CHGG

1 University of Oregon Investment Group
4/24/2015
Consumer Goods
Covering Analysts: Brian Van Pelt
Investment Thesis
 An expanded partnership with Ingram Content Group will allow Chegg to
focus entirely on their high growth, high margin digital business.
 Chegg is the market leader in the disruptive, higher education e-learning
industry that is experiencing rapid growth.
 The recent acquisitions of Internships.com and InstaEDU will give Chegg
greater revenue diversity and allow them to penetrate new markets.
Chegg, Inc.
Ticker: CHGG
Current Price: $7.97
Recommendation: Outperform
Price Target: $9.78
Key Statistics
52 Week Price Range
$4.82 - $8.85
50-Day Moving Average $8.21
Estimated Beta 0.89
Dividend Yield 0.00%
Market Capitalization 673.47 mm
3-Year Revenue CAGR 21.01%
Trading Statistics
Diluted Shares Outstanding 84.50 mm
Average Volume (3-Month) 728,671
Institutional Ownership 27.90%
Insider Ownership 50.92%
EV/EBITDA (LTM) 35.9x
Margins and Ratios
Gross Margin (LTM) 55.35%
EBITDA Margin (LTM) 5.37%
Net Margin (LTM) -21.24%
Debt to Enterprise Value 0.0x
Since-IPO Stock Chart
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UOIG 2
University of Oregon Investment Group 4/24/2015
Business Overview
Chegg, Inc. was created by three students at Iowa State University in 2001 and
later incorporated as a Delaware corporation in July 2005. In 2007, Chegg
launched their online print textbook rental service to serve as the foundation of
their growing business. Since 2010, Chegg has made a series of strategic
acquisitions to expand their digital offerings. The company splits revenues into
two reportable segments: print textbooks, and digital offerings.
Print Textbooks
In their print textbook business, Chegg purchases textbooks then rents them out
to students at a substantial discount from the list price to increase volume and
help students save money. Orders are shipped from Chegg’s warehouse to
students in a distinctive orange Chegg box that usually arrives within three
business days. At the end of the term student are able to mail back the book in
the same box for free. Chegg is then able to realize the return on their
investment by renting out the same book over multiple terms. In 2014, Chegg
saved students over $500 million through their textbook rental business.
Although the majority of their transactions are textbook rentals Chegg also
offers both new and used textbooks for sale through their website at a slight
markup from their acquisition cost. This allows Chegg effectively liquidate their
textbook library and generate a greater recovery on their textbooks compared to
bulk liquidations, while still providing students savings over the retail price of a
new book. Chegg sources both new and used books from publishers,
wholesalers, and students through Chegg buyback. Purchasing used books from
students allows Chegg to reduce the investments necessary to maintain their
textbook library while at the same time attracting students to their website.
Purchasing textbooks and maintaining an adequate textbook library is a very
capital-intensive business. Chegg plans the purchase of their textbooks based on
numerous factors such as pricing, demand forecasts for the most popular titles,
estimated timing of edition changes, expected utilization and the planned
liquidation of their existing titles. In February 2015, Chegg announced an
expanded partnership with Ingram. Beginning May 1, 2015, Ingram will be
responsible for all new investments in the Chegg’s textbook library that is
required to support their rentals. Under this new arrangement Chegg will
continue market and use their brand to generate rentals while Ingram will be
responsible for funding all new textbook inventory and fulfillment logistics. As
a result, Chegg expect to cease making additional investments in their textbook
library in 2015, and to rent and liquidate their existing inventory in 2015 and
2016.
Digital Offerings
Chegg’s digital offering segment is their fastest growing segment and the future
of their business. As a result of the Ingram partnership, Chegg expects to be
fully digital by 2017, allowing them to capture much higher margins and
produce significantly more free cash flows for investors. Chegg’s digital
offerings segment consists of a wide range of services and resources for students
to help them transition from high school to college to their careers, all while
enhancing their learning experience. Products and services for students include:
eTextbooks
Chegg offers eTextbooks and supplemental materials from approximately 120
publishers through their HTML5-web-based eTextbook reader. eTextbooks are
available as a rental-equivalent and for free for students who are awaiting the
Figure 1: Revenue by Segment - 2014
Source: Chegg 10-K
70.09%
29.91%
Print Textbooks Digital Offerings
Figure 3: Print Textbook Revenue 2011-
2019
Source: UOIG Spreads
$0
$50,000
$100,000
$150,000
$200,000
$250,000
2011A 2013A 2015E 2017E 2019E
Figure 2: How Chegg Makes Money
Source: Chegg Media Center

UOIG 3
arrival of their print textbook rental. Chegg’s eTexbook reader can be accessed
on any PC, tablet, or smartphone, and enables quick and easy navigation,
keyword search, the ability to highlight text and take notes, as well as the ability
to share notes and highlights and essentially create chapter-by-chapter study
guides.
Chegg Study
Chegg Study service helps students master challenging subjects on his or her
own. For high demand print textbooks, primarily in the more technical subjects
such as sciences, math, engineering, business and economics, Chegg offers step-
by-step textbook solutions to the questions at the end of each chapter. For other
questions, Chegg offers a Q&A service where students can ask a question on
their website to be answered by their community of users or full-time subject
experts, or pull from an archived database of similar questions.
Tutoring
To complement Chegg Study student can access help online 24-7 from qualified
tutors in a wide range of subjects and pay as little a t $0.50 per minute. Students
have the option of subscribing to weekly or monthly packages, or using the
service as a pay-as-you-go basis.
College Admissions and Scholarship Services
This part of Chegg.com aims to connect prospective high school seniors as well
as junior and community college students with their “best fit” possibilities based
on their interest passions and personalities. Students can also use the
“Scholarship Match” tool to find the best opportunities from a total database of
more than $1.0 billion is scholarship and merit awards. In 2014, Chegg received
11.7 million inquiries from students using their college admissions and
scholarship services.
Internships
In 2014, Chegg acquired internships.com to expand their digital offerings.
Chegg’s internships marketplace connects students to over 190,000 internships
with more than 65,000 employers across the U.S. Students can upload their
resumes, search and apply for internships directly through Chegg’s website.
Chegg currently offers this service for free.
Enrollment Marketing Services
Chegg works with approximately 750 colleges and universities to provide
admission and transfer support through their enrollment and marketing services.
Chegg helps colleges attract students and shape their incoming classes by
matching students’ general interest with college profiles. Colleges can pay for
these services on a subscription or per-student basis and by using Chegg’s
marketing services can typically realize recruiting costs of less than $100 per
student, rather than spending hundreds or thousands on traditional methods of
recruitment. In 2014, Chegg delivered more than 5.0 million paid inquiries for
interested college bound students.
Brand Partnerships
Due to their substantial reach of the young student demographic, Chegg works
with brands to integrate their products and services into the Chegg platform.
Chegg’s brand advertising services include digital advertising, product samples,
white label integrations, discounts and other types of promotions. In 2014,
Chegg had advertising contracts with 68 consumer brands and thousands of
local merchants.
Figure 4: Digital Offerings Revenue
2011-2019
$0
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$250,000
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$400,000
$450,000
$500,000
2011A 2013A 2015E 2017E 2019E
Figure 6: Pro Forma Business Model
Source: Chegg Presentation
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
2011A 2012A 2013A 2014A
42% CAGR
Digital Revenue Ingram Comission
Figure 5: The Student Hub
Source: Google Images

