Too Clever By Half: How Chegg Inc Read The Wrong Tealeaves And Now Faces Collapse
Shares in online learning service Chegg have plummeted after it became one of the first companies to admit that artificial intelligence chatbot ChatGPT had affected its finances.
In results announced on Monday, California-based Chegg, which offers on-demand answers to college course questions for $19.95 a month, reported a 7 per cent fall in revenue year on year in the first quarter of 2023 to $187.6mn. Its number of subscribers fell 5 per cent to 5.1mn.
The company withdrew its full-year guidance, and its Nasdaq-listed shares fell 37.5 per cent to $11 in after-hours trading.
The news sent ripples through the sector, with shares in London-listed Pearson falling more than 8 per cent on Tuesday.
The blow to education companies comes as businesses grapple with the threat from generative AI that can replicate their services and products more cheaply.
Colleges have previously accused Chegg of allowing students to access answers they then submit as their own, and are now struggling with the same threat from OpenAI’s widely available ChatGPT.
Dan Rosensweig, Chegg chief executive, said on an earnings call that generative AI would affect society and business “at a faster pace than people are used to”, adding that education was already experiencing the impact.
“Since March we saw a significant spike in student interest in ChatGPT,” he said. “We now believe it’s having an impact on our new customer growth rate.”
However, Rosensweig insisted the technology would “advantage Chegg” over time, adding that the company was “embracing [generative AI] aggressively and prioritising our investments to meet this opportunity”.
The company launched CheggMate last month, a new service built with ChatGPT-4 that enables students to get tailored content through conversations with AI and to access quizzes.
Tom Singlehurst, an analyst at Citi, said the investors would “inevitably worry” about the implications for education technology companies, but argued the issues facing Chegg were “fairly idiosyncratic”, affecting demand for “study guides” rather than all course materials.
The threat from generative AI is not the only challenge for Chegg, which struggled to maintain its rapid growth as learning moved online during the Covid-19 pandemic.
Key stock drivers for Chegg Inc $CHGG
– Growth in subscription services: Chegg offers various online learning services such as Chegg Study Pack, Chegg Study, Chegg Writing and Chegg Math that help students with academic course materials and personal skills development. These services have seen strong demand and growth in recent years, especially during the pandemic when online education became more prevalent. According to its latest earnings report, Chegg had 6.6 million subscribers , up 67% year-over-year, and expects to add another 1.5 million subscribers .
– Expansion into international markets: Chegg has been expanding its presence and reach in international markets, such as India, Canada, Australia and the UK, where it sees significant opportunities for growth. In 2020, Chegg acquired Busuu, a language learning platform with over 100 million users worldwide, to enhance its product offerings and global footprint. Chegg also launched its services in India in 2020, where it aims to tap into the large and growing student population.
– Innovation and differentiation: Chegg has been investing in innovation and differentiation to maintain its competitive edge and deliver value to its customers and shareholders. For example, in 2020, Chegg announced CheggMate, a new AI-powered learning companion that uses GPT-4 technology to provide personalized study assistance and feedback to students⁴. Chegg also launched Chegg Prep, a flashcard app that helps students prepare for exams.
About the company:
– Chegg Inc is a leading student-first connected learning platform that provides products and services to learners with academic course materials, as well as career and personal skills development.
– Chegg\’s business model is based on offering subscription-based online learning services that help students with homework help, writing assistance, math solver, tutoring, test prep and more. Chegg also offers digital and physical textbook rentals and sales, as well as eTextbooks.
– Chegg\’s mission is to improve the outcomes of students and learners of all ages by providing them with affordable access to high-quality education anytime, anywhere.
Conclusion
The education industry is facing multiple challenges, including the rise of generative AI, the shift to online learning during the Covid-19 pandemic, and accusations of enabling cheating. While Chegg\’s CEO insists that the company is embracing generative AI, educators must grapple with the reality that students can access answers and generate their own content more easily than ever before. It remains to be seen how the education industry will adapt to these challenges and what impact they will have on the sector as a whole.
Buy access to valuation report on the stock and site wide access here.
Check out Top AI Picks here.
Check our Bill Gates and Bill Ackman’s latest portfolio updates.