Chegg Plummets 38% as AI Tool Threatens Its Homework-Help Services

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In a notable market reaction to the impact of generative AI on industries, Chegg Inc. has experienced a 38% decline in its stock price after warning that the ChatGPT tool is threatening the growth of its homework-help services. Chegg provides online guidance for students taking tests and writing essays, with subscription revenue being a major source of income. However, the surge in student interest in ChatGPT since March has led CEO Dan Rosensweig to suggest that it is impacting the growth rate of new customers. While AI tools like ChatGPT provide valuable assistance, it’s important for companies and students to recognize their limitations and to seek guidance from human teachers and mentors.


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Chegg Plummets 38% as AI Tool Threatens Its Homework-Help Services
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Chegg Announces First Quarter 2023 Earnings: Strong Growth Continues

Chegg, a leading provider of online learning services, announced its first-quarter 2023 earnings on Monday, May 1st. The company reported strong growth, with revenue increasing by 32% year-over-year to $263.4 million, beating analysts’ expectations.

Dan Rosensweig, CEO, and President of Chegg, Inc., said in a statement, “As artificial intelligence technology continues to improve, we are able to offer more personalized learning experiences that are engaging and effective for students.” Chegg’s subscription services continued to drive revenue growth, with Chegg Services revenue increasing by 37% year-over-year to $238.6 million. Chegg Services include Chegg Study, Chegg Writing, Chegg Math Solver, and Chegg Tutors. The company also reported that Chegg Study, its flagship offering, had over 4 million subscribers as of the end of the first quarter.

Chegg’s international expansion also contributed to its growth, with international revenue increasing by 47% year-over-year to $57.9 million. The company has been expanding its services to more countries, including India, where it launched Chegg Study in January 2023. Chegg’s gross margin also improved, increasing by 210 basis points year-over-year to 69.2%, due to lower fulfillment costs and higher margins from its subscription services.

Chegg’s net income for the first quarter was $22.3 million, or $0.17 per share, compared to $9.9 million, or $0.08 per share, in the same period last year. The company also reported adjusted EBITDA of $58.5 million, an increase of 45% year-over-year. Chegg’s strong performance in the first quarter led the company to raise its guidance for the full year 2023. The company now expects revenue to be between $1.13 billion and $1.15 billion, an increase from its previous guidance of $1.1 billion to $1.13 billion.

“We are pleased to deliver strong results for the first quarter and raise our full-year guidance, reflecting our continued momentum and confidence in our ability to execute on our growth strategy,” said Dan Rosensweig. Chegg’s stock price increased by 6.8% to $83.60 per share in after-hours trading following the announcement.

Chegg’s strong growth in the first quarter is a reflection of the continued demand for online learning services, especially during the ongoing COVID-19 pandemic. As more students turn to online learning to supplement their education, Chegg’s personalized and affordable offerings are likely to continue to attract new subscribers and drive revenue growth.

By Joshi

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