Chegg Stock Tanks As Students Turn To ChatGPT: What's Going On?

Chegg Inc CHGG shares are plunging Tuesday after the company reported a decline in subscription services subscribers and issued guidance below analyst estimates as students turn to AI.

• Q1 Revenue: $187.6 million beats estimates of $185.18 million
• Q1 EPS: 27 cents beats estimates of 26 cents

Revenues fell 7% year-over-year. Subscription services revenues were down 3%. Subscription services subscribers decreased 5% year-over-year to 5.1 million, driven by a spike in students opting to use Microsoft Corp MSFT-backed ChatGPT instead of Chegg services.

"As artificial intelligence technology continues to evolve at a rapid pace, we are embracing it aggressively and prioritizing our investments to meet this opportunity," said Dan Rosensweig, president and CEO of Chegg.

"In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth and we were meeting expectations on new sign-ups. However, since March we saw a significant spike in student interest in ChatGPT. We now believe it's having an impact on our new customer growth rate."

Chegg expects second-quarter revenue to be in a range of $175 million to $178 million versus estimates of $193.64 million. The company sees subscription services revenues between $159 million and $162 million versus $168.4 million in the first quarter.

Following the print, Jefferies analyst Brent Thill downgraded Chegg from Buy to Hold and lowered the price target from $25 to $11. Piper Sandler analyst Arvind Ramnani maintained Chegg with a Neutral and lowered the price target from $17 to $11.

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CHGG Price Action: Chegg shares are making new 52-week lows on Tuesday.

The stock was down 44.5% at $9.76 at the time of publication, according to Benzinga Pro.

Photo: svklimkin from Pixabay.