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Chegg (NYSE:CHGG) Craters as AI Tools Steal Business
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Chegg (NYSE:CHGG) Craters as AI Tools Steal Business

Story Highlights

Chegg plummets as earnings look bad now and are expected to look bad later, prompting a pullout from investors.

Free CHGG Analysis

There are those who wonder if, eventually, humanity will not simply be replaced by various artificial intelligence tools. At Chegg (NYSE:CHGG), that’s less a “ wonder” and more a “thing we’re dealing with right now,” and they’re not handling it well at all. In fact, Chegg is down over 26% in Tuesday afternoon’s trading as free software-based tools eat its tutoring lunch. The rise of ChatGPT and similar artificial intelligence tools being used as “homework helpers” has effectively crippled Chegg’s business in online education.

Chegg noted that it looks for declines all across the board, with gross margins, profits, and total net revenue all in open decline in the current quarter. Moreover, the current CEO, Dan Rosensweig, is jumping ship to be replaced by Nathan Schultz, with Rosensweig pivoting to executive chairman. How much good this will do for Chegg is anyone’s guess. With Chegg down around 70% over the last year and AI tools showing no signs of abating their progress, it’s a safe bet the bleeding will continue.

If You Can’t Beat ’em, Joining ’em Won’t Help

Chegg was not taking this lying down, and it, too, moved to bring out its own line of AI-driven tools to serve as homework helpers. The bad news there was that it didn’t work. Revenue was down 7% in the latest quarter, and the second quarter would likely see a 5% drop in subscription revenue beyond what was already seen. While homework help and tutoring is a fairly recession-resistant industry—parents are often willing to shell out discretionary cash to help kids do better in school—it doesn’t work so well when less expensive, even free, alternatives can be had.

Is Chegg a Good Stock to Buy?

Turning to Wall Street, analysts have a Hold consensus rating on CHGG stock based on one Buy, eight Holds, and three Sells assigned in the past three months, as indicated by the graphic below. After a 69.83% loss in its share price over the past year, the average CHGG price target of $9.58 per share implies 81.44% upside potential.

Is It Wise to Allocate $1,000 Toward CHGG Stock Right Now? 

Before you hurry to invest in CHGG, think about the following: 

TipRanks’ team has built the Top Stocks Portfolio for investors, and Chegg is not included. Our portfolio highlights companies that have been hand-picked for their potential to deliver significant gains in the years ahead. 
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