Chegg stock continues slip on investor fears of AI disruption

May 8, 2023

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Ed tech provider Chegg’s stock fell another 7% Thursday, following a 48% plummet Tuesday fueled by concerns over how artificial intelligence will affect the company’s offerings.

Chegg shares initially declined after CEO Dan Rosensweig warned in an investor call earlier this week that student interest in AI tool ChatGPT is believed to be impacting the company’s new customer growth rate. Shares fell from $17.87 at Monday’s open to $9.44 by Thursday’s closing bell.

Basically: Students are opting to use OpenAI’s tool for help with assignments rather than using Chegg’s tutoring and homework help services.

The warning spooked investors as the company reported Q1 net income of $2.2 million, down 61% from $5.7 million the same quarter last year, on net revenue of $187.6 million. Net revenue, meanwhile, was down 7% year over year despite outpacing expectations by around $2.4 million.

Chegg is, however, currently working with OpenAI to develop its own AI-driven homework help tool dubbed CheggMate. The tool will use GPT-4 technology in conjunction with Chegg’s content library, with more than 150,000 subject matter experts acting as quality control editors, according to Chegg investor call slides.

“Based on our research, 85% of students would prefer to have human experts involved in their study support, which is why we believe that the future of learning is a blend of AI technology with human-based support to build trust and ensure accuracy and relevancy,” Rosensweig said in prepared remarks for Tuesday’s earnings call. “Ultimately, we believe the introduction of CheggMate will lead to an increase in the size of the market we serve and strengthen our relationship with our users, while reducing content costs.”

The Chegg news comes as fears of AI disruption ripple through the workforce across industries. Though experts suggest the technology is more likely to augment work than replace workers entirely, the K-12 sector is no stranger to these fears as the specter of displacement in roles ranging from classroom teachers to school bus drivers has been raised in recent years.