Chegg Says That ChatGPT Has Started To Negatively Affected Its Business

For the third time in the last seven quarters, Chegg, Inc. (NYSE: CHGG), a leading e-learning firm that provides homework help to students, discussed a negative development in the online education industry. 

Specifically, in his remarks on 1Q 2023 results released after the close on May 1, CEO Dan Rosensweig said that beginning in March 2023, Chegg “saw a significant spike in student interest in ChatGPT.” In turn, this jump in usage of the now-famous AI tool is “having an impact on our new customer growth rate.” Prior to March, ChatGPT apparently had little effect on Chegg’s business.

Given the uncertainty, Chegg said it was uncomfortable providing updated full-year 2023 projections. When the company reported its 4Q 2022 results, it had guided to 2023 revenue and adjusted EBITDA ranges of US$745 million to US$760 million and US$240 million to US$250 million, respectively. Not surprisingly, investors greeted this lack of management confidence with extraordinary hostility. The stock plummeted 48% to US$9.08 on May 2.

Also not surprisingly, given the hair-trigger nature of this stock market, investors aggressively sold other e-learning stocks even though the ChatGPT issue seems to have little direct effect on them. For example, 2U Inc. (NASDAQ: TWOU), which provides about 76 million students worldwide with access to education in partnership with more than 250 universities and corporations, traded down 13% on May 2. Similarly, Coursera, Inc. (NYSE: COUR) declined 4.5%. Coursera is larger than 2U Inc. (124 million registered learners) and has a similar business model.

Both 2U Inc. and Coursera are markedly cheaper than Chegg in terms of enterprise value-to-2023E revenue, trading at multiples of 1.2x and 1.5x, respectively. Chegg, on the other hand, trades at 2.4x this year’s potential sales. Since Chegg no longer provides 2023 revenue projections, the 2023 revenue figure is derived from the 1Q 2023 actual results plus three times the guidance provided for 2Q 2023.


(in thousands of US $, except where noted)Chegg, Inc.Coursera, Inc.2U, Inc.
Stock Price$9.08$11.29$4.08
Shares Outstanding (Millions)119.6149.079.6
Stock Market Capitalization$1,085,968$1,682,210$324,809
Revenue (B)$717,100$605,000$990,000
Adjusted EBITDA$219,600($26,000-$34,000)$160,000
Enterprise Value (EV)$1,739,516$914,825$1,194,521
EV/Adjusted EBITDA7.9N/A7.5
Balance sheet data from 3/31/23. Revenue/cash flow statement projections from midpoint of current full-year 2023 company guidance.
Chegg’s 2023 revenue projection is based on 1Q 2023 actuals plus three times the guidance provided for 2Q 2023.

In November 2021, Chegg said that the COVID pandemic, together with improved employment opportunities, was causing a slowdown in the education industry. This triggered a sell-off in e-learning stocks. Then in early May 2022, Chegg CEO Rosensweig prompted another similar industry reaction when he reported Chegg was feeling the effects of rising wages and persistent increases in the costs of living. Prospective students “are shifting their priorities towards earning over learning.”

Chegg, Inc. last traded at US$9.08 on the NYSE.

Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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