UOIG 4
Industry
Overview
The United States education industry is a trillion dollar a year industry that for
the first time in history, is under-pressure from all sides. Advances in technology
are changing the way people learn and have enabled students to take learning
into their own hands. As a result of the strong economic recovery and growing
employment prospects, the education market is projected to continue growing at
a 7% CAGR until 2017.
One of the segments that is likely to see the most change in the upcoming years
is the $14 billion college textbook industry. Textbook publishing has long been
viewed as an impenetrable, with the top industry players enjoying years of
unfettered pricing power. With the price of new printed textbooks rising by an
average of 6% per year over the past decade, and the shift to digital and open
access content, the average spending on course materials has declined in recent
years as debt-ridden students are become more cost conscious.
Even as print textbook revenue declines, eBooks have yet to really take off.
According to Student Monitor, eTextbooks made up only 8% of all textbooks
purchased. While this may seem like bad news for Chegg, eTextbooks are still
growing slowly and many publishers believe that learning platforms that provide
students with an interactive experience while learning the content from a
traditional textbook will drive sales in the near future.
Furthermore, Chegg has begun to transition away from their textbook business
to focus more on their high-growth digital offerings. One of the fastest growing
segments within the education industry is the e-learning market. The higher
education e-learning market is projected to continue to grow at a 38% CAGR
until 2017 while the K-12 eLearning market is projected to grow at a 50%
CAGR (GSV Advisors), indicating that the education market is only at the
beginning stages of its disruption.
Tutoring is a $9.3 billion dollar market in the U.S. alone that will rapidly move
online in the next few years. Over 2 million students a year take test prep, which
has yet to be transformed online. College recruiting is a $5 billion dollar market.
Macro factors
The key external drivers of revenue in the education services industry are the
number of college and K-12 students and per capita disposable income.
Increased competition in the job market has resulted in more students pursuing a
college degree than ever before. As a result, the number of college student is
projected to increase over the next five years at an average rate of 1.1% per year
to 22.3 million (IBISWorld), which will increase the demand for many of the
services Chegg provides. Similarly, an increase in the number of kids in K-12
will boost demand for tutoring, test prep, and other college admissions services.
Competition
Chegg does not have any competitors that compete with them across the entirety
of their business. However, they do face significant competition in each aspect
of their business and that competition is expect to increase. In the print textbook
business Chegg faces competition from college bookstores and online
marketplaces such as Amazon, eBay, and Half.com. Since many students are
highly price sensitive and will purchase from multiple providers, Chegg’s print
textbook business competes primarily on price. Chegg’s eTexbook business
competes on price, selection, and the functionality of their eTextbook readers.
Figure 7: Number of College Students
2010-2020
Source: IBISWorld
-3%
-2%
-1%
0%
1%
2%
3%
4%
19.5
20.0
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2010 2012 2014 2016 2018 2020
%Change
NumberofCollegeStudents(mm)
Figure 8: Number of K-12 Students 2010-
2020
Source: IBISWorld
0.0%
0.1%
0.2%
0.3%
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0.5%
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2010 2012 2014 2016 2018 2020
%Change
NumberofK-12Students(mm)
Figure 9: Per Capita Disposable Income
Source: IBISWorld
0.0%
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3.5%
$0
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$50,000
2010 2012 2014 2016 2018 2020
%Change
PerCapitaDisposableIncome

UOIG 5
Chegg’s primary competitors in this space are Apple (iTunes), CourseSmart,
BlackBoard, and Google.
For their enrollment marketing services Chegg competes with traditional
methods of student recruitment such as radio, television, and internet
advertising, print mail marketing programs, and student data providers. Chegg
competes on the number of high-quality connections they can provide as well as
price. With respect to brands, Chegg competes with different offline and online
outlets that generate revenue from advertisers and marketers that target high
school and college students.
Strategic Positioning
Technology and Platform Integration
Chegg’s technology is designed to create a connected learning platform that
provides students with a personalized learning experience. Personalization and
customization is accomplished as a result of the Student Graph and Chegg’s
search technology. The Student Graph is the accumulation of data on the
collective activity of students in Chegg’s network. Each time a student engages
with Chegg’s platform, they provide information that Chegg is able to collect,
organize and process to algorithmically create a personalized homepage. In
addition to student data, Chegg accesses data from public and private sources to
integrate into their platform.
Sales and Marketing
Due to the high turnover of Chegg’s customer base, Chegg’s success is heavily
reliant on their ability to advertise and reach students. Chegg reaches students
through different direct marketing channels that are relevant to students. They
deploy search engine optimization techniques designed to increase their content
visibility in organic, unpaid result listings. These SEO efforts are complemented
by search engine marketing that uses keyword simulation and bid management
tools to optimize bidding, increase impressions and drive conversion.
Chegg uses display marketing to increase brand awareness by running display
ads on major online and mobile advertising networks. They utilize three types of
email marketing services designed to drive activation and retention, deepen
engagement, and increase sales. Through campus activation programs, Chegg
partners with brand to bring entertainment and other promotional events to
students. Chegg also acquires and engages student through content produced by
student bloggers around key student concerns and interests. But perhaps the
most advantageous sales and marketing tool that Chegg has is their textbook
business. Most students come to Chegg for their textbook rentals and then are
made aware of all of Chegg’s other services.
Strategic Partnerships
In the past year, Chegg has entered into three new strategic partnerships to
bolster their revenue growth and increase their reach. The most notable and
recent of these partnerships is with Ingram, which as previously stated will
allow Chegg to focus solely on their digital offerings. In the previous quarter
Chegg announced a major distribution deal with Blackboard, Inc., a leading
learning software management company. Later this year Blackboard will begin
offering Chegg Study, Chegg Tutoring, and Chegg’s career services through it’s
Blackboard learn page. Lastly, a new partnership with Fanatics, an online
retailer, will allow Chegg to sell officially licensed school-branded apparel on
their website.
Figure 11: Chegg Employee Ethnic
Diversity
Source: Chegg Media Center
33%
3%
4%3%
56%
Asian Black Hispanic Other White
Figure 12: Blackboard, Inc. Logo
Figure 10: Top Five Named Competitors
Source: Factset
Competitor Ticker Market Cap
Amazon, Inc. AMZN 181.1 B
Barnes & Noble, Inc. BKS 1.47 B
eBay, Inc. EBAY 71.27 B
Google, Inc. GOOG 372.3 B
Apple, Inc. AAPL 755.3 B

UOIG 6
Business Growth Strategies
Organic Growth
As Chegg transitions toward becoming a digital centric business, management
plans to continue to invest in long-term organic growth initiatives, particularly
further investment in technology that improves their learning platform and the
student graph to provide a more compelling and personalized solution for
students. Chegg believes that expanded and deeper penetration of the student
demographic will drive further growth in their brand marketing and enrollment
services.
Chegg will continue to focus primarily on the United States and the rapidly
growing e-learning market. They have taken several steps, such as strategic
partnerships and new product offerings, to ensure that they will be able to
extract growth at a better rate than small rivals. At the beginning of 2014 Chegg
set forth three goals for the end of 2016: reach 50% of all U.S. college students,
reach 50% of all U.S. college-bound high school students, and generate more
than 50% of revenue from their digital business.
External Growth
In 2014, Chegg completed four acquisitions totaling $55.6 million, paid for in
cash, to expand their digital offerings and diversify their sources of revenue.
Internships.com
Research has shown that internships are step in the higher education process.
The acquisition of internships.com allows Chegg to increase their reach and
enter into the $5 billion College recruiting market. As the leading internship site
for students, Internships.com has more than 2 million registered students, 80%
of which are new to Chegg.
InstaEDU, Inc.
In June, Chegg acquired 100% of the outstanding shares and voting rights of
InstaEDU, Inc. for a total fair value of $31.1 million. Since the acquisition,
InstaEDU has been successfully integrated into the Chegg platform and
rebranded Chegg Tutors. New student sign-ups have increased by over 700%,
paying customers grew over 200%, and the number of new tutors has also grown
close to 200%.
Campus Special
Chegg acquired Campus Special to expand their offering to include coupon
specials on consumer goods and services. Campus Special is the nations leading
provider of free online ordering, mobile and printed coupon books, and other
discounts to college students.
Management and Employee Relations
Dan Rosensweig – President and CEO
Rosensweig has served as President and CEO of Chegg since going public in
2013. He earned a Bachelor of Arts in Political Science from Hobart College in
Geneva, New York. Dan brings years of high growth consumer business
experience having worked as President and CEO of Guitar Hero and Chief
Operating Officer at Yahoo. In addition, Rosensweig is a member of the
Executive in Residence program at Columbia University and is on the Board of
Directors of Adobe Systems, Inc. and Katalyst Media.
Figure 13: 2014 Acquisitions
Source: Chegg 10-K
Company Price
Bookstep LLC. 0.5
The Campus Special 14.0
InstaEDU, Inc. 31.1
Internships.com 10.0
Total 55.60$
Figure 15: Key Executive Compensation
Source: Chegg 10-K
Salary ($) Total ($)
Dan Rosensweig 603,077 8,969,812
President and CEO
Andrew Brown 389,356 3,097,362
CFO
Chuck Geiger 381,000 3,369,171
CTO
Figure 14: Chegg Tutors App

