Homework help company Chegg reported Q1 earnings yesterday after market close. It was a mess. Revenue was $187.6M, down 7% YoY. Subscription revenue was $168.4M, down 3% YoY. Number of subscribers was 5.1M, down 5% YoY. Chegg CEO also said that ChatGPT is affecting their subscriber growth. CHGG 0.00 stock was down almost 50% in today’s trading session.
Here is what the Chegg CEO said in the earnings release:
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. 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.
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The first big step is the introduction of CheggMate, which we recently announced in cooperation with OpenAI. CheggMate will harness the power of ChatGPT, paired with our proprietary data and subject matter experts, to make learning more personalized, adaptive, accurate, fast, and effective – all in an easy to use and conversational manner. The combination of Chegg’s experience over the last 13 years of improving student outcomes, and our proprietary learning taxonomy, the 150,000 subject matter experts in our network, and the billions of pieces of unique learning content that Chegg owns, when coupled with the real-time conversational nature of ChatGPT will establish CheggMate as a powerful and distinctive learning tool, offered exclusively from Chegg.
Well, basically students are using ChatGPT for homework help and Chegg becomes unnecessary. Chegg is trying to have their own offering which most likely will do a better job than the more generic ChatGPT. But the problem is that ChatGPT could be good enough for students and a better version won’t necessarily make students want to pay for it. This is a scary example of what disruptive technologies can do to profitable businesses. I expect stories like this will pop up in the next few years. Many companies will be left behind and the business landscape will change drastically for the AI age.