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Chegg thinks it has found a solution to its stagnant stock price, and it involves a big change to its biggest business.
The company, which got its start as a textbook rental service, plans to announce today that it will begin unloading its print textbook inventory to the book distributor Ingram Content Book in a deal that should help Chegg cut costs while boosting its digital revenue.
The partnership will see Ingram hold textbook inventory on behalf of Chegg and handle sourcing, shipping and returns on the books. Chegg will continue to rent or sell the book to students through Chegg.com, and control pricing and customer service. Chegg has started to transition 10 percent of its inventory over to Ingram, and will continue to transfer more every quarter.
As part of the deal, Chegg will keep approximately 20 percent of each transaction involving an Ingram-held book, compared to previously booking the entire amount as revenue. But that 20 percent cut will now be booked as digital revenue instead of print revenue.
So for every $10 in print revenue that Chegg loses as a result of the partnership, its digital revenue should increase $2. At the same time, Chegg expects the move to reduce its cash expenditures on print textbooks by $10 million to $15 million in the third quarter and as much as $25 million for the last six months of the year.
The announcement comes as Chegg’s stock price has remained in the single digits after pricing its November IPO at $12.50 a share. Its stock price closed on Monday at $6.44.
But CEO Dan Rosensweig is hopeful that the move will appeal to both its current and future investors.
“Investors would prefer that we not commit capital to something that won’t be around forever,” he said in an interview on Monday.
“People care about our digital revenue, not our print revenue,” he added.
This article originally appeared on Recode.net.
