ChatGPT’s #1 Corporate Victim

Let’s face it: artificial intelligence has permeated the academic world. ChatGPT, a high-performing and popular online AI tool has led to the plummeting of a once-thriving education platform providing homework help to students. Despite launching its own AI chatbot to compete, the product has failed to stand out against ChatGPT’s free alternatives, as many students now prefer ChatGPT for free, instant homework help, undermining their subscription model. The business has since then suffered incredible market share devaluation and hence, revenue losses. This is the company that fell as ChatGPT’s #1 corporate victim – Chegg Inc.

In just less than four years, the total stock price of Chegg, an online education giant, has dropped by a devastating 99%. Naturally, slumps in digital learning post-pandemic are partially to blame for its drop, however, there is a newer, bigger problem for these businesses to fret over — and that’s artificial intelligence (AI). 

Because Chegg’s target consumer cluster involves students – mainly the ones who want quick and accessible answers to their questions and homework assignments – ChatGPT made and still makes for the perfect, cost-free alternative of a virtual support tutor. According to the Wall Street Journal, MBA student Jonah Tang remarked that “it's free, it's instant, and you don't really have to worry if the problem is there or not.” Evidently, this student quickly realized ChatGPT’s practicality, and did not hesitate to make the switch over from Chegg – a shift that most of Chegg’s target consumers are also making. A student survey conducted on college students by investment bank Needham claimed that “30% intended to use Chegg this semester, down from 38% in the spring, and 62% planned to use ChatGPT, up from 43%.”  This tool has hence earned itself a spot as a free substitute to online education platforms, who are asking for your money and subscription in exchange for their services. 

Once the go-to source for many students who wanted help with their homework, Chegg was the darling of the COVID-19 era, valued at a peaking 12$ billion three years ago. According to Figure 1.1, it is now on the road to disappearance, with a share price down 48.4%, to 9.08$ halfway through 2023.

Figure 1.1: Chegg Shares After Spiking Subscriptions in 2020

Furthermore, market caps of Chegg have suffered grandiose losses, collapsing from $14 billion in February 2021 to just $191 million in November 2024. Chegg has unfortunately become ChatGPT’s #1 corporate victim, as it perpetually continues to crack under the business challenges arising with artificial intelligence. Even Nathan Shultz, the company’s boss, has admitted to the fact that “technology shifts in generative AI have created headwinds”, also announcing that very day that the company would have to fire a whopping one fifth of its entire workforce. 

So, can Chegg really climb back up the ranks?

It’s a challenge that’s very hard to navigate. In May of 2023, the shares of Chegg had experienced a single-day drop of 50%, with CNBC and news outlets quickly reporting its stock decline. But to better understand this loss, we will delve into the earnings call led by the CEO of Chegg, Dan Rosensweig. In their February earnings call, Rosensweig had actually called out ChatGPT as a red flag to the company. Said red flag iterated that user sign-up numbers had met company expectations for January and February, but in March—the month when college midterms hit, the numbers went completely south. Typically, it would be the month that subscription members peaked, yet Rosensweig instead stated: “we saw a significant spike in student interest in ChatGPT,” and added that they“ now believe it's having an impact on new customer growth.” 

So far, the company has only proposed one relatively larger project in hopes to stay ahead of the game. In May 2023 (the same time the business experienced a single-day 50% drop in share price), Chegg Inc. launched their very own GPT-4 powered Chatbot, named CheggMate. Nevertheless, the story still remains the same: because it is not backed by human expertise, it is merely a copy of ChatGPT, yet still requires payment to access. Plus, CEO Rosensweig's additional answers on the matter did not provide investors any reassurance. According to Arvind Ramnani, an analyst at Piper Sandlers, and additionally, multiple Wall Street analysts, the answers failed to address the difference CheggMate brings in competition with Quizlet, Khan Academy and Brainly, similar platforms which have also released AI chatbots. Instead, he had only vaguely asserted that “what [they] are doing is superior” and “it will look a lot cooler,” but provided little to no specifics of his plan. Hence, investors don’t think CheggMate can dislodge user interest in ChatGPT.  Clearly, the door is shrinking and they would have to launch something far, far better and beyond ChatGPT’s standard product to accumulate mindshare. But because CheggMate offers virtually no differentiation, its “launch” was deemed no launch at all, and landed rather unsuccessfully. Thus, ChatGPT remains the current reigning homework helper. 

Not all hope is lost… hopefully

Despite negative connotations and bleak assessments that ChatGPT has brought about upon Chegg’s business growth, CEO Rosensweig claims to remain positive. "This is not a sky falling thing," he explains, "it's just an acknowledgement that there's been a technological shift." And it is! But… by investors' beliefs, Chegg's future is not too bright, and unless the company makes drastic changes to its business operations, Chegg Inc. will continue to suffer massive economic losses.

References

Diginoron. “The Unstoppable Rise of ChatGPT: 200 Million Users and Counting - the Digital Transformation Diginoron.” Sept. 2024 diginoron.com/the-unstoppable-rise-of-chatgpt-200-million-users/

The Economist. “What ChatGPT’s Corporate Victims Have in Common.” The Economist, 20 Nov. 2024, www.economist.com/business/2024/11/20/what-chatgpts-corporate-victims-have-in-common

Gregorio, Ignacio de. “This Is ChatGPT’s First Official Victim. Are You Next? | Medium.” Medium, 20 Nov. 2024, medium.com/@ignacio.de.gregorio.noblejas/this-is-chatgpts-first-official-victim-are-you-next-2b70ae55ac4a

Kruppa, Miles. “How ChatGPT Brought down an Online Education Giant.” The Wall Street Journal, 9 Nov. 2024, www.wsj.com/tech/ai/how-chatgpt-brought-down-an-online-education-giant-200b4ff2

Sue, Candace . “Chegg Reports 2024 Third Quarter Earnings.” BusinessWire, Tracey Ford, 12 Nov. 2024, www.businesswire.com/news/home/20241111756755/en/Chegg-Reports-2024-Third-Quarter-Earnings

Raines, Jack. “ChatGPT Scrambled the Chegg.” Sherwood News, 12 Nov. 2024, sherwood.news/business/chegg-biggest-chatgpt-gen-ai-loser/ Accessed 22 Nov. 2024.

“Chegg’s Stock Tumble Serves as Wake up Call on the Perils of AI.” Artisana.ai, 2023, www.artisana.ai/articles/cheggs-stock-tumble-serves-as-wake-up-call-on-the-perils-of-ai