in this presentation. Diamond Technology
Management may buy, sell, cover or otherwise change the form of its investment regarding
such companies for any reason. Diamond Technology Management hereby disclaims any duty
to provide any updates or changes to the analyses contained here including, without
limitation, the manner or type of any Diamond Technology Management Investment. No
representations, express or implied, are made as to the accuracy or completeness of such
statements, estimates or projections or with respect to any other materials herein. Actual
results may vary materially from the estimates and projected results contained herein. This
presentation and the information contained herein is not a recommendation or
solicitation to buy or sell any securities. Individuals should conduct their own analysis
prior to investing.

3. Business Overview
• Chegg is the leading student-first connected learning platform,
empowering students to take control of their education to save time,
save money and get smarter. Revenue streams include:
• Print Textbooks
• eTextbooks
• Chegg Study
• Enrollment marketing services
• Internships
• Brand Advertising

4. Chegg Has Been Ostracized By Investors
$12.50 Initial
Public Offering
At Current Prices The Stock Looks Like An Appealing Turnaround Investment
$6.93: Closing
Price(3/28/14)

5. Why CHGG Is Our High Conviction Long
• Chegg is transitioning away from the textbook rental and sale business to be a
young professional educational and career network
• Growth and margin profile are significantly higher in non-print segments
• Valuation of a 100% non-print business justifies current stock price with investors
receiving a high revenue print business they are not paying for
• Chegg has a history of making relevant acquisitions and has indicated interest in
continuing to do so. Acquisitions will expedite the transition to an entirely digital
business.
• Linkedin offers relevant data as to what Chegg could eventually become in its
target market and returns investors could realize
• Sum of the parts valuation yields a $11 per share value consistent with where
bankers priced initial public offering
• As a conservative investor we are looking for share price to return to $9 per share

6. U.S. Education Market
Huge And Expanding Market $1 Trillion Dollar Market
Source: National Associate Of College Stores
Source: GSV Estimates; Education Sector 2012
Chegg Only Needs .1% market share to become billion dollar company and double its market capitalization

7. Chegg Well Positioned Within The Market
• Provides access to over 70,000 internship opportunities through their co-
branded Internship service
• During 2013, students completed 3.8 million transactions on Chegg
platform, and Chegg rented or sold over 5.5 million print textbooks and
eTextbooks
• In 2013, approximately 464,000 students subscribed to Chegg’s proprietary
Chegg Study service.
• Received 7.6 million inquiries from students using our College Admissions
and Scholarship Services
• During 2013, nearly 7.0 million students used Chegg’s platform and
approximately 1.3 million students used their mobile applications
Chegg Has Nearly 30% of all U.S. college
students somewhere within their platform

8. http://www.cnbc.com/id/100391877
"When we took over the business three years
ago, it was clear that print textbooks and the
rental model wouldn't be around forever, as the
world goes increasingly digital,"
Dan Rosenweig Chegg CEO 2013 CNBC Interview
The Transition

9. Chegg FY 2013 Earnings Call
“Student have shown great interest in our new digital learning services and from us and our
partners. So you can expect us to launch more of them in 2014. The success of Chegg study which
grew 66% year-over-year and has climbed to 464,000 paying subscribers shows the opportunity
we have to offer more digital services”
“Brand partnerships has seen significant growth. We are seeing growth in probably different ways.
More overall advertisers, we have over 90% renewal rates and on average, each advertiser is right
with us, increases the amount of money they spent on their new campaigns”
“So you can imagine over time the opportunity for Chegg to
continue to provide services and now into the career area. So long
term, we think it’s a very big money maker for us”
Dan Rosenweig Chegg CEO FY 2013 Earnings Call

10. But Chegg Is A Textbook Business
Why is Chegg talking about careers? Who else is in the career sector?
Linkedin Stock Price Since IPO

11. Chegg Is Highly Motivated To Grow Career Offerings
Source: http://www.chegg.com/app-preview/internships
“So today, what we have is expressions that where students want to go to school, what their gender is, what their
age is, what their majors are. Now that we have the opportunity to understand what they are interested in do
professionally, that opens up whole new opportunities in the categories of skills and ultimately careers and so
our next step in data collection will be around that area.”
Source: Dan Rosenweig Q4 2013 Earnings Call

12. What If Chegg Became Young Linkedin
Source: Linkedin 10-K Filings
Additional revenue stream Chegg may develop as
builds “Student Graph”

