AI Use Drops Chegg Stock 99%

Monday 11/11/2024

Most companies are starting to figure out how artificial intelligence will change the way they do business. Chegg CHGG 0.00%increase; green up pointing triangle

is trying to avoid becoming its first major victim.

The online education company was for many years the go-to source for students who wanted help with their homework, or a potential tool for plagiarism. The shift to virtual learning during the pandemic sent subscriptions and its stock price to record highs.

Then came ChatGPT. Suddenly students had a free alternative to the answers Chegg spent years developing with thousands of contractors in India. Instead of “Chegging” the solution, they began canceling their subscriptions and plugging questions into chatbots.

Since ChatGPT’s launch, Chegg has lost more than half a million subscribers who pay up to $19.95 a month for prewritten answers to textbook questions and on-demand help from experts. Its stock is down 99% from early 2021, erasing some $14.5 billion of market value. Bond traders have doubts the company will continue bringing in enough cash to pay its debts.

Though Chegg has built its own AI products, the company is struggling to convince customers and investors it still has value in a market upended by ChatGPT.

“It’s free, it’s instant, and you don’t really have to worry if the problem is there or not,” Jonah Tang, an M.B.A. candidate at Point Loma Nazarene University in San Diego, said of the advantages of using ChatGPT for homework help over Chegg.

A survey of college students by investment bank Needham found 30% intended to use Chegg this semester, down from 38% in the spring, and 62% planned to use ChatGPT, up from 43%.

“My concern is that the headwinds to Chegg’s top-line aren’t temporary—they’re more structural in nature,” said Needham analyst Ryan MacDonald.

Dan Rosensweig, Chegg’s CEO of more than a decade, stepped down in June after the stock cratered under his leadership. Chegg said Rosensweig notified the board of directors he planned to retire a year in advance.

 

Company veteran Nathan Schultz took over as CEO and laid off 441 employees, almost a quarter of Chegg’s workforce. He has pushed for international expansion and outlined a plan for Chegg to become useful to students for more than just homework answers. 

In an interview, Schultz said Chegg was dealing with a hangover from the growth it experienced during the pandemic and an uncertain outlook for classroom policies around AI. He said Chegg plans to target more serious students than what he calls the “curious learner” by offering more comprehensive answers and services such as counseling.

“In moments of disruption, you have to focus on what you do best,” he said. 

 

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Researchers at the University of Illinois at Urbana-Champaign conducted a study in the spring last year to see how ChatGPT had influenced cheating in an introductory programming course. They found students had overwhelmingly moved to ChatGPT from what the researchers called “plagiarism hubs” such as Chegg.

“It appeared that they completely shifted over from trying to find online solutions and copying them to just going to ChatGPT and having it generate solutions for them,” said Craig Zilles, professor of computer science at the University of Illinois at Urbana-Champaign.

The Chegg spokeswoman said, “We take any attempt to misuse our platform extremely seriously, cooperate with official university investigations into allegations of cheating  and invest in our technology and solutions to prevent such actions.” OpenAI declined to comment.