[Editor's Note: This article first appeared in The Cheat Sheet, the free newsletter on academic integrity and cheating.]
Today, Chegg - which is shockingly listed on the New York Stock Exchange - tumbled below $10 a share. In February 2021, Chegg shares were worth more than $113. In just over two years, Chegg shares have lost more than $100 in value - an Alpine decline of more than 91%.
Yikes.
The panic retreat by investors was initiated by Chegg’s quarterly earnings (Q1 - 2023) which were, not good. The bullets, according to news coverage:
Total net revenue down 7% year over year
*Subscription services, which represent 90% of Chegg’s business, were down 3% year over year.
*Total subscribers were down 5.1 million year over year.
*Projected further, continued declines in revenue, subscribers, and profit.
The company and media blamed the decline on AI tools such as ChatGPT - the automated service that can answer academic questions faster than Chegg, and for free.
In the earnings announcement, Chegg’s CEO said:
"since March we saw a significant spike in student interest in ChatGPT. We now believe it’s having an impact on our new customer growth rate."
Two things.
To start, The Cheat Sheet could have saved Chegg’s investors some serious money. Or, made you some, had you shorted Chegg. Back in Issue 68, I wrote:
Bottom line: Chegg as a business is in trouble.
Yup.
This past February, in Issue 193, I wrote:
… Chegg thinks their earnings will be essentially unchanged for 2023 vs 2022. I think they’re dreaming.
They were.
I’d repeated the wisdom of some smart readers who said early, early on that the likes of ChatGPT was going to be a Chegg killer. I agreed and told EdSurge exactly that, also in February (see Issue 193):
Some instructors have opposed companies like Chegg and Course Hero, as trying to get content related to the courses they teach removed can cause a headache. The chatbots represent a new headache, for teachers and possibly also for homework-help companies.
That whole business could be threatened by free tools like ChatGPT, argues Derek Newton, who runs The Cheat Sheet, a newsletter that covers academic dishonesty.
For Newton, the primary motivation of a student using homework-help services is laziness or a lack of preparedness. And so having a free alternative that can give answers to questions — like ChatGPT — could shrink the number of students who are willing to pay
In that Issue I wrote:
It’s too early to tell if ChatGPT will dent Chegg and its irresponsible ilk - but I can’t really see how it won’t.
And so it came to pass.
It is clear now that Chegg’s recent announcement of a partnership with ChatGPT (see Issue 203) was a desperate Hail Mary. And there’s no reason to think it will work, no reason to think Chegg’s decline won’t continue.
It also answers a question I’d been wrestling with for years - whether Chegg’s investors (see Issue 142) knew its core business was academic misconduct or not. This most recent investment retreat proved to me that they did. They only left when a better, more efficient cheater started eating their profits.
But a wise confidant and reader texted to say my question was academic - Chegg’s investors know now. He’s right.
When a free answer site takes away your customers, it becomes very clear very quickly what you’re actually selling.
Finally, a reminder that a collapsing valuation is not Chegg’s only problem.
As it happens, I checked in last week on the legal challenge by Pearson, against Chegg (see Issue 55). The suit is still active. And if Pearson wins, it could decapitate Chegg’s entire value proposition - selling the answers to questions they do not own. Chegg also continues to face investor legal challenges (see Issue 163). Since this recent stock evaporation essentially confirms that Chegg was a cheating provider all along, it’s hard to see how this recent news hurts investors’ claims.
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1 comment:
Not only Chegg Inc, but ChatGPT and Perplexity dot ai are crushing grading systems of assessment, certifications, etc. What does society look like without artificial distinctions, like degrees? Are we headed back to Jacksonian America?
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