Chegg, Inc. CHGG shares have fallen nearly 60% over the past year, and a report by Edwin Dorsey’s "The Bear Cave" released on Thursday, suggests that AI-powered homework helpers could put further pressure on the company.
What Happened: Chegg’s popularity grew during the pandemic when students around the world began learning through digital environments and online classes, and the service boasted 8.2 million subscribers in 2022.
However, the recent rise in AI-powered homework solutions has proven to be a challenge to Chegg’s paid-subscription business model, and Dorsey believes that it could lead to the downfall of the company.
“In short, The Bear Cave concludes that Chegg is a billion-dollar company headed to zero,” wrote Dorsey.
Chegg did not immediately respond to Benzinga’s request for comment.
AI-Powered Competitors: During the company’s 2023 third-quarter earnings call, CEO Dan Rosensweig addressed challenges due to the rise of ChatGPT and other AI-powered competitors.
“It has been nearly a year since ChatGPT launched. We have all learned a lot and are experiencing how AI is impacting our lives. We know that students are using ChatGPT but what is interesting is that they are using it for a variety of things in addition to education.”
Chegg also began integrating generative-AI features into its user interface, and Dorsey’s report noted comments from Chegg CFO Andrew Brown At the May 18, 2023 Needham Technology & Media Conference.
“I will tell you, we have absolutely pivoted internally to focus our resources on CheggMate [the company’s fledgling AI chatbot] and AI. There is no doubt. We believe this is an existential change,” said Brown.
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Billing Complaints: In addition to the challenges posed by AI-powered homework helpers, Dorsey also noted Chegg’s cancellation process, which he said has led to user frustration and negative reviews. Dorsey pointed to Chegg’s average rating of 1.36 out of 5 stars on SiteJabber and noted that all of Chegg’s customer reviews from 2023 were one-star and included many billing and cancellation-related complaints.
CHGG Price Action: According to data from Benzinga Pro, Chegg shares are trading up 1.54% at $10.85 at the time of publication.
Image: Gerd Altmann from Pixabay
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