Chegg Faces Challenges Amid AI Competition, Explores Strategic Options

Chegg: Revenue Beat, Subscriber Loss

Chegg posted a challenging Q4 2024, marked by revenue decline and subscriber drop, yet surpassed expectations slightly due to its focus on AI and technology integration. Chegg (CHGG 9.09%), a provider of educational technology and services, released its Q4 2024 earnings on Feb. 24, 2025. The report highlights a period of transition, with revenue slightly beating analyst expectations but falling short of last year's results. Diluted Non-GAAP Earnings Per Share (EPS) stood at $0.17, aligning with the $0.17 forecast. Revenue at $143.5 million outpaced the $142 million expectation, yet this was a 24% year-over-year decline from $188 million in Q4 2023. Despite the downturn, the quarter showed signs of potential stabilization with strategic shifts in AI integration. Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in 2024-11-12 earnings report. Chegg: Business Overview and Strategy Founded with the mission to offer educational support, Chegg provides students a suite of tools ranging from online textbooks to AI-powered study aids. Its subscription services, such as Chegg Study Pack, Writing, and Math, underpin its revenue model. Recently, Chegg shifted focus toward integrating artificial intelligence (AI) into its offerings, aiming to enhance personalized learning experiences and user engagement through technology like GPT and Anthropic models. Chegg identified two primary success factors: leveraging AI to personalize education and expanding its subscriber base. The firm believes AI integration will offer a competitive edge by providing personalized content and reducing costs. Its efforts include the recent launch of Solution Scout to validate AI-generated educational content and the transition of its language learning platform, Busuu, to a freemium model to enhance user conversion rates. Quarterly Achievements and Challenges During Q4 2024, Chegg surpassed both analyst and its own management's high-end revenue expectations of $141 million to $143 million. The company generated impressive Adjusted EBITDA of $36.6 million, exceeding its guidance range of $32 million to $34 million. Gross Margin hit 68%, at the upper end of the 67% to 68% range as anticipated by management. Although the subscriber base declined 21% year-over-year to 3.6 million, the company noted improvements in engagement, with a 15 basis points boost in retention and a 66% uptick in user queries. Chegg faced headwinds from competitive pressures, notably Google's AI Overviews impacting web traffic. In response, Chegg lodged a legal complaint against Google, citing competitive challenges. Despite subscriber losses, the Busuu freemium model shifts reported encouraging signs of growth. Future Outlook and Guidance For Q1 2025, Chegg anticipates significant adjustments due to ongoing competitive pressures. Management projected Q1 revenue between $114 million and $116 million, with subscription services at $104 million to $106 million. Expected EBITDA notably lowers to $13 million to $14 million from Q4 levels, reflecting the industry's competitive climate and strategic pivoting efforts. Moving forward, Chegg remains committed to enhancing AI technology within its educational platforms and restructuring for efficiency gains.

Chegg Struggles With Declining Traffic, Revenue Amid Increased Competition, Says Analyst - Chegg (NYSE:CHGG)

JPMorgan analyst Bryan M. Smilek reiterated a Neutral rating on the shares of Chegg Inc CHGG The company struggles with both long-term challenges and increased competition, leading to a weaker-than-expected outlook for first-quarter, said the analyst. Chegg revealed it is undergoing a strategic review and considering various options, including a potential acquisition, a go-private deal, or staying as an independent public company. The first-quarter revenue forecast suggests a decline of 33%-35% year-over-year, with the company attributing the drop to competition from generative AI and large language models, particularly due to Google's widespread rollout of AI-driven overviews. In January, Chegg's global non-subscriber traffic plummeted by 49% compared to the previous year, while retention rates worsened during November and December. Churn improved toward the end of December and has since stabilized in first quarter. Chegg believes the traffic decline is mainly due to Google's AI Overviews diverting users away from third-party websites, prompting Chegg to file a complaint against Google and its parent company, Alphabet Inc GOOGGOOGL. The complaint alleges that Google forces Chegg to provide proprietary content for its search engine, misuses its monopoly power in search and benefits from Chegg's content without compensating it. Also Read: Unilever CEO Hein Schumacher To Step Down, Fernando Fernandez To Take Over Amid these challenges, Chegg is focused on stabilizing its business through product improvements, diversifying its marketing efforts, and growing its Enterprise/Busuu segment. The company acknowledges rebuilding its subscriber base and improving top-of-funnel metrics will take time, noted the analyst. The company is also working on cost reductions and expects to achieve $100 million to $120 million in annualized non-GAAP savings by 2025 from restructuring efforts. Despite these pressures, Chegg is committed to balancing investments in growth, profitability, debt repayments and shareholder returns, including a $207.5 million buyback authorization. Notably, Chegg's $358.6 million in 2025 convertible senior notes will mature on March 15. While industry challenges are expected to persist into 2025, Chegg is hopeful subscriber and revenue trends will stabilize later in the year and the company will manage expenses to preserve profitability. In light of these difficulties, the analyst reduced 2025 and 2026 revenue estimates by approximately 15% and adjusted EBITDA by 50%-56%. The company believes enhancing its products, expanding marketing efforts and driving enterprise growth will help revive subscriber and revenue growth, though the timeline for this recovery is uncertain, the analyst wrote. CHGG Price Action: Chegg shares are trading lower by 28.85% at $1.11 at publication Tuesday. Read Next: * TikTok Collaboration Powers Connexa's New MENA Strate Photo via Shutterstock CHGGChegg Inc$1.11-28.9%OverviewGOOGAlphabet Inc$178.63-1.41%GOOGLAlphabet Inc$176.58-1.49% This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. Market News and Data brought to you by Benzinga APIs