UOIG 7
Anne Dwan – Chief Business Officer
Anne Dwan joined Chegg in 2011 with the Acquisition of Zinch and is
responsible for all of Chegg’s lines of revenue. She earned a Bachelors degree in
Marketing & International Management from Georgetown University and an
MBA from the Harvard Business School. Before joining Chegg, Dwan helped
cofound Military.com, which connects military service members and veterans to
benefits and career networking, and also worked in business development for
Paul Allen’s Interval Resource Corporation.
Andrew Brown – CFO
Andrew Brown has over 25 years of experience within the financial sector and
has serverd as CFO of three public companies, the most recent being Palm, Inc.
He earned his Bachelor of Science in accounting from Eastern Illinois
University, where he also serves on the Business School advisory board. Andy
has the proven ability to help build organizations in high growth environments
and significant experience in the consumer technology space.
Management Guidance
Management provides quarterly and yearly guidance estimates for sales, gross
margin, and segment revenue. Since their IPO, management has been very
accurate with their guidance estimates, having never missed their low end
estimates. For 2015, management projects total sales in between $288 million
and $312 million.
Portfolio Strategy
Chegg is not currently held in any of the group’s portfolios. The Svigals’
portfolio is currently in line in consumer goods and heavily underweight small
cap. Given the blended investment strategy of Svigal’s portfolio and the dire
need for more small-caps, Chegg is an ideal fit for the portfolio.
Recent News
“Chegg to Announce First Quarter Financial Results”
April 20, 2015
Chegg announced that it is scheduled to release earnings for the first quarter of
2015 on Wednesday, May 6th
, 2015, after the market closes. Chegg will also
hold a conference call at 2:15 PT on the same day to discuss the first quarter
financial results.
“Chegg and Ingram Content Group Sign Agreement”
April 6, 2015
Chegg announced that they have signed the agreement with Ingram that sets
forth the principal terms announced in February. Beginning May 1, 2015,
Ingram will be responsible for purchasing all new textbook inventories for the
Chegg catalog, while Chegg will continue to market its catalog, and manage the
front-end student relationships.
Catalysts
Upside
Figure 18: Svigals’ Allocation vs.
Benchmark
45.08%
19.27%
29.88%
19.56%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Small-cap Consumer Goods
Benchmark
Portfolio
Figure 17: 2015 Outlook
Source: Chegg Earnings Call
Q1, 2015 FISCAL 2015
Revenue $76mto $80m $288mto $312m
Digital Revenue $29mto $31m $133mto $143m
Gross Margin 25% to 26% 33% to 35%
Figure 16: 2014 Sales Guidance vs.
Actual
Source: Factset
74.4
64.5
81.5
84.4
$55
$60
$65
$70
$75
$80
$85
$90
Q1 Q2 Q3 Q4
Low High Actual

UOIG 8
 The distribution deal with Blackboard Inc. will substantially increase
Chegg’s potential reach to students and make it easier for admissions
offices to see Chegg as a partner.
 Large potential global market for online tutoring services.
 Zero debt on the balance sheet and plenty of cash will provide
flexibility for pursuing new investments.
Downside
 New legislative proposals about the collection and use of student data
could adversely affect Chegg’s business.
 High turnover rate off Chegg’s customer base, primarily due to
graduation, requires continuous investment in marketing to the student
population.
 Chegg’s core value of putting student first may conflict with the short-
term interests of their business
Qualitative Comparable Analysis
Due to Chegg’s high growth profile and unique product offerings, two sets of
comparable companies were used to derive a relative valuation. Qualitative
comparable companies were selected by focusing on companies with similar
product offerings, diversity of products, brand equity, and risk exposure.
However, since Chegg does not compete with any companies across the entirety
of its business, even finding good qualitative comparable companies was
difficult. Thus, the qualitative comparable analysis was only given a weighting
of 5%.
InterActiveCorp (IACI) – 30%
“IAC/InterActiveCorp operates as a media and Internet company in the United
States and internationally. It operates through four segments: The Match Group,
Search & Applications, Media, and eCommerce.” – Yahoo! Finance
InterActiveCorp received the highest weighting because it had the most
comparable product offerings to Chegg. InterActiveCorp has a diverse portfolio
of digital offerings such as college test prep and admissions services, online
tutoring, and various websites such as Ask.com, Dictionary.com, and
Investopedia.
John Wiley & Sons, Inc. (JW-A) – 25%
“John Wiley & Sons, Inc. provides knowledge and knowledge-enabled services
in the areas of research, professional practice, and education worldwide. It
operates in three segments: Research, Professional Development, and
Education.” - Yahoo! Finance
John Wiley & Sons was chosen as a comparable company because of the wide
range of educational products and services they provide. While they provide
similar products and services as Chegg, and serve similar end markets, John
Wiley & Sons received a slightly lower weighting than InterActiveCorp because
they are primarily a publishing company, and therefore do not have the same
focus on their digital offerings as Chegg does.
GP Strategies Corp. (GPX) – 25%
Figure 20: InterActiveCorp Logo
Figure 21: John Wiley & Sons Logo
Figure 22: GP Strategies Corp Logo
Multiple Implied Price Weight
EV/Revenue 6.28 100.00%
EV/Gross Profit 8.30 0.00%
EV/EBIT (22.54) 0.00%
EV/EBITDA 3.95 0.00%
EV/(EBITDA-Capex) 2.28 0.00%
Market Cap/Net Income = P/E (82.25) 0.00%
Price Target $6.28
Current Price 7.97
Overvalued (21.22%)
Figure 19: Qualitative Comps

UOIG 9
“GP Strategies Corporation provides customized training solutions focused on
performance improvement initiatives in the United States and internationally. Its
Learning Solutions segment delivers training, curriculum design and
development, e-learning, system hosting, and training business process
outsourcing and consulting services to electronics and semiconductors,
healthcare, software, financial, and other industries, as well as to government
agencies.” - Yahoo! Finance
Although they target a different demographic than Chegg, GP Strategies was
chosen as a comparable company because of their diverse portfolio of
educational services. In addition, GP Strategies also has a similar composition of
digital products and service as Chegg.
Amazon, Inc. (AMZN) – 25%
“Amazon.com, Inc. operates as an online retailer in North America and
internationally. It operates in two segments, North America and International.
The company serves consumers through retail Websites, such as amazon.com
and amazon.ca, which primarily include merchandise and content purchased for
resale from vendors and those offered by third-party sellers.” - Yahoo! Finance
Amazon was chosen as a comparable company because it is currently Chegg’s
biggest competitor. However, Amazon received the second lowest weighting
because textbook rentals and sales make up only a fraction of their total revenue.
K-12, Inc. (LRN) – 0%
“K12 Inc., a technology-based education company, offers proprietary
curriculum, software systems, and educational services to facilitate
individualized learning for students primarily in kindergarten through 12th
grade. It manages virtual and blended public schools. The company also offers
curriculum and technology solutions; full-time virtual and blended programs,
semester courses, and supplemental solutions; teacher training, teaching, and
other support services to public schools, school districts, private schools, charter
schools, and early childhood learning centers.” - Yahoo! Finance
Although K-12, Inc. provides many of the same types of services to children in
primary and secondary education as Chegg does for college students, the
disparity between Chegg and K-12’s growth profile and trading multiples was
too substantial to assign them a weighting.
Quantitative Comparable Analysis
Quantitative comparable companies were selected by screening for high growth
companies that were similar to Chegg in size, capital structure, and in the same
stage of the business life cycle. Comparable companies had to be located in the
United States, have a market capitalization between $450 million - $850 million,
2014 revenue growth between 15% - 30%, no long-term debt, and year over
year gross margin improvement. Additional parameter such as 2015 & 2016
revenue growth were also used but with more flexibility. Since all the
companies were based solely on the same quantitative metrics, an equal
weighting of 20% was assigned to each company.
Lending Tree, Inc. (TREE) – 20%
“LendingTree, Inc., through its subsidiaries, operates an online loan marketplace
for consumers seeking an array of loan types and other credit-based offerings in
Figure 24: K-12, Inc. Logo
Figure 23: Amazon Inc. Logo
Figure 26: Lending Tree Corp Logo
Figure 25: Quantitative Comps
EV/Revenue 9.70 100.00%
EV/EBIT 14.89 0.00%
Market Cap/Net Income = P/E 7.96 0.00%
Price Target $9.70
Current Price 7.97
Undervalued 21.70%

