Topline
Chegg, a multi-billion dollar company that makes its money by teaming up with college students to study (and cheat) their way through courses, reported a 46% decline in its shares Tuesday morning as ChatGPT is becoming a more popular, less expensive tool for students to finish last-minute work without doing much of it themselves.
AUSTIN, TX - AUGUST 26: Textbook rental company Chegg.com demonstrate their site to students of the ... [+]getty
Key Facts
Chegg offers students the ability to pass courses without doing the work by providing access to its database of at least 46 million textbook and exam problems and to round-the-clock freelancers in India who answer student-submitted questions in real time, all for a subscription fee of about $20 a month.
But, CNBC reported Tuesday that while Chegg beat its first-quarter expectations on the top and bottom lines, shares were down 46% to about $9.50 in premarket trading.
Analyst Brent Thill at Jefferies downgraded the stock from “buy” to "hold" after the news, according to a report from Reuters, suggesting there are concerns that Chegg's main business will become extinct as students turn to free artificial intelligence tools, like ChatGPT.
Chegg CEO Dan Rosensweig said Monday when announcing the drop that they’d seen “a significant spike in student interest in ChatGPT” since March, adding “we now believe it’s having an impact on our new customer growth rate.”
Key Background
The company had a huge growth moment during the pandemic, when students were learning from home and its services became even easier to use, causing Chegg’s stock prices to more than triple, according to previous Forbes reporting. But Chegg Study—the company’s main money-making asset that gives students access to its answer database—has fallen under criticism throughout the years for making it easy for students to cheat at a scale that’s difficult for universities and professors to manage. But while Chegg is limited to the answers of its freelancers and exams and textbooks already in its system, ChatGPT and other bots using AI technology are able to help with more open-ended questions, serve as a study aide and generate study tools for free, meaning they pose a high risk to Chegg’s business by making cheating even easier.
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Tangent
Chegg may be falling, but they’re trying to stay in the game. Last month it launched an AI-powered tool called “CheggMate,” which uses new technology to offer more tutoring, instant feedback and personalized learning. Business Wire reported, however, a recent study found that while 77% of Chegg customers were excited by “AI chat-based learning support,” 85% of students wanted that support from human expertise. The program is available on a waitlist now, but is expected to open to general users this month.