Chegg, once a go-to platform for college students needing textbook rentals and homework help, is now facing a dire financial crisis. The company’s stock has plummeted 99% since its peak in 2021, wiping out $14.5 billion in value at the wake of ChatGPT’s rise. Bondholders are growing increasingly concerned that Chegg may not be able to meet its debt obligations, especially as revenues continue to decline quarter after quarter.
The Fall of a Former Education Giant
For years, Chegg was synonymous with student resources. What began as a textbook rental service in the early 2000s eventually grew into an online platform offering pre-written answers and study guides across various subjects. However, the arrival of ChatGPT has drastically changed the landscape, disrupting Chegg’s business model almost overnight.
The company built its reputation on paying thousands of contractors to manually answer student questions—a labor-intensive process with no guarantee of covering every topic. ChatGPT, on the other hand, leverages vast internet data to provide quick answers to almost any query. As a result, students now have free, instant access to information, diminishing the appeal of Chegg’s paid services.
The Impact of ChatGPT on Chegg’s Decline
The correlation between the launch of ChatGPT and Chegg’s sharp decline is hard to ignore. According to the Wall Street Journal, the emergence of AI-powered tools has led to a mass exodus of students from Chegg’s platform. Even though Chegg has attempted to develop its own AI tools, it has struggled to convince customers and investors that it remains relevant in a rapidly evolving market.
A survey by investment bank Needham highlights this shift: 62% of college students plan to use ChatGPT for homework help this semester, up from 43% earlier in the year, while the percentage of students intending to use Chegg has dropped to 30%.
Efforts to Pivot: Too Little, Too Late?
In a bid to stay afloat, Chegg has laid off 441 employees, approximately 25% of its workforce, and is now focusing on “curious learners” by offering AI-assisted answers and live counseling. However, the company is facing an uphill battle as students increasingly turn to free and more accessible AI tools.
What makes Chegg’s situation even more unfortunate is that employees had reportedly requested resources back in 2022 to develop AI solutions to automate answers, anticipating the rising demand. However, company leaders dismissed the idea until the release of ChatGPT, by which point it was too late to compete effectively.
Can Chegg Reclaim Its Place in the Market?
The biggest challenge for Chegg is convincing students that its platform offers value beyond what ChatGPT provides for free. While Chegg has argued that chatbots like ChatGPT can be prone to errors, students seem willing to accept the risk due to the convenience and speed. As Jonah Tang, an MBA student at Point Loma Nazarene University, noted, “ChatGPT is free, instant, and doesn’t leave you wondering if the problem is covered.”
Even with efforts to promote the reliability and depth of its content, Chegg is racing against time. The company has a narrow window to innovate and regain market confidence before its financial woes worsen.
The Clock is Ticking
With mounting debts, a shrinking subscriber base, and the AI competition only growing stronger, the future looks bleak for Chegg. If the company cannot quickly pivot and offer something that students find indispensable, it may not survive the next wave of AI advancements.