UOIG 10
the United States. The company operates in four segments: Lending, Auto,
Education, and Home Services.” - Yahoo! Finance
FormFactor, Inc. (FORM) – 20%
“FormFactor, Inc. designs, develops, manufactures, sells, and supports
semiconductor probe card products and solutions worldwide. The company’s
probe cards are used to perform wafer test, which is the testing of the
semiconductor die or chips on the semiconductor wafer.” - Yahoo! Finance
Callidus Software, Inc. (CALD) – 20%
“Callidus Software Inc. provides enterprise software and related services to
telecommunications, insurance, banking, and technology markets worldwide. It
offers Marketing Automation to generate sales leads by capturing intelligence
about buyers' behaviors and engaging them across multiple channels; Territory
and Quota to evaluate territory, quota distribution plans, and strategies for
meeting corporate sales goals; Enablement that provides sales content at each
step of the sales cycle; Litmos Learning Management System for training;
Litmos Content to create courses that can be published to desktop browsers and
mobile devices; and Sales Performance Manager to set targeted coaching plans
to the individual sales professional.” - Yahoo! Finance
LivePerson, Inc. (LPSN) – 20%
“LivePerson, Inc. provides online engagement solutions that facilitate real-time
assistance and expert advice in the United States, Canada, Latin America, South
America, Europe, the Middle East, Africa, and the Asia-Pacific. It operates in
two segments, Business and Consumer.” - Yahoo! Finance
Mobileron, Inc (MOBL) – 20%
“MobileIron, Inc. provides a purpose-built mobile IT platform that enables
enterprises to secure and manage mobile applications, content, and devices
while providing their employees with device choice, privacy, and a native user
experience. The company’s MobileIron platform offers mobile device
management capabilities that enable IT to securely manage mobile devices
across mobile operating systems and provide secure corporate email, automatic
device configuration, and certificate-based security; and mobile application
management functionality, which helps IT manage the entire apps lifecycle,
from making apps available in the enterprise app storefront, securing
applications on the device, enforcing user authentication, isolating them from
personal apps, and retiring them as necessary.” - Yahoo! Finance
Discounted Cash Flow Analysis
Revenue Model
Revenue was broken down into Chegg’s two main business segments and then
projected forward based off management guidance. The transition of Chegg into
a fully digital company is not expected to begin until the second quarter so its
effects were not reflected in their first quarter guidance. During the transition
period management anticipates total revenue to remain relatively flat in 2015,
decline in 2016, and then reaccelerate in 2017. Print revenue during that period
is expected to decline moderately in 2015, rapidly in 2016, and be zero in 2017.
Thus, print revenue for 2015 and 2016 was projected by solving for a negative
growth rate that linearly decreases revenue to arrive at fiscal year totals that
match management’s expectations of total revenue and print textbooks as a
percentage of revenue.
Figure 27: Form Factor Inc. Logo
Figure 28: Callidus Software, Inc. Logo
Figure 30: Mobilron, Inc. Logo
Figure 29: LivePerson, Inc. Logo

UOIG 11
Digital revenue for 2015 and 2016 was also projected by solving for yearly
growth rates that bring segment revenue, total revenue, and digital offerings as a
percentage of revenue in line with management’s expectations. In 2017, digital
revenue (now total revenue) is projected to grow 40% as Chegg benefits from
the Ingram commission, before dropping to 28% growth in 2018 and 25% in the
terminal year.
Cost of Revenues
Cost of revenues was also projected using management guidance. However, in
their guidance management does not use normalized COGS, so non normalized
COGS was projected out using guidance and then D&A was subtracted from
those numbers. For 2015, management expects gross margin to be between 33%
and 35%. This is expected to increase significantly in 2016 because the gross
margin from the Ingram commission is expected to be in the 50%-60% range
compared to the low-to-mid teens currently experience with print revenue. Thus,
gross margin is projected to increase to 60% by 2017, and be 63% going into
perpetuity.
Operating Expenses
General and Administrative Expense
G&A expense increased significantly in 2013 and 2014 due to higher costs
related to Chegg’s IPO and acquisitions. During the transition period G&A is
projected to remain constant as a percentage of revenue while Chegg is in
transition and then recede back near pre IPO levels going into perpetuity.
Sales and Marketing
Brand and reach are critical to success in the e-learning market. Therefore, as
Chegg continues to expand their digital offerings, sales and marketing expense
is projected to increase linearly as a percentage of revenue
Technology and Development
Technology and development expenses have decreased as a percentage of
revenue over the past four years as Chegg has been able to better leverage their
size and scale. This trend is projected to continue going forward but at a slower
rate.
Depreciation and Amortization
Depreciation and amortization was broken out into three sub categories and
projected forward as a percentage of net PP&E. Chegg will stop making
investments in their textbook library beginning May 1st
, 2015. Over the next two
years they will begin to liquidate their textbook library. Management has said
that the value of their textbook inventory will be reduced by approximately 50%
by the end of 2015 and is expected to be less than $10 million by the end of
2016. Therefore, textbook depreciation expenses are meant to reflect these
changes.
Beta
Chegg’s beta was calculated by regressing the 1-year daily, and Since-IPO daily
excess returns against the S&P 500. However, given the high standard errors of
these betas, they were each only given a weighting of 5% and Hamada betas
were calculated using both sets of comps.
Tax Rate
Chegg currently has a net operating loss carryforwards of $36.85 million. This is
expected to reduce Chegg’s provision for income taxes in 2016 and 2017 when
Figure 32: Total Revenue and Gross
Margin 2011-2019
0%
10%
20%
30%
40%
50%
60%
70%
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
2011A 2013A 2015E 2017E 2019E
Digital Revenue
Print Revenue
Gross Margin
Figure 33: Operating Expenses 2011-
2019
$0
$50,000
$100,000
$150,000
$200,000
$250,000
2011A 2013A 2015E 2017E 2019E
General and Administrative
Sales and Marketing
Technology and Development
Figure 31: Projected Transition Period
Revenue 2014-2017
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
2014 2015 2016 2017
Print
Total
Digital

UOIG 12
EBIT becomes positive at which time they will be taxed at an effective tax rate
of 35%.
Recommendation
At a current price of $7.97, both the discounted cash flows analysis and
quantitative comparable analysis indicate that Chegg is undervalued. Chegg is
the market leader in a rapidly growing industry that will be able to capture
significantly higher margins as a result of their expanded Ingram partnership.
Thus, I recommend a buy for the Svigals’ portfolio.
Figure 34: Beta Calculation
Beta SE Weighting
1-Year Daily 0.89 0.30 5.00%
Since IPO Daily 0.82 0.26 5.00%
Since IPO Weekly 1.05 0.55 0.00%
Hamada - Quantitative Comps 1.04 NA 35.00%
Hamada - Qualitative Comps 0.80 NA 55.00%
Chegg, Inc. Beta 0.89
Final Price Target
Valuation Method Implied Price Weighting
Discounted Cash Flows 10.20 50%
Quantitative Comps 9.70 45%
Qualitative Comps 6.28 5%
Final Implied Price $9.78
Current Price 7.97
Undervalued 22.72%

