Chegg is a learning platform, providing students with digital and physical study material, as well as tutoring and homework help services. On Monday, the company reported quarter results which slightly beat expectations on adjusted earnings per share. However, this wasn’t all good news, as management warned investors that artificial intelligence (AI) and ChatGPT are beginning to hit customer growth metrics.
Jefferies downgraded the stock to hold from buy and cut its price target to $11 per share from $25, which is 37.5% downwards from the closing price on Monday. Brent Thill, analyst at Jefferies, noted that while retention of customers for Chegg remains strong for the time being, AI tools such as ChatGPT could become extremely popular among students and eventually cause an increase in churn.
Chegg’s plans to embrace AI with its CheggMate product could help them offset the effects of ChatGPT, though the company’s full launch for this product is still uncertain. Therefore, its impacts won’t show up at least until FY24. Following the reports, the stock declined over 43% in premarket trading.
Overall, it remains uncertain just how successful Chegg can be in fighting the rise of artificial intelligence, as well confronting the competition posed by ChatGPT. In this context, investors should carefully consider their exposure to Chegg, keeping in mind the potential risks which could severely impact the growth of the stock.
