Chegg shares drop more than 40% due to ChatGPT

The growth of Chegg suffered a setback as the online education firm stated that ChatGPT has had a negative impact on its progress, leading to a drop in its shares.

“In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth and we were meeting expectations on new sign-ups,” CEO Dan Rosensweig said during the earnings call Monday evening.

“However, 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.”

chegg share drop due to chatgpt
Source: Fox Business

Chegg, a company that offers online tutoring and homework assistance, reported revenue projections for the current quarter between $175 million and $178 million. This fell significantly short of the estimated $193.6 million consensus among analysts surveyed by FactSet. Chegg’s shares closed down 48.41% at $9.08 on Tuesday.

Despite this setback, Chegg exceeded expectations for the first quarter, with earnings per share ex-items of 27 cents, above the predicted 26 cents, and a revenue of $188 million, topping the $185 million consensus.

Following the release of these results, Morgan Stanley analyst Josh Baer reduced his price target from $18 to $12, citing that the impact of AI on the company’s results was far more significant than expected.

Jefferies recently revised its stance on Chegg, downgrading the stock from “buy” to “hold” and reducing the price target from $25 to $11. The firm cited the potential threat of artificial intelligence to Chegg as the reason for this downgrade.

Chegg is currently working on its own AI solution, CheggMate, which aims to assist students with their homework. This product is being developed in partnership with OpenAI, the developer of ChatGPT. Despite this collaboration, Jefferies analyst Brent Thill expressed uncertainty about the impact of CheggMate.

“While CHGG plans to launch the CheggMate beta this month to a select few, the timing of a full launch is unclear,” he said. “We don’t expect there to be any meaningful impact from CheggMate in FY23, believing any potential impact won’t show up until FY24 at the earliest.”

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