Chegg Is On Its Last Legs After ChatGPT Sent Its Stock Down 99%

If thinking about Chegg gives you PTSD to the days when you were in school, I might have some good news for you: The company known for textbook rentals and homework help is running on fumes. Chegg’s stock is down a whopping 99% since its highs in 2021, erasing $14.5 billion in value, and the company has lost half a million paid subscribers. After revenue keeps dropping quarter after quarter, there are doubts it will be able to continue paying its debts.

Chegg should be familiar to most people who have been to college in recent years. It started out in the 2000s renting out textbooks and later expanded into online study guides, and eventually into a platform with pre-written answers to common homework questions.

Unfortunately, the launch of ChatGPT all but annihilated Chegg’s entire business model. The company for years paid thousands of contractors to write answers to questions across every major subject, which is quite a labor intensive process—and there’s no guarantee they will even have the answer to your question. As we know, ChatGPT on the other hand has ingested pretty much the entire internet, and has likely seen any history question you might throw at it.

As the Wall Street Journal reports, the launch of ChatGPT saw students drop their $20 a month Chegg subscriptions in favor of the chatbot:

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%.

It’s unclear what Chegg can really do to stem the bleeding at this point. The company laid off 441 employees over the summer, a quarter of its workforce. It’s trying to target what the new CEO describes as “curious learners” by offering more comprehensive AI-assisted answers as well as live counseling.

What’s perhaps most sad is that, according to the Journal, employees actually asked for resources in 2022 to develop AI tools for automating answers. The company saw a huge boost in demand during the pandemic when learning when virtual and the company needed to produce answers for questions fast.

Chegg’s leaders denied the request to start building AI tools until ChatGPT’s release, but even then some internally weren’t worried because of the chatbot’s propensity to make up incorrect answers.

But as with a tool like Wikipedia, it’s clear that students are willing to accept some risk because of the convenience. Students are told not to trust Wikipedia, but most use it anyway and head to the references section to grab citations. Of course, chatbots like ChatGPT have no concept of a subject like math, they’re just guessing the words necessary to make a sentence that sounds right. They will return answers that look deceptively correct but aren’t. It’s like having a calculator that’s right 50% of the time. For other subjects like history, chatbots are somewhat better, but answers should be double-checked.

Maybe Chegg could work harder to help people understand this? It seems like most students don’t care though, and the clock is running out for Chegg.