On Monday, Chegg, an edtech company, revealed in its earnings report that its customers are using ChatGPT instead of its costly study tools. The result: Its shares have tumbled nearly 50%. Chegg CEO Dan Rosensweig said during the company’s earnings call Monday that during the first part of the year, the company saw no noticeable impact from ChatGPT on its new account growth. However, since the start of March, there has been a significant spike in student interest in the chatbot. As a result, Chegg withdrew its full-year earnings forecast and predicted a 7% year-over-year drop in first quarter revenue.
Chegg seeks to provide services like online tutoring, proofreading, and study tools, which has kept its retention rate high among students. However, this has not convinced investors, as seen in mid-day trading on Tuesday when its shares tumbled $8.70 to $8.95. The financial services company Jefferies downgraded Chegg due to the A.I. headwinds that they saw in the edtech fundamental story.
To compete with chatbot-like tools, Chegg opened “CheggMate” last month. CheggMate is powered by OpenAI, an A.I. technology, and provides tailored study recommendations to students. Though the company expects to launch the beta version of the tool to a select few later this month, it is unclear when the full launch will be. Jefferies analysts raised their doubts about if Chegg’s core services will become extinct in the face of growing popularity of some A.I. services. In addition, Morgan Stanley’s Josh Baer expressed skepticism about the possibility of Cheggmate protecting Chegg from outside interruptions.
Chegg is currently the leader in the edtech space and is admired among students. With the launch of CheggMate, Chegg is trying to remain a frontrunner despite the A.I. headwinds. Though investors are still pessimistic about Chegg, the improvements seen in customer retention may draw more students to the platform in the future.