13. Premium Membership Revenue Stream
To apply a numerical context to our argument, we have modelled one of
Linkedin’s revenue streams being applied by Chegg. Offering a premium job
applicant membership would yield a strong revenue stream once Chegg sourced
more employers to its platform(Could occur in 2016)
2013 2014 2015 2016 2017 2018
Number of Active Users 7,000,000 7,500,000 8,000,000 9,000,000 10,000,000 11,000,000
Percent Of Users Converting To Premium 0.00% 0.00% 0.00% 1.00% 2.00% 4.00%
Number of Premium Users - - - 90,000 200,000 440,000
Premium Membership Price(Monthly) $9.99 $9.99 $9.99 $9.99 $9.99 $9.99
Revenue From Premium Stream $0 $0 $0 $10,789,200 $23,976,000 $52,747,200
Cost of Sales(CPA) -$ -$ -$ 135,000$ 300,000$ 660,000$
Technology Expenses(Per User) -$ -$ -$ 90,000$ 200,000$ 440,000$
Net Profit $0 $0 $0 $10,564,200 $23,476,000 $51,647,200
Outstanding Shares 20,902,000 85,000,000 88,000,000 90,000,000 93,000,000 96,000,000
EPS 0.00 0.00 0.00 0.12 0.25 0.54
P/E 50
Per Share Value 27
Chegg can add substantial share value through its transition to careers. The illustrative
example of adding a premium membership at $9.99(Substantial Discount to Linkedin)
shows it adds $27 per share of value

14. History Of Relevant Acquisitions
• Acquisition of Cramster (1 million users at acquisition) facilitating
expansion into Chegg study offering
• Acquisition of Zinch(acquisition of Zinch, with over 3.5 million members,
$1.9 billion in scholarships and over 5,000 school profiles, will significantly
expand Chegg’s customer base and its social education platform)
• Company is well capitalized to execute acquisition in FY 2014. As of
December 31, 2013, Chegg’s principal sources of liquidity were cash, cash
equivalents and investments totaling $138.3 million, which were held for
working capital purposes. Chegg’s cash equivalents and investments are
composed primarily of commercial paper, corporate securities and money
market funds. Chegg has $50.0 million available for draw down under their
revolving credit facility with an accordion feature subject to certain
financial criteria that would allow them to draw down to $75.0 million in
total, which expires in August 2016.

15. Many Potential Acquisition Opportunities
Rosenweig recently invested in
themuse personally. Career
profiling.
http://techcrunch.com/2014/02/
04/tyra-banks-and-more-put-a-
million-in-the-muse/
We believe management is actively searching for acquisition targets
with their sizable cash balance.
Acquisitions within the young recruiting space would align with
Chegg’s recent expansion into internships
Runs challenges for companies to screen
college applicants, already has revenue
stream. Strong technical development
team.
$650,000 unique student visitors a month

16. Sell Side Consensus
Sell-side projections offer meaningful
upside from current levels with no price
target below current market price
Firm Price Target Valuation Method Utilized Upside(Downside) From Current Price
J.P. Morgan 13.00$ DCF 88%
Bank Of America 8.00$ EV/EBITDA Multiple 15%
Jefferies 14.00$ N/A 102%
Raymond James 12.00$ N/A 73%
BMO 11.00$ N/A 59%
Average 11.60$ 67%
Diamond Technology Management $9.00 Blended 30%
Closing Price As Of 03/28/14: $6.93 6.93

17. Non-Print Digital Stand Alone Valuation
• The non-print business grew its revenue 86% over the past year. If Chegg was
entirely a non-print and digital offering(impossible currently because the
textbooks are instrumental in driving growth of digital offerings) what would the
business be worth per share?
• Assumptions in our model include:
1-Digital Cost of Revenue Derived from Chegg’s historical financials
2-Technology and development estimated from Salesforce.com(CRM) a subscription company’s financials, given
Chegg’s current digital revenue is subscription based.
3-Sales and Marketing estimated from Linkedin (LNKD) financials given consumer focus of Chegg and its transition
to careers
4-General and administrative estimated utilizing Chegg’s historical rates
5- Utilize a 12% WACC, consistent with discount rates utilized for other high growth internet businesses
6- 7% profit margin in 2018 is in line with where Linkedin’s margins are anticipated to settle

18. Non-Print And Digital Support Current Stock Price
(values in thousands)
2011 2012 2013 2014 2015 2016 2017 2018
Non-print products and digital services 11,626$ 28,165$ 52,498$ 86,000$ 130,000$ 190,000$ 247,000$ 321,100$
y/y revenue growth 142.26% 86.39% 63.82% 51.16% 46.15% 30.00% 30.00%
Cost of Revenue* 4,069$ 9,858$ 18,374$ 29,240$ 42,900$ 58,900$ 74,100$ 86,697$
% of Sales 35% 35% 35% 34% 33% 31% 30% 27%
Gross Profit 7,557$ 18,307$ 34,124$ 56,760$ 87,100$ 131,100$ 172,900$ 234,403$
% of Sales 65% 65% 65% 66% 67% 69% 70% 73%
Technology and development** 1,860$ 4,506$ 8,400$ 13,760$ 20,800$ 30,400$ 39,520$ 51,376$
% of Sales 16% 16% 16% 16% 16% 16% 16% 16%
Sales and marketing*** 3,953$ 9,576$ 17,849$ 29,240$ 44,200$ 64,600$ 83,980$ 109,174$
% of Sales 34% 34% 34% 34% 34% 34% 34% 34%
General and administrative $1,860.16 4,506$ 8,400$ 13,760$ 20,800$ 30,400$ 39,520$ 51,376$
% of Sales 16% 16% 16% 16% 16% 16% 16% 16%
Operating Income -$117 -$282 -$525 -$1 $1,300 $5,700 $9,880 $22,477
interest and other expense,net (1,703)$ (3,759)$ (4,177)$ -$ -$ -$ -$ -$
Pre-Tax Earnings -$1,820 -$4,041 -$4,702 -$1 $1,300 $5,700 $9,880 $22,477
Provision(benefit) for income taxes -$ -$ -$ -$ -$ -$ -$ -$
Net Loss -$1,820 -$4,041 -$4,702 -$1 $1,300 $5,700 $9,880 $22,477
Profit Margin -15.7% -14.3% -9.0% 0.0% 1.0% 3.0% 4.0% 7.0%
Weighted Shares Outstanding(Basic) 8,453 11,183 20,902 85,000 88,000 90,000 93,000 96,000
EPS -$0.22 -$0.36 -$0.22 $0.00 $0.01 $0.06 $0.11 $0.23
12$
7$
Non-print products and digital services
Historical as of FYE December 31 Projected as of FYE December 31
$7 per share value of non-print and digital alone justifies current share price.
Investors are not paying to own the print business at current levels.

