Chegg shares drop 40% after company says ChatGPT is killing its business
James Tahaney loads textbooks on to a pallet in preparation for shipping at the Chegg warehouse in Shepherdsville, Kentucky, April 29, 2010.
Chegg shares were last down 46% to $9.50 in premarket trading Tuesday, set to add to a 30% decline already this year.
The company, which provides homework assistance and online tutoring, said revenue would be between $175 million and $178 million this quarter, far below FactSet's analyst consensus estimate of $193.6 million.
"In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth and we were meeting expectations on new sign-ups," CEO Dan Rosensweig said during the earnings call Monday evening. "However, 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."
Chegg shares tumbled after the online education company said ChatGPT is hurting its growth.
Otherwise, Chegg beat first-quarter expectations on the top and bottom lines. The online education firm reported adjusted first-quarter earnings of 27 cents per share on revenue of $188 million. Analysts polled by Refinitiv had expected per-share earnings of 26 cents on revenue of $185 million.
Following the results, Morgan Stanley analyst Josh Baer slashed his price target to $12 from $18, implying a 30% fall. The analyst said that AI "completely overshadowed" the results.
Meanwhile, Jefferies downgraded the stock to hold from buy, citing the threat artificial intelligence poses to the stock. The Wall Street firm cut its price target to $11 from $25, implying shares could fall more than 35% from Monday's close.
Chegg is developing its own AI product, CheggMate, which is meant to help students with their homework. The product is built in collaboration with OpenAI, which develops ChatGPT. However, Jefferies analyst Brent Thill says the impact of the product is yet uncertain.
"While CHGG plans to launch the CheggMate beta this month to a select few, the timing of a full launch is unclear," he said. "We don't expect there to be any meaningful impact from CheggMate in FY23, believing any potential impact won't show up until FY24 at the earliest."
— CNBC's Michael Bloom and Brian Evans contributed reporting.
Correction: Chegg shares fell more than 40% on Tuesday, and CEO Dan Rosensweig spoke during the company's earnings call Monday evening. A previous version misstated the days of the week.
Source: CNBC
