Chegg is facing massive disruptions in its education business amid the rapid growth of AI platforms. To contain this, Chegg is building its own AI platform CheggMate in collaboration with OpenAI.
The introduction of ChatGPT by OpenAI has certainly created a massive disruption in the tech world while giving other tech giants like Alphabet (NASDAQ: GOOGL) a run for their money. Now, AI chatbot ChatGPt is causing a major disruption in the education industry as well, and online education firm Chegg is among the major ones to feel the heat.
On Tuesday, May 2, Chegg’s stock (NYSE: CHGG) price tanked by a massive 48% in a single day ending the trading session at $9.08. During the earnings call on Monday, May 2, Chegg CEO Dan Rosensweig said:
“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. 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.”
Over the years, Chegg has specialized in providing online tutoring and homework assistance. During the earnings call, the company cut down its revenue earnings to between $175 million and $178 million this quarter. This was far below the market estimate of $193.6 million.
Despite this, Chegg managed to beat first-quarter expectations on the top and the bottom line with earnings per share of 27 cents above the analysts’ expectations of 26 cents.
Analysts Downgrade Chegg Stock amid AI Disruption
Amid the AI disruption caused by ChatGPT, several market analysts have started downgrading the Chegg stock. Morgan Stanley analysts Josh Bear slashed the CHGG price target to $12 from the previous $18. The analyst also noted that AI has “completely overshadowed” the results for the company.
On the other hand, Jefferies has also downgraded the CHGG stock to hold from buy, citing the threat of artificial intelligence that the company is facing. As a result, Jefferies has also slashed the price target for CHGG stock to $11 from $25 earlier.
In order to be better placed in such disrupting times, Chegg is developing its own AI product, CheggMate. The goal of this product will be to help students with their homework. Interestingly, Chegg is building this product in collaboration with OpenAI, the same company that built ChatGPT. But Jefferies analyst Brent Thill believes that the impact of this product will be uncertain. He added:
“While CHGG plans to launch the CheggMate beta this month to a select few, the timing of a full launch is unclear. 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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