Date of PresentationUniversity of Oregon Investment Group 4/24/2015
UOIG 13
Appendix 1 – Quantitative Relative Valuation
Comparables Analysis CHGG AMZN JW.A IACI GPX LRN
($ in thousands) Chegg, Inc. Amazon
John Wiley &
Sons, Inc. InterActiveCorp
GP Strategies
Corp. K12, Inc.
Stock Characteristics Max Min Median Weight Avg. 20.00% 25.00% 30.00% 25.00% 0.00%
Current Price $389.51 $7.97 $58.26 $122.68 $7.97 $389.51 $58.26 $71.43 $35.13 $16.33
Beta 1.25 0.75 1.03 0.98 0.89 1.25 0.75 1.03 0.95 1.21
Size
Short-TermDebt 100,000 - 18,255 33,533 - - 100,000 - 34,132 18,255
Long-TermDebt 8,265,000 - 588,111 2,130,139 - 8,265,000 588,111 1,080,000 24,444 14,109
Cash and Cash Equivalent 17,416,000 14,541 260,215 3,849,011 89,463 17,416,000 260,215 990,405 14,541 124,234
Non-Controlling Interest 19,801 - - 357 - - - 1,189 - 19,801
Preferred Stock - - - - - - - - - -
Diluted Basic Shares 464,384 17,218 50,428 134,391 95,271 464,384 50,428 82,010 17,218 38,412
Market Capitalization 180,882,188 603,987 3,479,726 38,918,102 676,810 180,882,188 3,479,726 5,735,788 603,987 627,272
Enterprise Value 171,731,188 555,203 3,907,622 37,233,120 587,347 171,731,188 3,907,622 5,826,572 648,022 555,203
Growth Expectations
% Revenue Growth 2015E 15.20% -1.88% 4.32% 6.04% -1.88% 15.20% 0.38% 6.08% 4.32% 2.53%
% Revenue Growth 2016E 17.30% -7.68% 4.96% 8.07% -7.68% 17.30% 4.96% 4.73% 7.81% -6.96%
% EBITDA Growth 2015E 43.40% -37.92% 9.06% 11.58% -37.92% 43.40% 13.13% -8.83% 9.06% -0.18%
% EBITDA Growth 2016E 43.10% -17.63% 16.93% 22.43% 26.14% 43.10% 16.93% 23.58% 10.03% -17.63%
% EPS Growth 2015E 36.00% -188.10% 10.49% -28.69% -43.00% -188.10% 3.59% 18.04% 10.49% 36.00%
% EPS Growth 2016E 621.80% -139.09% 18.30% 141.23% -139.09% 621.80% 18.30% 32.56% 10.13% -35.82%
Profitability Margins
Gross Margin 71.96% 18.35% 37.82% 50.30% 55.35% 31.15% 71.55% 71.96% 18.35% 37.82%
EBIT Margin 14.87% (12.59%) 9.09% 9.25% -12.59% 0.71% 14.87% 10.40% 9.09% 3.81%
EBITDA Margin 20.42% 6.89% 11.56% 13.56% 6.90% 6.89% 20.42% 14.40% 11.04% 11.56%
Net Margin 10.40% (12.34%) 5.42% 5.73% -12.34% 0.18% 10.40% 5.79% 5.42% 2.65%
Credit Metrics
Interest Expense $210,000.00 $317.00 $14,880.00 $62,820.50 $317.00 $210,000.00 $14,880.00 $56,310.00 $830.00 $570.00
Debt/EV 0.19 - 0.09 0.13 - 0.05 0.18 0.19 0.09 0.06
Leverage Ratio 2.27 - 1.17 1.62 - 1.17 1.82 2.27 1.01 0.30
Interest Coverage Ratio 191.05 191.05 191.05 191.05 65.09 33.63 25.47 8.44 69.64 191.05
Operating Results
Revenue $102,485,000 $299,115 $1,856,000 $22,081,600 $299,115 $102,485,000 $1,856,000 $3,299,000 $523,600 $942,000
Gross Profit $31,927,000 $96,100 $1,328,000 $7,453,625 $165,554 $31,927,000 $1,328,000 $2,374,000 $96,100 $356,300
EBIT $725,000 ($37,651) $276,000 $328,800 ($37,651) $725,000 $276,000 $343,000 $47,600 $35,900
EBITDA $7,063,000 $20,635 $379,000 $1,664,300 $20,635 $7,063,000 $379,000 $475,000 $57,800 $108,900
Net Income $193,000 ($36,913) $187,000 $150,050 ($36,913) $187,000 $193,000 $191,000 $28,400 $25,000
Capital Expenditures $5,673,000 $4,000 $64,000 $1,173,050 $16,992 $5,673,000 $73,000 $64,000 $4,000 $23,400
Multiples
EV/Revenue 2.11x 0.59x 1.68x 1.70x 1.96x 1.68x 2.11x 1.77x 1.24x 0.59x
EV/Gross Profit 6.74 1.56 2.94 4.23 3.55 5.38 2.94 2.45 6.74 1.56
EV/EBIT 236.87 (15.60) 15.47 59.41 (15.60) 236.87 14.16 16.99 13.61 15.47
EV/EBITDA 28.46 5.10 11.21 13.92 28.46 24.31 10.31 12.27 11.21 5.10
EV/(EBITDA-Capex) 161.23 6.49 12.77 35.17 161.23 123.55 12.77 14.18 12.05 6.49
Market Cap/Net Income = P/E 967.28 (18.34) 25.09 212.29 (18.34) 967.28 18.03 30.03 21.27 25.09
EV/Revenue 6.28 100.00%
EV/EBIT (22.54) 0.00%
Market Cap/Net Income = P/E (82.25) 0.00%
Price Target $6.28
Current Price 7.97
Overvalued (21.22%)

UOIG 14
Appendix 2 – Qualitative Relative Valuation
Comparables Analysis CHGG TREE FORM CALD LPSN MOBL
($ in thousands) Chegg, Inc. LendingTree, Inc FormFactor, Inc.
Callidus
Software, Inc. LivePerson, Inc. Mobileron, Inc.
Stock Characteristics Max Min Median Weight Avg. 20.00% 20.00% 20.00% 20.00% 20.00%
Current Price $59.99 $7.97 $9.79 $20.39 $7.97 $59.99 $9.30 $13.44 $9.79 $9.45
Beta 1.52 0.80 1.12 1.17 0.89 0.80 1.33 1.52 1.08 1.12
Size
Short-TermDebt - - - - - - - - - -
Long-TermDebt - - - - - - - - - -
Cash and Cash Equivalent 163,837 36,966 104,928 94,652 89,463 104,928 163,837 36,966 49,372 118,156
Non-Controlling Interest 26,267 - - 5,253 - - - - - 26,267
Preferred Stock - - - - - - - - - -
Diluted Basic Shares 95,271 12,430 56,930 50,831 95,271 12,430 57,582 49,806 56,930 77,407
Market Capitalization 736,736 535,514 665,499 645,319 676,810 736,736 535,514 665,499 557,348 731,499
Enterprise Value 639,610 371,677 628,533 555,921 587,347 631,808 371,677 628,533 507,976 639,610
Growth Expectations
% Revenue Growth 2015E 28.72% -1.88% 20.42% 20.72% -1.88% 17.62% 10.09% 20.42% 26.77% 28.72%
% Revenue Growth 2016E 29.24% -7.68% 15.78% 17.74% -7.68% 15.03% 9.10% 19.57% 15.78% 29.24%
% EBITDA Growth 2015E 53.52% -37.92% 26.69% 26.59% -37.92% 29.82% 18.72% 53.52% 26.69% 4.20%
% EBITDA Growth 2016E 44.04% 13.98% 31.80% 28.35% 26.14% 31.80% 13.98% 44.04% 18.93% 33.00%
% EPS Growth 2015E 78.57% -43.00% 45.00% 43.22% -43.00% -23.89% 78.13% 78.57% 45.00% 38.30%
% EPS Growth 2016E 65.29% -139.09% 31.80% 37.38% -139.09% 65.29% 29.82% 60.00% - 31.80%
Profitability Margins
Gross Margin 95.33% 34.88% 76.25% 70.43% 55.35% 95.33% 34.88% 63.95% 76.25% 81.74%
EBIT Margin 10.15% (39.75%) (1.73%) (5.41%) -12.59% 7.77% 10.15% -3.47% -1.73% -39.75%
EBITDA Margin 18.88% (25.43%) 13.25% 6.37% 6.90% 14.63% 18.88% 13.25% 10.52% -25.43%
Net Margin 7.47% (40.87%) (1.80%) (7.38%) -12.34% 7.47% 3.01% -4.68% -1.80% -40.87%
Credit Metrics
Interest Expense $510 - - $102 $317 - - $510 - -
Debt/EV - - - - - - - - - -
Leverage Ratio - - - - - - - - - -
Interest Coverage Ratio 65.09 65.09 65.09 65.09 65.09 - - 42.75 - -
Operating Results
Revenue $299,115 $164,500 $196,900 $218,680 $299,115 $196,900 $295,600 $164,500 $266,100 $170,300
Gross Profit $202,900 $103,100 $139,200 $147,620 $165,554 $187,700 $103,100 $105,200 $202,900 $139,200
EBIT $30,000 ($67,700) ($4,600) ($6,540) ($37,651) $15,300 $30,000 ($5,700) ($4,600) ($67,700)
EBITDA $55,800 ($43,300) $28,000 $18,220 $20,635 $28,800 $55,800 $21,800 $28,000 ($43,300)
Net Income $14,700 ($69,600) ($4,800) ($11,700) ($36,913) $14,700 $8,900 ($7,700) ($4,800) ($69,600)
Capital Expenditures $16,992 - $5,000 $5,580 $16,992 - - $7,900 $15,000 $5,000
Multiples
EV/Revenue 3.82x 1.26x 3.21x 2.79x 1.96x 3.21x 1.26x 3.82x 1.91x 3.76x
EV/Gross Profit 5.97 2.50 3.61 4.01 3.55 3.37 3.61 5.97 2.50 4.59
EV/EBIT 41.29 (110.43) (9.45) (35.29) (15.60) 41.29 12.39 (110.27) (110.43) (9.45)
EV/EBITDA 28.83 (14.77) 18.14 12.16 28.46 21.94 6.66 28.83 18.14 (14.77)
EV/(EBITDA-Capex) 161.23 (13.24) 21.94 19.93 161.23 21.94 6.66 45.22 39.08 (13.24)
Market Cap/Net Income = P/E 60.17 (116.11) (10.51) (20.55) (18.34) 50.12 60.17 (86.43) (116.11) (10.51)
EV/Revenue 9.70 100.00%
EV/EBIT 14.89 0.00%
Market Cap/Net Income = P/E 7.96 0.00%
Price Target $9.70
Current Price 7.97
Undervalued 21.70%

