Money

Chegg predicts AI benefits will take time

  • Chegg forecasts Q1 sales below expectations
  • The company aims to become more AI-driven
  • Chegg cuts prices in hopes of boosting account growth

Introduction

Chegg Inc., an education-technology platform known for its textbook rentals and tech-powered homework assistance, experienced a slip in its shares after hours on Monday. The company’s sales forecast for the first quarter fell short of expectations, leading to concerns about its revenue and margin growth. Chegg is actively transitioning into an AI-driven company, but the increased use of ChatGPT by students has impacted its fortunes. To counter this, Chegg plans to cut prices for its services to stimulate account growth.

Main Content

Sales Forecast Disappoints

Chegg expects first-quarter sales to range between $173 million and $175 million, falling below analyst estimates of $180.1 million. In its fourth-quarter earnings report, the company revealed an 8% year-over-year decline in sales to $188 million, surpassing analyst estimates of $185.9 million. Despite this, shares of Chegg initially fell nearly 10% but recovered to finish the after-hours session down by only 0.3%. Over the past 12 months, the stock has declined by 55.8%, with a significant portion of the decrease occurring in May 2020.

AI-driven Transformation

Chegg has recognized the need to adapt to the increasing use of AI by students. The company has overhauled its platform, incorporating AI capabilities such as large language models, automated answering capabilities, and improved coding for accurate and in-depth responses. Chegg’s CEO, Dan Rosensweig, stated that the process of integrating AI into all aspects of their services is ongoing and iterative. The implementation of automated answering technology has already shown promising results, with a three-fold increase in the number of solutions delivered to students compared to the previous year.

Price Cuts for Account Growth

In an effort to drive account growth, Chegg has initiated price cuts for new accounts in the United States. This strategy follows successful pricing plans implemented internationally, which led to growth in new customers outside of the U.S. for the first time in two years during the fourth quarter. Chegg acknowledges that the positive impact on total subscribers and revenue will take time to build, as the focus is on renewing existing customer base engagement and retention.

Conclusion

Chegg’s sales forecast setback highlights the challenges it faces as it transitions into an AI-driven company. The implementation of AI capabilities and price cuts are strategic moves aimed at boosting account growth and student engagement. As Chegg continues to evolve, it remains committed to refining its AI-driven services to better cater to the needs of students. The impact of these changes may take time to fully materialize, but Chegg is confident in the long-term benefits they will bring.

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