Chegg Stock Dives on ChatGPT Worries --- Provider of study materials says that students are looking into generative AI

"Shares of Chegg were nearly halved after the company, which offers tools to help students with homework, said ChatGPT is eating into its growth.

The stock fell as much as 50% Tuesday, and finished 48% lower at $9.08, its lowest close since 2017. The selloff hit shares of some other online-learning platforms. Shares of virtual language-learning company Duolingo fell 10% while American depositary receipts tied to shares of London-based Pearson fell nearly 15%.

"This is not a sky-is-falling thing," Chegg Chief Executive Dan Rosensweig said Monday evening on a conference call.

Santa Clara, Calif.-based Chegg offers subscription-based academic services that help students with writing and math assignments as well as study materials. Mr. Rosensweig said the company didn't see a significant effect on its business from ChatGPT until March, when the company behind the product, OpenAI, launched GPT-4.

Chegg said the popularity of ChatGPT among students is affecting its customer-growth rate, though Mr. Rosensweig said it has yet to hurt retention rates. Citing uncertainty from the impact of ChatGPT, the company pulled its annual revenue forecast, which it provided in February.

"It's not substantial yet. It's just on the margin that, based on our research, that people normally who would have paid for us around midterms or closer to finals that were reluctant to pay or be longer-term subscribers now have a new, free site to go try," Mr. Rosensweig said.

The warning from Chegg and the subsequent selloff are among the most concrete indications yet of the looming disruption that could come from the broader adoption of generative artificial intelligence applications. Jobs and companies across the economy are exposed to the sudden rise of AI as businesses consider using the generative text tools to boost production and shrink their workforces. A recent study said most jobs will change in some form because of such technology.

Mr. Rosensweig said he met several months ago with Open-AI CEO Sam Altman. Mr. Rosensweig said Chegg is now focused on integrating AI into its own services.

Last month, the company said it plans to roll out Chegg-Mate, which will be built with OpenAI's GPT-4 model.

"There's been a technological shift, and we need to prepare for it," Mr. Rosensweig said.

Brent Thill, an analyst at Jefferies Financial Group, said Chegg has had execution issues that predate the latest threat from AI. He faulted the company for not investing in expanding other business lines to diversify away from the company' core subscription study service.

"I think what everyone's having a hard time understanding is how they didn't see it coming," he said of the impact of AI. "Legitimately, their entire business could be disrupted."

He said college students, who are Chegg's main customers, are cost sensitive and open to more affordable alternatives to Chegg's product. He added that it remains to be seen how successful the company's own AI-infused product, CheggMate, will be.

Mr. Rosensweig made his comments as Chegg reported results for the first quarter that topped analysts' expectations. However, the company's current-quarter guidance fell short of Wall Street's forecast.

Chegg said it expects second-quarter revenue of $175 million to $178 million, below the $193.6 million expected by analysts, according to FactSet." [1]

1. Chegg Stock Dives on ChatGPT Worries --- Provider of study materials says that students are looking into generative AI
Feuer, Will.  Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 03 May 2023: B.13.