From Star to Struggler: Chegg's Fight to Survive Against ChatGPT Favoritism "Technology shifts have created headwinds for our industry and Chegg's business specifically. Recent advancements in the AI search experience and the adoption of free and paid generative AI services by students have resulted in challenges for Chegg," said Nathan Schultz, chief executive officer and president, Chegg in the 2024 third-quarter earnings call

Online education company player Chegg is biting the bullet- after witnessing significant growth between 2010 and 2020- due to the emergence of artificial intelligence (AI) and generative AI. The company's stock plummeted 99 per cent since 2021 as students increasingly began opting for AI-assisted homework.

"Technology shifts have created headwinds for our industry and Chegg's business specifically. Recent advancements in the AI search experience and the adoption of free and paid generative AI services by students have resulted in challenges for Chegg," said Nathan Schultz, chief executive officer and president, Chegg in the 2024 third-quarter earnings call.

The edtech player reported a year-over-year decrease of 14 per cent in Subscription Services Revenues to touch USD 119.8 million. Additionally, both its Total Net Revenues and Subscription Services subscribers decreased 13 per cent Y-o-Y.

"As a result, we are undertaking an additional restructuring," added Schultz.

The rise of 'Chegg it'

Founded in 2005 as a textbook rental service, Chegg capitalized on the growing demand for affordable education resources, quickly gaining popularity among students. 'Chegg it' quickly became the act of using the platform to find answers.

In 2012, it raised USD 25M more from 17 investors. A year later, it went public with an initial public offering (IPO) that valued the company at approximately USD one billion.

In 2018, Chegg reported total net revenues of USD 74.2 million. By 2020, Chegg demonstrated good growth and amassed over 4 million subscribers to its services. The lockdown played a massive role in pushing for online classes and learning, paving the way for Chegg to increase its subscriber base from approximately 3.9 million in early 2020 to 4.8 million by mid-2020.

"When the pandemic is over, we don't expect growth to significantly slow because this is not just the trend, this is what it's going to be and this is what it has to be," said the former CEO Dan Rosensweig optimistically late 2020 to CNBC. The

The Q3 2020 results included a Total Net Revenue of USD 154.0 million (increase of 64 per cent Y-o-Y) and Chegg Services subscribers touching 3.7 million (increase of 69 per cent Y-o-Y).

Its shares were up 345 per cent since March 18, when the lockdown began.

The fall and survival

Chegg's decline began post-2020 due to return to office and education institutions, but particularly accelerated in 2022 and 2023 courtesy AI. Since ChatGPT's introduction, Chegg lost over half a million subscribers who paid USD 19.95 a month for solutions and on-demand tutors.

WSJ reported that prior to OpenAI's product launch, while Chegg employees suggested leveraging AI to automate answers as a way of addressing the huge influx in demand, their requests to build these AI tools were denied by the company's leadership.

In May 2022, Byju's was in talks to acquire Chegg, but the deal never materialized. At the time of the talks, Chegg's boasted of 7.8 million subscribers and 29 per cent services revenue Y-o-Y growth.

"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," Chegg CEO Dan Rosensweig said during the company's Q1 2023 earnings call. "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." The company's shares plummeted over 49 per cent post the comment.

In April 2023, it launched CheggMate, a new AI enhanced learning service built with GPT-4 to deliver personalized learning and tailor-made quizzes and tests. The product couldn't save the sinking ship, with the CEO commenting "It was never a thing." Eventually the company collaborated with Scale AI for new solutions to withstand ChatGPT's popularity.

"We will continue to enthusiastically serve this audience, and I remain optimistic in the outlook for us to extend our brand, individualize our product and weather these challenges," said Schultz.

The CEO stated that data revealed that over 75 per cent of high school and college students in North America show a high to medium willingness to pay for online educational tools if they significantly improve academic performance. "We believe there continues to be a student audience that is looking for high-quality content and proven learning expertise...Fifteen years of deep expertise in understanding students, applying advanced learning science to the subjects and topics students learn, providing an archive of 132 million high-quality solutions, and human-supported output has created deep trust and awareness for Chegg. That's why students continue to come directly to Chegg, even as the competitive environment evolves."

While Schultz remains optimistic about the turnaround, he is realistic with "we do not expect to meet our 2025 goals of 30% adjusted EBITDA margin and $100 million in free cash flow."

"We've given the company a road map that integrates Al in the right ways for us," he said as per WSJ. "Now we're in execution mode."

Once trading at an all time high of USD 98.40 in early 2021, Chegg today trades at USD 1.77.