UOIG 15
Appendix 3 – Discounted Cash Flows Valuation
DiscountedCash FlowAnalysis Q1 Q2 Q3 Q4
($ in thousands) 2011A 2012A 2013A 2014A 03/31/2015E 06/30/2015E 09/30/2015E 12/31/2015E 2015E 2016E 2017E 2018E 2019E
Total Revenue $172,022 $213,334 $255,575 $304,834 $80,963 $59,507 $77,445 $81,200 $299,115 $276,139 $286,888 $367,217 $459,021
% YoY Growth - 24.02% 19.80% 19.27% 8.83% (7.73%) (5.04%) (3.78%) (1.88%) (7.68%) 3.89% 28.00% 25.00%
Cost of Revenues 63,564 75,906 97,678 129,492 43,465 24,008 33,571 32,516 133,561 85,699 95,955 121,914 151,666
% Revenue 36.95% 35.58% 38.22% 42.48% 53.69% 40.35% 43.35% 40.04% 44.65% 31.03% 33.45% 33.20% 33.04%
Gross Profit $108,458 $137,428 $157,897 $175,342 $37,497 $35,499 $43,874 $48,684 $165,554 $190,440 $190,933 $245,304 $307,355
Gross Margin 63.05% 64.42% 61.78% 57.52% 46.31% 59.65% 56.65% 59.96% 55.35% 68.97% 66.55% 66.80% 66.96%
General and Administrative 20,328 25,117 40,486 41,837 10,759 7,908 10,292 10,791 39,750 36,696 37,200 46,431 56,559
% Revenue 11.82% 11.77% 15.84% 13.72% 13.29% 13.29% 13.29% 13.29% 13.29% 13.29% 12.97% 12.64% 12.32%
Sales and Marketing 28,400 51,082 50,302 72,315 18,116 11,530 17,329 15,733 62,709 58,955 62,354 81,227 103,301
% Revenue 16.51% 23.94% 19.68% 23.72% 22.38% 19.38% 22.38% 19.38% 20.96% 21.35% 21.73% 22.12% 22.50%
Depreciation and Amortization 63,448 69,763 77,382 81,493 16,852 16,297 13,644 11,492 58,285 38,563 18,800 12,575 16,445
% PP&E - - 72.08% 65.68% 17.00% 17.02% 16.97% 16.90% 58.80% 66.68% 79.16% 54.15% 54.15%
Technology and Development 29,591 39,315 41,944 49,386 13,206 9,707 12,633 13,245 48,790 44,589 45,927 58,345 72,445
% Revenue 17.20% 18.43% 16.41% 16.20% 16.31% 16.31% 16.31% 16.31% 16.31% 16.15% 16.01% 15.89% 15.78%
Loss (gain) on Liquidation of Textbooks 2,785 (2,594) (1,186) (4,555) (1,713) (1,259) (1,639) (1,718) (6,330) (2,028) - - -
% Revenue 1.62% (1.22%) (.46%) (1.49%) (2.12%) (2.12%) (2.12%) (2.12%) (2.12%) (.73%) - - -
Earnings Before Interest & Taxes ($36,094) ($45,255) ($51,031) ($65,134) ($19,723) ($8,684) ($8,384) ($860) ($37,651) $13,664 $26,652 $46,724 $58,605
% Revenue (20.98%) (21.21%) (19.97%) (21.37%) (24.36%) (14.59%) (10.83%) (1.06%) (12.59%) 4.95% 9.29% 12.72% 12.77%
Interest Expense, Net 3,558 4,393 3,818 317 84 62 81 84 311 287 298 382 477
% Revenue 2.07% 2.06% 1.49% .10% .10% .10% .10% .10% .10% .10% .10% .10% .10%
Other Expense (Income) (1,855) (634) 359 (879) (308) (227) (295) (309) (1,139) (1,052) (1,093) (1,399) (1,748)
% Revenue (1.08%) (.30%) .14% (.29%) (.38%) (.38%) (.38%) (.38%) (.38%) (.38%) (.38%) (.38%) (.38%)
Earnings Before Taxes (37,797) (49,014) (55,208) (64,572) (19,499) (8,519) (8,170) (635) (36,823) 14,428 27,446 47,741 59,876
% Revenue (21.97%) (22.98%) (21.60%) (21.18%) (24.08%) (14.32%) (10.55%) (.78%) (12.31%) 5.22% 9.57% 13.00% 13.04%
Less Taxes (Benefits) (200) 29 642 186 48 21 20 2 90 - 1,760 16,709 20,957
TaxRate .53% (.06%) (1.16%) (.29%) (.25%) (.25%) (.25%) (.25%) (.25%) 0.00% 6.41% 35.00% 35.00%
Net Income ($37,597) ($49,043) ($55,850) ($64,758) ($19,547) ($8,540) ($8,190) ($636) ($36,913) $14,428 $25,687 $31,032 $38,919
Net Margin (21.86%) (22.99%) (21.85%) (21.24%) (24.14%) (14.35%) (10.57%) (.78%) (12.34%) 5.22% 8.95% 8.45% 8.48%
Add Back: Depreciation and Amortization 63,448 69,763 77,382 81,493 16,852 16,297 13,644 11,492 58,285 38,563 18,800 12,575 16,445
Add Back: Interest Expense*(1-TaxRate) 3,539 4,396 3,862 318 84 62 81 85 312 287 279 248 310
Operating Cash Flow $29,390 $25,116 $25,394 $17,053 ($2,611) $7,819 $5,535 $10,941 $21,684 $53,279 $44,766 $43,855 $55,674
% Revenue 17.09% 11.77% 9.94% 5.59% (3.22%) 13.14% 7.15% 13.47% 7.25% 19.29% 15.60% 11.94% 12.13%
Current Assets - 10,142 10,374 21,351 22,190 17,963 26,382 30,714 30,714 29,795 15,759 20,371 25,642
% Revenue - 4.75% 4.06% 7.00% 27.41% 30.19% 34.07% 37.82% 10.27% 10.79% 5.49% 5.55% 5.59%
Current Liabilities - 70,462 48,152 66,719 61,246 48,375 53,654 52,597 52,597 44,206 40,070 45,559 49,949
% Revenue - 33.03% 18.84% 21.89% 75.65% 81.29% 69.28% 64.77% 17.58% 16.01% 13.97% 12.41% 10.88%
Net Working Capital - ($60,320) ($37,778) ($45,368) ($39,056) ($30,411) ($27,272) ($21,883) ($21,883) ($14,411) ($24,311) ($25,188) ($24,307)
% Revenue - (28.27%) (14.78%) (14.88%) (48.24%) (51.11%) (35.21%) (26.95%) (7.32%) (5.22%) (8.47%) (6.86%) (5.30%)
Change in Working Capital - ($60,320.00) $22,542.00 ($7,590.00) $6,312.46 $8,644.18 $3,138.98 $5,389.30 $23,484.93 $7,472.25 ($9,900.49) ($876.64) $880.56
Capital Expenditures 76,801 119,666 129,616 117,897 13,456 964 1,255 1,316 16,992 4,475 4,649 5,951 7,439
% Revenue 44.65% 56.09% 50.72% 38.68% 16.62% 1.62% 1.62% 1.62% 5.68% 1.62% 1.62% 1.62% 1.62%
Acquisitions 14,007 - - 55,537 - - - - - - 13,627 13,771 11,935
% Revenue 8.14% - - 18.22% - - - - - - 4.75% 3.75% 2.60%
UnleveredFree Cash Flow ($61,418) ($34,230) ($126,764) ($148,791) ($22,379) ($1,789) $1,141 $4,236 ($18,792) $41,332 $36,390 $25,010 $35,421
DiscountedFree Cash Flow (21,995) (1,728) 1,083 3,952 35,979 29,555 18,952 25,042

