The growing popularity of the generative AI tool, ChatGPT, has caused a major decline in the shares of US education services provider, Chegg Inc. On Tuesday, the company’s share price plummeted by over 47%, amid concerns that the increasing use of the viral chatbot was putting pressure on Chegg’s subscriber growth.
Chegg, which offers online tutoring and other educational services, suspended its full-year outlook and indicated that the surge in ChatGPT’s popularity was impacting its new customer growth rate. CEO Dan Rosensweig revealed that there had been a significant spike in student interest in ChatGPT since March, which analysts believe could undermine Chegg’s core business as consumers opt to use free AI tools instead.
To counter this trend, Chegg announced last month its own AI tutor called CheggMate, which is customized to cater to the individual needs of students. However, it remains unclear whether this tool will be sufficient to offset the slowdown in Chegg’s core business.The UK-based education company, Pearson PLC, also saw its shares fall by nearly 11.5% on Tuesday.
Chegg has suspended its full-year outlook due to uncertainty about the impact on results and projected second-quarter total revenue between $175 million and $178 million, falling short of Wall Street expectations of $186.3 million. If the losses persist, Chegg’s market capitalization could drop by $994 million. Analyst Arvind Ramnani at Piper Sandler noted that Chegg must make significant changes in a rapidly changing environment.
