Stock Of Chegg Is Halved After ChatGPT Warned Of Growth Problems

May 2, 2023

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Shares of online learning platform Chegg (CHGG) plummeted by almost 50% after the company revealed that its growth was being impacted by ChatGPT, a generative text tool developed by OpenAI. The Santa Clara, California-based company offers academic services, such as writing and math assignment help, and study materials on a subscription basis.

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According to CEO Dan Rosensweig, the impact of ChatGPT on Chegg’s business wasn't significant until March, when OpenAI launched GPT-4. The popularity of ChatGPT among students is now affecting Chegg’s customer growth rate, leading to the company pulling its annual revenue forecast in February.

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The sell-off in Chegg’s shares also affected other online learning platforms, with Duolingo shares falling 9%, and shares of Pearson, which is based in London, falling 12.5%.

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Mr. Rosensweig said that although the impact of ChatGPT was marginal, the company’s research showed that people who would have paid for Chegg's services are now turning to the free site.

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The warning from Chegg is one of the most concrete indications of the looming disruption that could come from the broader adoption of generative artificial intelligence applications.

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The CEO of Chegg said that the company met several months ago with OpenAI’s CEO, Sam Altman, and is now focused on integrating AI into its services. Last month, the company announced that it plans to roll out CheggMate, which will be built with OpenAI’s GPT-4 model.

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However, Brent Thill, an analyst at Jefferies Financial Group, said that Chegg has had execution issues that predate the latest threat from AI. He also faulted the company for not investing in expanding other business lines to diversify away from the company’s core subscription study service.

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Chegg’s current-quarter guidance fell short of Wall Street's forecast, with the company expecting second-quarter revenue of $175 million to $178 million, below the $193.6 million expected by analysts, according to FactSet.

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