Edtech Chegg slumps on revenue warning as ChatGPT threatens growth

Chegg forecast current-quarter revenue below estimates and signaled that the usage of viral chatbot ChatGPT was pressuring customer growth, sending its shares 44% lower in premarket trading on Tuesday.

“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,” said Chegg CEO Dan Rosensweig.

There are fears Chegg’s core business could become extinct as consumers experiment with free artificial intelligence (AI) tools, said analyst Brent Thill at Jefferies, which downgraded the stock to “hold”.

Last month, the Santa Clara, California-based firm said it would launch ChatGPT’s AI powered CheggMate, a study aide tailored to students’ needs, at a time educators were grappling with the consequences of the homework drafting chatbot.

However, analysts said it was unclear if CheggMate would be enough to counter a slowdown in company’s core business.

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“We fear Chegg could start to lose mind-share before CheggMate fully rolls out,” Thill said. Shares of Chegg’s UK rival Pearson PLC shed nearly 9% on Tuesday.

Chegg said it was suspending its full-year outlook due to uncertainty of the impact on results and targeted second-quarter total revenue between $175 million and $178 million, which fell short of Wall Street expectations of $186.3 million.

“Chegg has to make significant changes in a rapidly changing environment that is akin to ‘dancing in the rain without getting wet,'” said Arvind Ramnani, analyst at Piper Sandler.