During the pandemic, Chegg saw a surge in subscriptions and stock value as students flocked to online learning platforms. However, the emergence of free AI chatbot ChatGPT has drastically affected Chegg's business, causing a significant drop in users and a plummet in stock price. Analysts expect Chegg's third-quarter revenue to decline by 15% as customer migration continues.
Chegg, which initially thrived as a textbook rental and online study guide provider, charged users $19.95 per month for expert help and answers. However, with ChatGPT's launch, students gravitated towards this free alternative. Over half a million Chegg subscribers have canceled, and the company's stock has fallen 99% from its peak in early 2021, erasing approximately $14.5 billion in market value. Concerns have arisen among bond traders about Chegg's ability to maintain cash flow to service its debt.
Under the leadership of former CEO Rosensweig, Chegg aimed to replicate the rapid growth of tech companies. However, as students increasingly preferred ChatGPT, Chegg's internal data revealed that its advanced answers were sometimes inferior to those produced by GPT-4, the technology behind ChatGPT. Chegg then partnered with OpenAI to create "Cheggmate," integrating Chegg’s extensive answer database with GPT-4 to provide quick responses and quiz generation. Despite these efforts, the stock suffered a 48% one-day drop.
In a shift of strategy, Chegg decided to refrain from using the name Cheggmate and instead focused on AI-driven question responses, collaborating with startup Scale AI to develop numerous AI systems. Despite lower costs associated with AI responses, Chegg continues to lose users, reporting an 11% revenue decline in the second quarter, its largest annual drop since 2017.
While Chegg claims a high customer satisfaction rate, surveys indicate a decline in student intentions to use its services, with more students planning to use ChatGPT. Rosensweig resigned as CEO after more than a decade, as Chegg's stock fell under his tenure. New CEO Nathan Schultz has implemented significant workforce cuts and is driving international expansion. Schultz aims to broaden Chegg's offerings beyond homework answers to provide comprehensive academic support, targeting students seeking more than free solutions.
