Chegg shares plummet as it admits threat from ChatGPT

Shares in online learning service Chegg have plummeted after it became one of the first companies to admit that artificial intelligence chatbot ChatGPT had affected its finances.

In results announced on Monday, California-based Chegg, which offers on-demand answers to college course questions for $19.95 a month, reported a 7 per cent fall in revenue year on year in the first quarter of 2023 to $187.6mn. Its number of subscribers fell 5 per cent to 5.1mn.

The company withdrew its full-year guidance, and its Nasdaq-listed shares fell 37.5 per cent to $11 in after-hours trading.

The news sent ripples through the sector, with shares in London-listed Pearson falling more than 8 per cent on Tuesday.

The blow to education companies comes as businesses grapple with the threat from generative AI that can replicate their services and products more cheaply.

Colleges have previously accused Chegg of allowing students to access answers they then submit as their own, and are now struggling with the same threat from OpenAI’s widely available ChatGPT.

Dan Rosensweig, Chegg chief executive, said on an earnings call that generative AI would affect society and business “at a faster pace than people are used to”, adding that education was already experiencing the impact.

“Since March we saw a significant spike in student interest in ChatGPT,” he said. “We now believe it’s having an impact on our new customer growth rate.”

However, Rosensweig insisted the technology would “advantage Chegg” over time, adding that the company was “embracing [generative AI] aggressively and prioritising our investments to meet this opportunity”.

The company launched CheggMate last month, a new service built with ChatGPT-4 that enables students to get tailored content through conversations with AI and to access quizzes.

Tom Singlehurst, an analyst at Citi, said the investors would “inevitably worry” about the implications for education technology companies, but argued the issues facing Chegg were “fairly idiosyncratic”, affecting demand for “study guides” rather than all course materials.

The threat from generative AI is not the only challenge for Chegg, which struggled to maintain its rapid growth as learning moved online during the Covid-19 pandemic.

Colleges have also accused Chegg of enabling students to cheat by accessing on-demand answers to course questions.

However, educators face an even starker challenge from ChatGPT, which allows students to generate answers to college questions and even full essays for free.

Rosensweig has called claims that ChatGPT is enabling students to cheat “nonsense”, arguing the company gives underprivileged students support they would otherwise be unable to access.

“It has nothing to do with looking up answers,” he told the Financial Times last year. “These are students that have had no support for most of their life — the way we are used by the overwhelming majority of students is to learn.”