How ChatGPT brought down an online education giant

Chegg's stock has dropped 99% as students looking for help with homework defect to artificial intelligence

- Miles Kruppa

Most companies are starting to figure out how artificial intelligence will change the way they do business. Chegg is trying to avoid becoming its first major victim.

The online education company was for many years the go-to source for students who wanted help with their homework, or a potential tool for plagiarism. The shift to virtual learning during the pandemic sent subscriptions and its stock price to record highs.

Then came ChatGPT. Suddenly students had a free alternative to the answers Chegg spent years developing with thousands of contractors in India. Instead of "Chegging" the solution, they began canceling their subscriptions and plugging questions into chatbots.

Since ChatGPT's launch, Chegg has lost more than half a million subscribers who pay up to $19.95 a month for pre-written answers to textbook questions and on-demand help from experts. Its stock is down 99% from early 2021, erasing some $14.5 billion of market value. Bond traders have doubts the company will continue bringing in enough cash to pay its debts.

Though Chegg has built its own AI products, the company is struggling to convince customers and investors it still has value in a market upended by ChatGPT.

"It's free, it's instant, and you don't really have to worry if the problem is there or not," Jonah Tang, an M.B.A. candidate at Point Loma Nazarene University in San Diego, said of the advantages of using ChatGPT for homework help over Chegg.

A survey of college students by investment bank Needham found 30% intended to use Chegg this semester, down from 38% in the spring, and 62% planned to use ChatGPT, up from 43%.

"My concern is that the headwinds to Chegg's top line aren't temporary—they're more structural in nature," said Needham analyst Ryan MacDonald.