Chegg's Stock Price Drops 27% As ChatGPT And Free AI Tools Send Stock Plummeting

Chegg Inc. CHGG faces a substantial challenge from the emergence of AI tools such as ChatGPT, which have exerted significant pressure on the company’s market performance.

The latest earnings report reflects a concerning trend for Chegg, with Quarter 1 revenue down 7% year-over-year and Subscription Service Revenue down 9% year-over-year. Projections for the current quarter indicate further declines in total net revenue, gross margins and profits.

Despite incorporating AI features and enhancements into their products, Chegg struggles to compete with OpenAI's ChatGPT and other freely available AI tools.

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"We've embraced AI and have completely rebuilt our user experience and services, rolling out a multi-year product-led growth plan to emerge from the post-COVID period and return to revenue and profit growth. The transition will take time, but we are already seeing encouraging signs of how our new AI-enabled platform will serve more students, in more ways, than ever before,"  said Dan Rosensweig, CEO & President of Chegg in the earnings call. 

The Chegg Study Pack, priced at $14.95 per month, offers students access to homework solutions, expert Q&As, plagiarism scanners and math solutions. However, this price point becomes less appealing as students increasingly turn to free or low-cost alternatives for academic assistance.

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Chegg has also announced that the current CEO, Dan Rosensweig, will be replaced by Nathan Schultz. 

“Nathan has been core to Chegg's success from our earliest days as a textbook rental company to leveraging AI today to create a truly personalized learning assistant,” said Rosensweig. “As we are seeing encouraging signs of how our new AI-enabled platform will serve more students, in more ways, it's the right time for Nathan to step in and lead, and I could not be more excited about Chegg's future." 

Following this leadership transition, Chegg’s stock dropped over 27% on Tuesday, currently resting at $5.21. Year-to-date, the stock price has plummeted by over 50%.

Other EdTech platforms, such as Coursera, are also feeling the impact of AI disruption. Despite a 14.5% year-on-year increase in revenue, Coursera missed revenue estimates by 7.8%, leading to an 18% drop in its stock price on Monday. Coursera’s stock price has fallen over 46% since the beginning of the year.

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