UOIG 16
Appendix 4 – Revenue Model
Appendix 5 – Cost of Revenues
COGS Q1 Q2 Q3 Q4
Total Revenue $172,022 $213,334 $255,575 $304,834 $80,963 $59,507 $77,445 $81,200 $299,115 $276,139 $286,888 $367,217 $459,021
% YoY Growth 24.02% 19.80% 19.27% 8.83% (7.73%) (5.04%) (3.78%) (1.88%) (7.68%) 3.89% 28.00% 25.00%
Cost of Revenues 127,012 145,669 175,060 210,985 60,317 40,306 47,215 44,009 191,847 124,263 114,755 134,489 168,111
% Revenue 73.83% 68.28% 68.50% 69.21% 74.50% 67.73% 60.97% 54.20% 64.14% 45.00% 40.00% 36.62% 36.62%
Gross Profit $45,010 $67,665 $80,515 $93,849 $20,645 $19,201 $30,231 $37,191 $107,269 $151,877 $172,133 $232,728 $290,910
Gross Margin 26.17% 31.72% 31.50% 30.79% 25.50% 32.27% 39.03% 45.80% 35.86% 55.00% 60.00% 63.38% 63.38%
NormalizedCOGS Q1 Q2 Q3 Q4
Total Revenue $172,022 $213,334 $255,575 $304,834 $80,963 $59,507 $77,445 $81,200 $299,115 $276,139 $286,888 $367,217 $459,021
% YoY Growth 24.02% 19.80% 19.27% 8.83% (7.73%) (5.04%) (3.78%) (1.88%) (7.68%) 3.89% 28.00% 25.00%
Cost of Revenues 63,564 75,906 97,678 129,492 43,465 24,008 33,571 32,516 133,561 85,699 95,955 121,914 151,666
% Revenue 36.95% 35.58% 38.22% 42.48% 53.69% 40.35% 43.35% 40.04% 44.65% 31.03% 33.45% 33.20% 33.04%
Gross Profit $108,458 $137,428 $157,897 $175,342 $37,497 $35,499 $43,874 $48,684 $165,554 $190,440 $190,933 $245,304 $307,355
Gross Margin 63.05% 64.42% 61.78% 57.52% 46.31% 59.65% 56.65% 59.96% 55.35% 68.97% 66.55% 66.80% 66.96%
Revenue Model Q1 Q2 Q3 Q4
Print Textbooks 160,396 185,169 203,077 213,657 50,963 31,155 37,618 38,056 157,791 71,219 - - -
% Growth - 15.44% 9.67% 5.21% (10.00%) (31.97%) (31.97%) (31.97%) (26.15%) (54.86%) - - -
% of Total Revenue 93.24% 86.80% 79.46% 70.09% 62.95% 52.35% 48.57% 46.87% 52.75% 25.79% - - -
Digital Offerings 11,626 28,165 52,498 91,177 30,000 28,352 39,828 43,144 141,324 204,920 286,888 367,217 459,021
% Growth - 142.26% 86.39% 73.68% 68.84% 51.65% 51.65% 51.65% 55.00% 45.00% 40.00% 28.00% 25.00%
% of Total Revenue 6.76% 13.20% 20.54% 29.91% 37.05% 47.65% 51.43% 53.13% 47.25% 74.21% 100.00% 100.00% 100.00%
Total Revenue $172,022 $213,334 $255,575 $304,834 $80,963 $59,507 $77,445 $81,200 $299,115 $276,139 $286,888 $367,217 $459,021
% Growth - 24.02% 19.80% 19.27% 8.83% (7.73%) (5.04%) (3.78%) (1.88%) (7.68%) 3.89% 28.00% 25.00%

UOIG 17
Appendix 5 – CAPEX, D&A
CAPEX Q1 Q2 Q3 Q4
Purchase of Textbooks 74,094 104,518 122,247 112,814 12,144 - - - 12,144 - - - -
% of Total 96.48% 87.34% 94.31% 95.69% 90.25% - - - 71.47% - - - -
% Revenue 43.07% 48.99% 47.83% 37.01% 15.00% - - - 4.06% - - - -
Purchase of PP&E 2,707 15,148 7,369 5,083 1,312 964 1,255 1,316 4,847 4,475 4,649 5,951 7,439
% of Total 3.52% 12.66% 5.69% 4.31% 9.75% 100.00% 100.00% 100.00% 28.53% 100.00% 100.00% 100.00% 100.00%
% Revenue 1.57% 7.10% 2.88% 1.67% 1.62% 1.62% 1.62% 1.62% 1.62% 1.62% 1.62% 1.62% 1.62%
Total CAPEX $76,801 $119,666 $129,616 $117,897 $13,456 $964 $1,255 $1,316 $16,992 $4,475 $4,649 $5,951 $7,439
% Revenue 44.65% 56.09% 50.72% 38.68% 16.62% 1.62% 1.62% 1.62% 5.68% 1.62% 1.62% 1.62% 1.62%
D&A Q1 Q2 Q3 Q4
Textbook Depreciation 56,142 57,177 65,759 70,147 14,240 13,870 11,425 9,410 48,945 31,005 12,957 - -
% of Total 88.49% 81.96% 84.98% 86.08% 84.50% 85.11% 83.73% 81.88% 83.97% 80.40% 68.92% - -
% Textbook Library - - 74.31% 66.74% 17.63% 17.63% 17.63% 17.63% 60.60% 70.53% 100.00% - -
Amoritization of Warrants 1,462 1,790 1,545 187 34 32 29 27 123 46 - - -
% of Total 2.30% 2.57% 2.00% .23% .20% .20% .21% .24% .21% .12% - - -
% PP&E - - 8.19% .99% .19% .19% .19% .19% .67% .33% - - -
Other D&A 5,844 10,796 10,078 11,159 2,578 2,395 2,190 2,055 9,217 7,513 5,843 12,575 16,445
% of Total 9.21% 15.48% 13.02% 13.69% 15.30% 14.70% 16.05% 17.88% 15.81% 19.48% 31.08% 100.00% 100.00%
% PP&E - - 53.42% 58.84% 14.03% 14.03% 14.03% 14.03% 50.18% 54.15% 54.15% 54.15% 54.15%
Total D&A $63,448 $69,763 $77,382 $81,493 $16,852 $16,297 $13,644 $11,492 $58,285 $38,563 $18,800 $12,575 $16,445
% PP&E 72.08% 65.68% 17.00% 17.02% 16.97% 16.90% 58.80% 66.68% 79.16% 54.15% 54.15%

