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Ed tech house Chegg's share price halves after blaming ChatGPT for subscription dip

Student app maker says it's 'not a sky falling thing,' customizes own LLM just in case

Chegg's stock price plummeted 49 per cent on Tuesday, wiping nearly $1 billion off its market valuation, after the education technology biz blamed a slowdown in subscriptions on ChatGPT.

The developer builds software to help students learn and prep for classes, and offers various services from study apps and textbooks-for-rent to online tutoring. In its first quarter earnings this year, CEO and co-chairperson Dan Rosensweig admitted the company was starting to see a decline in subscriptions as students turned to other tools, such as OpenAI's ChatGPT instead.

"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," he said in an earnings call.

ChatGPT can generate text given an input instruction and students can ask the chatbot to answer questions in their homework or get it to generate essays. In response, some schools have attempted to block pupils from accessing ChatGPT on their networks, while some universities are trying software designed to detect AI-written submissions, with wildly varying degrees of success. 

Meanwhile, it looks as though Chegg has been forced to adapt to large language models by pivoting to AI. Rosensweig said Chegg has been working with OpenAI to build an educational chatbot named Cheggmate.

The new product is expected to be released in beta mode next month. Chegg hasn't finalized costs yet, though Rosensweig said subscriptions for the LLM chatbot could start from $15.95 or $19.95 per month.

Chegg's latest financial report [PDF], however, suggests the company's future is looking poorer while it pins its hopes on AI.

  • Total net revenues of $187.6 million, a decrease of 7 per cent year-over-year
  • Subscription services revenues of $168.4 million, a decline of 3 per cent compared to the previous year
  • 5.1 million Subscription Services subscribers, a drop of 5 per cent year-over-year
  • Net income was $2.2 million, less than half of the year-ago's $5.7 million

Rosensweig said he expects revenues from subscriptions to continue to fall in the next quarter, and won't be able to see if the upcoming Cheggmate chatbot can make up for losses until later in the year.

Analysts slashed their share price targets for Chegg. Morgan Stanley's Josh Baer dropped his price target to $12 from $18, and said that AI "completely overshadowed" the results. Investment banking biz Jefferies downgraded the stock to hold from buy, decreasing its price target to $11 from $25, CNBC reported

Shares currently sit at about $9 apiece, down from Monday's high of $18.71.

Rosensweig assured investors that its retention rate among existing Chegg subscribers remains high, and that the release of ChatGPT doesn't threaten the company in the long run. 

"This is not a sky falling thing. It's just an acknowledgement that there's been a technological shift. And we need to prepare for it and adjust our company and go after it aggressively and adjust our cost structure to do so. And we're doing all of that now," he said. ®

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