Chegg shares tank on CEO’s AI warning

Chegg expects net revenue in range of $175M to $178M in second quarter, below Wall Street estimates

Chegg Inc. shares plunged Tuesday after the education technology company said OpenAI's ChatGPT interfered with new customer growth. 

Ticker Security Last Change Change %
CHGG CHEGG INC. 3.77 -0.17 -4.19%

Total net revenue fell 7% year-over-year in the first quarter to $187.6 million, while subscription revenues dropped 3% over the same period to $168.4 million, or 90% of total net revenues, compared with 86% in the first quarter of 2022.

"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. "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."

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Meanwhile, Chegg said it expects total net revenue in the range of $175 million to $178 million for the second quarter, well short of Wall Street expectations of $186.3 million. It also expects subscription revenues in the range of $159 million to $162 million and gross margin between 72% and 73%.

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"We can all see that AI technology is evolving at a very rapid pace, and at Chegg we are embracing it aggressively and immediately," Rosensweig said.

"The first big step is the introduction of CheggMate, which we recently announced in cooperation with OpenAI," he continued. "CheggMate will harness the power of ChatGPT, paired with our proprietary data and subject-matter experts, to make learning more personalized, adaptive, accurate, fast, and effective – all in an easy-to-use and conversational manner."

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