19. Print Valuation
(values in thousands)
2011 2012 2013 2014 2015 2016 2017 2018
Print Revenue 160,392$ 185,169$ 203,077$ 225,000$ 260,000$ 300,000$ 340,000$ 365,000$
y/y revenue growth 15.45% 9.67% 10.80% 15.56% 15.38% 13.33% 7.35%
Cost of Revenue* 126,710$ 146,284$ 160,431$ 175,500$ 200,200$ 228,000$ 255,000$ 270,100$
% of Sales 79% 79% 79% 78% 77% 76% 75% 74%
Gross Profit 33,682$ 38,885$ 42,646$ 49,500$ 59,800$ 72,000$ 85,000$ 94,900$
% of Sales 21% 21% 21% 22% 23% 24% 25% 26%
Technology and development** 12,831$ 14,814$ 16,246$ 18,000$ 20,800$ 24,000$ 27,200$ 29,200$
% of Sales 8% 8% 8% 8% 8% 8% 8% 8%
Sales and marketing*** 8,020$ 9,258$ 10,154$ 11,250$ 13,000$ 15,000$ 17,000$ 18,250$
% of Sales 5% 5% 5% 5% 5% 5% 5% 5%
General and administrative $22,454.88 25,924$ 28,431$ 31,500$ 36,400$ 42,000$ 47,600$ 51,100$
% of Sales 14% 14% 14% 14% 14% 14% 14% 14%
Operating Income -$9,624 -$11,110 -$12,185 -$11,250 -$10,400 -$9,000 -$6,800 -$3,650
interest and other expense,net (1,703)$ (3,759)$ (4,177)$ -$ -$ -$ -$ -$
Pre-Tax Earnings -$11,327 -$14,869 -$16,362 -$11,250 -$10,400 -$9,000 -$6,800 -$3,650
Provision(benefit) for income taxes -$ -$ -$ -$ -$ -$ -$ -$
Net Loss -$11,327 -$14,869 -$16,362 -$11,250 -$10,400 -$9,000 -$6,800 -$3,650
Profit Margin -7.1% -8.0% -8.1% -5.0% -4.0% -3.0% -2.0% -1.0%
Shares Outstanding 8,453 11,183 20,902 85,000 88,000 90,000 93,000 96,000
EPS -1.34 -1.33 -0.78 -0.13 -0.12 -0.10 -0.07 -0.04
Print Valuation
Historical as of FYE December 31 Projected as of FYE December 31
EV/Revenue 1X
Enterprise Value 225,000$
Cash and Equivalents 76,864$
Equity Value 301,864$
Shares Outstanding FY 14 85,000
4$
Utilizing a 1X revenue multiple (the low end of Amazon’s
range) on 2014 revenue yields a per share value of $4 for
the lower growth print business

20. Advertising As Revenue Stream
Chegg has ability to offer more relevant advertisements
than other advertising based businesses like Facebook
Actual Product
Students Need,
with free trial
Although I need food and
insurance many of Facebook
ads are more general,
obtrusive, and less
pragmatic

21. Short Thesis
• Non-print growth is lower than expected. Zinch and CheggStudy are
relatively new offerings and there is uncertainty about what new
services Chegg can offer.
• Textbook sale and rental is highly competitive and Amazon has started
a pricing war. Currently Print textbooks are a majority of Chegg’s
revenue.
We feel that given the multi-billion dollar market size, strong
management team, and strong balance sheet Chegg has amassed
that Chegg will be able to grow its non-print offerings through
internal development and acquisitions, making within the
longer time horizon the physical textbook aspect of the business
irrelevant

22. Major Risk Factors
• Limited operating history makes it difficult to evaluate current
business and future prospects
• History of losses and may not achieve or sustain profitability into the
future
• Business model is uncertain in both print and non-print segments
• Linkedin is a strong competitor and has executed very well within
career sector