On Monday, Chegg (NYSE: CHGG) introduced that it’s shedding 4% of its workforce and parlaying the associated fee financial savings into executing its AI technique. Chegg has been one of many headline “AI losers,” or firms that see their enterprise mannequin below menace as a result of rise of AI chatbots like ChatGPT. The hassle is a part of a company-wide reorganization to adapt to the breakthroughs seen within the AI area.
Nevertheless, some are asking if the corporate is shifting too late after seeing 48% subscription declines final quarter, to which the market handled Chegg to a 50% in a single day inventory value decline, primarily pushed by fears that ChatGPT disrupted a flat-footed Chegg.
Is AI Disrupting Chegg?
Disruption is a part of the expertise business. Some firms see it coming and adapt, whereas others get caught flat-footed. Many traders fear that ChatGPT and different AI developments caught Chegg asleep on the wheel, and the corporate is just now speeding to behave.
Chegg CEO Dan Rosenweig was accused of downplaying AI’s significance after its This fall 2022 convention name after he mentioned, “we’re going to trace it, however we’ve seen nothing” regarding clients misplaced from ChatGPT. As we famous in our February article on Chegg, the corporate hadn’t made an AI-related acquisition since 2018.
Chegg’s first-quarter earnings outcomes offered little reduction to apprehensive traders. The corporate issued disappointing steering, with a second-quarter forecast of $175-$178 million in comparison with Wall Road’s anticipated $196 million. However subscribers are the true sticking level. And it reveals college students working from Chegg into the arms of ChatGPT, reporting a 5% year-over-year decline in its subscriber rely.
CEO Dan Rosenweig informed traders on the earnings convention name that “since March, we noticed a big spike in pupil curiosity in ChatGPT. We now consider it’s having an impression on our new buyer progress fee.”
Chegg’s subscriber progress is the lifeblood of its enterprise. Sustainable income progress for a B2C service enterprise is just potential by rising its subscriber rely. That is particularly essential for a inventory whose valuation implies vital future progress. Chegg is barely worthwhile, reporting simply $2.2 million in internet earnings in Q1 in comparison with its $1.2 billion market cap.
Wall Road is not pleased with the inventory, because it acquired a barrage of downgrades. After its first-quarter outcomes, corporations together with Jeffries, Piper Sandler, Morgan Stanley, Barrington, and BMO Capital both downgraded or slashed targets for Chegg.
School college students use Chegg to cheat on their homework and, typically, exams. Chegg’s fairly good at it, too. Through the years, it is constructed up a considerable proprietary database of homework solutions based mostly primarily on consumer contributions.
Nevertheless, it is simply these kinds of proprietary databases that ChatGPT and different AI chatbots threaten to disrupt. Massive language fashions like those who energy ChatGPT thrive on their capacity to make use of semantic patterns to present you a passable reply. Inaccuracy is an issue however turns into much less of a difficulty with every mannequin replace.
Along with doubtlessly changing Chegg’s job, ChatGPT can convincingly write college-level essays, act as a research buddy, and supply further context to complicated issues.
Chegg’s AI Technique
Regardless of accusations of lacking the boat on AI earlier this 12 months, Chegg is now aggressively pursuing alternatives in AI, going so far as reorienting the corporate’s technique in the direction of doing so.
The corporate’s first transfer is the launch of CheggMate, an AI research buddy based mostly on OpenAI’s GPT-4. The bot will create observe exams; research plans and act as a digital assistant to college students. CheggMate is at present in a free beta with a waitlist.
Whereas many firms are releasing copycat chatbots which might be basically frontends for OpenAI’s API, Chegg’s has the potential to distinguish. CheggMate is educated on Chegg’s huge proprietary database of homework and exams, making it specifically outfitted to take care of college students’ issues.
With the corporate’s latest announcement of layoffs centered on reorganizing to raised give attention to AI, Chegg has the potential to save lots of itself from disruption. However is it too little, too late?
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