UOIG 18
Appendix 6 –Working Capital Model
Working Capital Model Q1 Q2 Q3 Q4
($ in thousands) 2012A 2013A 2014A 03/31/2015E 06/30/2015E 09/30/2015E 12/31/2015E 2015E 2016E 2017E 2018E 2019E
Total Revenue $213,334 $255,575 $304,834 $80,963 $59,507 $77,445 $81,200 $299,115 $276,139 $286,888 $367,217 $459,021
Current Assets
Accounts Receivable 7,208 7,091 14,396 15,743 13,796 20,787 24,969 24,969 24,966 10,409 13,324 16,655
Days Sales Outstanding A/R 12.33 10.13 17.24 17.50 21.10 24.69 28.29 30.55 33.00 13.24 13.24 13.24
% of Revenue 3.38% 2.77% 4.72% 19.44% 23.18% 26.84% 30.75% 8.35% 9.04% 3.63% 3.63% 3.63%
Prepaid Expenses 543 2,134 3,091 3,294 2,445 3,213 3,437 3,437 3,568 3,937 5,252 6,754
Days Prepaid Expense Outstanding 7.89 19.24 26.97 27.55 28.14 28.72 29.30 31.64 35.49 38.63 41.28 43.59
% of Revenue .25% .83% 1.01% 4.07% 4.11% 4.15% 4.23% 1.15% 1.29% 1.37% 1.43% 1.47%
Other Current Assets 2,391 1,149 3,864 3,154 1,723 2,383 2,308 2,308 1,262 1,413 1,795 2,233
Days COGS Outstanding 11.50 4.29 10.89 6.53 6.53 6.53 6.53 6.32 5.37 5.37 5.37 5.37
% of Revenue 1.12% .45% 1.27% 3.90% 2.90% 3.08% 2.84% .77% .46% .49% .49% .49%
Total Current Assets $10,142 $10,374 $21,351 $22,190 $17,963 $26,382 $30,714 $30,714 $29,795 $15,759 $20,371 $25,642
% of Revenue 4.75% 4.06% 7.00% 27.41% 30.19% 34.07% 37.82% 10.27% 10.79% 5.49% 5.55% 5.59%
Long Term Assets
Net PP&E Beginning - 107,354 124,072 99,131 95,736 80,403 68,014 99,131 57,837 23,749 23,225 30,371
Capital Expenditures 119,666 129,616 117,897 13,456 964 1,255 1,316 16,992 4,475 4,649 5,951 7,439
Acquisitions - - 55,537 - - - - - - 13,627 13,771 11,935
Depreciation and Amortization 69,763 77,382 81,493 16,852 16,297 13,644 11,492 58,285 38,563 18,800 12,575 16,445
Net PP&E Ending 107,354 124,072 99,131 95,736 80,403 68,014 57,837 57,837 23,749 23,225 30,371 33,300
Total Current Assets & Net PP&E $117,496 $134,446 $120,482 $117,926 $98,366 $94,396 $88,551 $88,551 $53,544 $38,984 $50,742 $58,942
% of Revenue 55.08% 52.61% 39.52% 145.65% 165.30% 121.89% 109.05% 29.60% 19.39% 13.59% 13.82% 12.84%
Current Liabilities
Accounts Payable 4,187 4,078 10,945 6,295 3,439 4,757 4,607 4,607 2,465 2,760 3,506 4,362
Days Payable Outstanding 20.13 15.24 30.85 13.04 13.04 13.04 13.04 12.63 10.50 10.50 10.50 10.50
% of Revenue 1.96% 1.60% 3.59% 7.78% 5.78% 6.14% 5.67% 1.54% .89% .96% .95% .95%
Accrued Charges 20,230 21,270 31,183 30,637 20,900 25,139 24,508 24,508 21,915 21,575 26,253 31,266
Days Charges Outstanding 293.98 191.76 272.05 256.28 240.50 224.73 208.95 225.66 217.97 211.69 206.37 201.77
% of Revenue 9.48% 8.32% 10.23% 37.84% 35.12% 32.46% 30.18% 8.19% 7.94% 7.52% 7.15% 6.81%
Deferred Revenue 20,032 22,804 24,591 24,314 24,036 23,759 23,481 23,481 19,827 15,736 15,800 14,321
% of Revenue 9.39% 8.92% 8.07% 30.03% 40.39% 30.68% 28.92% 7.85% 7.18% 5.49% 4.30% 3.12%
Current Portion of Long Term Debt 19,386 - - - - - - - - - - -
% of Revenue 9.09% - - - - - - - - - - -
Preffered Stock Warrant Liabilities 6,627 - - - - - - - - - - -
% of Revenue 3.11% - - - - - - - - - - -
Total Current Liabilities $70,462 $48,152 $66,719 $61,246 $48,375 $53,654 $52,597 $52,597 $44,206 $40,070 $45,559 $49,949
% of Revenue 33.03% 18.84% 21.89% 75.65% 81.29% 69.28% 64.77% 17.58% 16.01% 13.97% 12.41% 10.88%

Appendix 7 – Discounted Cash Flows Assumptions
Appendix 8 – Sensitivity Analysis
DiscountedFree Cash FlowAssumptions Consid
TaxRate 35.00% Terminal Growth Rate 3.00%
Risk Free Rate 1.45% Terminal Value 1,544,534
Beta 0.89 PVof Terminal Value 690,030
Market Risk Premium 6.45% Sumof PVFree Cash Flows 282,106
% Equity 100.00% FirmValue 972,136
% Debt 0.00% Total Debt 0
Cost of Debt 0.00% Cash & Cash Equivalents 89,463
CAPM 7.18% Market Capitalization 972,136
WACC 7.18% Fully Diluted Shares 95,271
Terminal Risk Free Rate 2.66% Implied Price 10.20
Terminal CAPM 8.39% Current Price 7.97
Terminal WACC 8.39% Undervalued 28.03%
Final Price Target
Valuation Method Implied Price Weighting
Discounted Cash Flows 10.20 50%
Quantitative Comps 9.70 45%
Qualitative Comps 6.28 5%
Final Implied Price $9.78
Current Price 7.97
Undervalued 22.72%
ImpliedPrice Undervalued/(Overvalued)
Terminal Growth Rate Terminal Growth Rate
10 2.0% 2.5% 3.0% 3.5% 4.0% 0 2.0% 2.5% 3.0% 3.5% 4.0%
0.69 11.76 12.74 13.95 15.50 17.55 0.69 47.55% 59.79% 75.00% 94.45% 120.16%
0.79 10.23 10.95 11.82 12.89 14.26 0.79 28.34% 37.36% 48.28% 61.78% 78.88%
0.89 9.01 9.56 10.20 10.98 11.94 0.89 13.07% 19.91% 28.03% 37.81% 49.81%
0.99 8.02 8.45 8.94 9.52 10.22 0.99 0.66% 5.97% 12.16% 19.48% 28.24%
1.09 7.20 7.54 7.92 8.37 8.90 1.09 (9.62%) (5.41%) (0.58%) 5.03% 11.63%
ibly consider doing an intermediate growth rate10 2.3% 2.3% 3.0% 3.8% 4.5% 0 2.3% 2.3% 3.0% 3.8% 4.5%
6.18% 9.31 9.31 10.24 11.47 13.18 6.18% 16.80% 16.80% 28.48% 43.94% 65.35%
6.68% 9.29 9.29 10.22 11.45 13.16 6.68% 16.57% 16.57% 28.25% 43.71% 65.12%
7.18% 9.27 9.27 10.20 11.44 13.14 7.18% 16.35% 16.35% 28.03% 43.48% 64.90%
7.68% 9.26 9.26 10.19 11.42 13.12 7.68% 16.13% 16.13% 27.81% 43.26% 64.68%
8.18% 9.24 9.24 10.17 11.40 13.11 8.18% 15.92% 15.92% 27.60% 43.05% 64.46%
10 2.3% 2.3% 3.0% 3.8% 4.5% 0 2.3% 2.3% 3.0% 3.8% 4.5%
5.95% 10.14 10.14 11.27 12.81 15.02 5.95% 0.27 0.27 0.41 0.61 0.88
6.20% 9.69 9.69 10.71 12.09 14.02 6.20% 0.22 0.22 0.34 0.52 0.76
6.45% 9.27 9.27 10.20 11.44 13.14 6.45% 0.16 0.16 0.28 0.43 0.65
6.70% 8.89 8.89 9.74 10.84 12.36 6.70% 0.12 0.12 0.22 0.36 0.55
6.95% 8.53 8.53 9.30 10.30 11.65 6.95% 0.07 0.07 0.17 0.29 0.46
AdjustedBeta
AdjustedBeta
WACC
WACC
MarketRisk
Premium
MarketRisk
Premium

Appendix 9 - Sources
Chegg Earnings Call Transcripts
Chegg Earnings Call Transcripts
Chegg Investor Presentations
Chegg SEC Filings
Factset
Google Finance
GSV Advisors
IBISWorld
Press Releases
Wikipedia
Yahoo! Finance

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