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BOSTON - AUGUST 28: Atmosphere at the Chegg.com Campus Takeover at Fenway Park on August 28, 2009 in Boston, Massachusetts. (Photo by Gail Oskin/WireImage) Chegg stock is down 99% from its all-time high. Will sharp layoffs and artificial intelligence revive the shares of this 20-year-old online education company? Chegg decided to remain independent after a review by Goldman Sachs, according to TradingView, which I am guessing did not yield an offer to acquire the company at an acceptable price. Despite laying off 45% of its workforce -- or 388 employees – due to the “new realities” of artificial intelligence and diminished traffic from search engines like Google and plans for AI-driven revenue growth, as CNBC reported, it may not be enough. With 7% of Chegg’s float sold short, according to the Wall Street Journal, I see two reasons to avoid these shares: Weak financial performance and prospects. Lack of unique selling proposition to students. Chegg – which is reappointing Dan Rosensweig as CEO – is optimistic about its future. "As I return to the CEO role, I’m confident Chegg has a bright future, and I look forward to exploring all paths to drive growth and enhance shareholder value,“ he said in a company statement. MORE FOR YOU Chegg’s Weak Financial Performance And Prospects Chegg – which offers textbook rentals, homework help and tutoring, as well as a newer suite of AI tools like a service that automatically generates flashcards – has seen its market capitalization plunge roughly $14.5 billion in since peaking in February 2021. The company’s second quarter earnings report featured a big drop in revenue and disappointing guidance. How so? Q2 revenue fell and the company lost money while disappointing investors on its forecast for Q3 revenue and earnings before interest, taxes, depreciation and amortization. Revenue for the latest quarter was down 23% to $105 million while the forecast for the third quarter fell $10 million short of analysts’ expectations of $87 million, noted StockStory. The company reported an operating loss of $36.5 million and $12 million in negative free cash flow in the second quarter. Chegg anticipates adjusted EBITDA of $7.5 million – nearly $6 million below the analyst consensus, StockStory reported. The layoffs – the fourth round since June 2024 bringing the total to 1,396, according to the company, Inc., and other sources – culminate a long decline. Students are increasingly seeing no reason to pay for Chegg. That’s because they can get free answers to their homework questions using OpenAI’s ChatGPT. In February, Chegg sued Google – which launched its own AI summaries – alleging these summaries reduced its traffic and sales. Since ChatGPT’s November 2022 launch, Chegg has lost over 500,000 subscribers according to Gizmodo. Moreover, in November 2024, 62% of students planned to use ChatGPT (up from 43% in spring 2023) versus 30% for Chegg (down from 38%), according to a Needham survey featured in Sherwood News. What Is Chegg’s Unique Selling Proposition For Students? Chegg’s competitive situation is weak. The company faces free alternatives that offer comparable or superior functionality, backed by companies with much greater resources. With universities providing free ChatGPT Enterprise accounts to students, why would they pay $19.95 a month for Chegg? Google’s AI Overviews – which produce AI-generated summaries at the top of search results -- retain users on Google rather than sending them to third-party sites. Chegg’s non-subscriber traffic — historically driven by Google search for questions like "how to solve quadratic equations" — has been plunging: from -8% in Q2 2024 to -49% in January 2025, reported the Washington Post. Chegg’s competitive positioning appears not to align well with student behavior. The company considers its strengths to include education-specific accuracy with human verification, a learning-focused methodology, personalized learning with proprietary data, and integrating Chegg with other student services such as DoorDash, Prezi, and Tinder Gold, according to the company. Yet these service attributes do not align well with the criteria that matter most to students. For example, actual behavior shows students migrate away from Chegg to a good enough result for which they pay nothing, according to Yahoo! Finance. What’s more, Chegg suffers from the perception students use it to cheat and universities track their usage to identify academic dishonesty, according to Sherwood News. Of 52 students interviewed in 2021, “aside from the half dozen students Chegg provided for Forbes to talk to, all but 4 admitted they use the site to cheat,” Forbes reported. While Chegg has tried to reposition itself from providing homework answers to being a learning companion, students remain afraid of this risk. Chegg’s original business model is now obsolete. The company paid human contractors in India around $15 to $30 per answer to solve homework problems, archived those solutions, and charged students $19.95/month for access, explained Sherwood News. Chegg’s efforts to introduce AI-powered services have not succeeded. CheggMate – essentially a "thin wrapper" around existing AI chatbots -- failed to stop the loss of subscribers, noted TechSpot, nor did the company’s pivot to proprietary models using ScaleAI. Chegg’s latest effort – "Solution Scout" puts a front end on others’ AI rather than building competitive technology, noted SeekingAlpha. Chegg’s Tenuous Bull Case For those looking to bet Chegg stock will go up, there are two reasons for hope: some cash – $114 million in June 2025 and the company’s acquisition of Busuu. Chegg acquired Busuu – a language learning platform – for $436 million in 2022. Busuu generated about $43 million in 2024 revenues with 9% growth and 46% expansion in enterprise revenue from clients like Total Energy and Carrefour, according to TradingView. One estimate puts Busuu’s standalone value at $430 million, according to Insider Monkey – $300 million more than Chegg’s market capitalization. I do not know whether Chegg can compete with the likes of DuoLingo nor how it will make students willing to pay for a service they can get for free – such as ChatGPT. Analysts view the stock as undervalued – since it trades 16% below the Wall Street price target of $1.20, according to TipRanks. Chegg is expected to burn through another $19 million in cash to cover the cost of eliminating 388 jobs – which would leave the company with some $95 million in cash. Will these cuts make the company cash flow positive? Editorial StandardsReprints & Permissions
