Chegg stock (CHGGThe rise of free artificial intelligence tools has hurt the online education company's growth, sending its stock price plummeting on Tuesday.
Late Monday, the company said in its first-quarter release that it expects total net revenue, gross margin and profit to all decline sequentially this quarter.
Shares fell more than 20% on Tuesday morning following the company's earnings release, which included the announcement that Nathan Schultz will replace Dan Rosensweig as CEO.
Mr. Rosensweig will now serve as executive chairman.
Chegg's stock price has fallen nearly 70% over the past year and is expected to be cut in half by 2024. The stock is down more than 95% from its 2021 peak.
Since launching ChatGPT in late 2022, the company has seen a year-over-year decline in subscribers.
Following the report, Jefferies analyst Brent Till downgraded the stock from hold to underperform and lowered his price target from $7 to $4. He pointed out that the situation in Chegu is “in a vicious cycle with no stability in sight.”
“I question whether Chegg will be able to build an AI experience that is meaningfully better than the free alternatives that students are willing to pay for,” Thill wrote.
“While Chegg has historically consistently outperformed free competitors in the market, we believe the AI wave will deliver a truly trusted free product experience for Chegg paid subscribers.”
Chegg stock became something of a pandemic darling as education moved online and the company grew, pushing the stock to an all-time high of $113 per share in early 2021.
As students return to classrooms and free AI solutions emerge, the company's revenue has declined, and the stock is currently trading around $6 per share.
In May 2023, Chegg told investors that “student interest in ChatGPT has increased significantly” since March of that year.
“We believe this is impacting our new customer growth rate,” the company said at the time. A continuing trend.
Chegg's revenue for the first quarter of 2024 was $174.4 million, down 7% compared to the same period last year and nearly 14% compared to the first quarter of 2022.
Thill highlighted in his research that Chegg's subscriber growth has declined for five consecutive quarters, coinciding with the launch of ChatGPT. He expected these losses to continue through 2024.
Chegg believes that AI has the potential to benefit its business going forward by integrating AI technology into its products over the next few years.
“We have embraced AI, completely rebuilt our user experience and services, and rolled out a multi-year, product-led growth plan to emerge from the post-coronavirus period and return to revenue and profit growth.” Rosens Mr. Weick said this at the company's financial results conference. Monday.
“While the transition will take time, we are already seeing encouraging signs of how our new AI-powered platform will benefit more students than ever before.”
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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