Cheg’s shares fell 50% as customers fled to ChatGPT


An Image Of The Chegg Logo On A Mobile Device

Chegg shares fell on Tuesday after the company said ChatGPT was hurting its growth. Rafael Henrique-SOPA Images/LightRocket/Getty Images

Online education company Chegg was sent to the principal’s office about the growing use of OpenAI’s ChatGPT chatbot. by students. Shares of Chegg fell more than 49 percent on Tuesday as more students use free AI chatbots for homework instead of paying for the study tools.

In the revenues Report On Monday, Chegg said that ChatGPT’s impact started to show about two months ago.

“During the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth, and we were meeting our expectations on new signups,” Chegg CEO Dan Rosensweig said in a company filing. Call income Monday. However, since March we have seen a significant increase in student interest in ChatGPT. We believe it is now influencing the growth of our new customers.

The company reported a 7 percent year-over-year decline in first-quarter revenue and revised down its full-year revenue guidance. For the current quarter, Chegg forecast revenue of $175 million to $178 million, well below FactSet. Analyst estimates From 193.6 million dollars.

On the bright side, Rosensweig said Chegg has a high customer retention rate among students, which could attract more students to the platform in the coming quarters. The company provides services such as online education, editing and research tools.

But investors are still pessimistic about Chegg in the chatbot era. Shares traded down from $8.70 to $8.95 during mid-day trading on Tuesday.

Also on Tuesday, Jefferies downgraded Chegg because the “AI windfall” was affecting the edtech company’s “fundamental story.” While popular with students, Chegg may not be able to keep up with the viral nature of tools like ChatGPT, Jefferies analysts said.

“While CHGG’s existing customer retention rate is strong now, we fear that student use of AI tools like ChatGPT could create a viral sensation around campus (as CHGG did) which could add stress to future classes. Analysts wrote Note on Tuesday using Chegg’s stock ticker.

The investment bank worries that Chegg’s “core offering could be lost as users experiment with free AI tools” as some AI services grow in popularity. In other words, students can choose ChatGPT or similar AI tools to complement their studies instead of using Chegg’s paid services, which cost approx. 20 dollars per month.

In an effort to compete, Chegg has embraced AI by partnering with a similar company to slow down its customer growth: OpenAI. Called service CheggMateLaunched last month and powered by OpenAI technology, Chegg hopes to provide students with personalized study suggestions. The company plans to offer limited access to the device later this month.

But even after the launch of an AI tool, it’s not certain whether it will be a Chegg hunter, said Josh Beyer, an analyst at Morgan Stanley.

“The bright scenario of the new AI-powered ‘CheggMate’ solution protecting Chegg from external threats is highly unlikely,” the bank said in a research note on Tuesday.

Other analysts are skeptical that Chegg’s AI-powered research tool will make much of a difference to the company’s short-term finances.

“While CHGG plans to launch the CheggMate beta to select individuals this month, they do not expect “any meaningful impact from CheggMate” until the budget, Jefferies analysts wrote in a note on Tuesday. Year 2024. The analysts wrote that Chegg management is still figuring out how to monetize CheggMate, but the first step is to incorporate its advanced AI-powered features into existing products.

Whatever the case, the Santa Clara, Calif. based company still thinks its CheggMate service can win against general-purpose AI chatbots. CheggMate says the service offers a unique experience from ChatGPT as the edtech company provides its own content and data.

“We’ve beaten all the freebies over time in the past, and we expect to have great success with CheggMate going forward,” Rosensweig said during Chegg’s earnings call.

“Ultimately, we believe that the introduction of CheggMate will increase the size of the market we serve and strengthen our relationship with our users by reducing the cost of content,” said Rosensweig.

Chegg and OpenAI did not immediately respond. chance’Request for feedback.

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