Shares of Chegg Inc. experienced a decline in after-hours trading on Monday following the company’s projection of first-quarter sales below expectations. The education-technology platform indicated uncertainty about the timing of a return to revenue and margin growth as it transitions towards a more AI-driven approach. This shift comes in response to concerns raised last year regarding the impact of students’ increased utilization of ChatGPT on the company’s performance. To stimulate account growth, Chegg is implementing price reductions for its services.
Chegg anticipates first-quarter sales to range between \(173 million and \)175 million, falling short of the \(180.1 million estimated by analysts according to FactSet data. Despite a year-over-year 8% decrease in sales to \)188 million in the fourth quarter, the figure surpassed analyst projections of \(185.9 million. The company reported a fourth-quarter net income of \)9.7 million, or 9 cents per share, compared to $1.9 million, or 1 cent per share, in the corresponding period the previous year. Adjusted earnings per share aligned with analyst forecasts at 36 cents per share.
In a strategic move, Chegg appointed David Longo as the new chief financial officer effective February 21, succeeding the retiring Andy Brown. Following the earnings release, the company’s shares initially dropped by 10% but later recovered to a 1.7% decline after hours. Over the past year, the stock has decreased by 55.8%, with a significant portion of the decline occurring last May.
CEO Dan Rosensweig previously attributed a slowdown in new-customer growth to the impact of OpenAI’s ChatGPT chatbot. Chegg disclosed that it has revamped its platform extensively within a year to incorporate advanced AI capabilities, such as large language models and automated answering features, to enhance the depth and accuracy of responses. Rosensweig emphasized the ongoing integration of AI across all facets of Chegg’s services, noting the immediate and substantial benefits observed, particularly in student engagement.
Chegg initiated price reduction trials for new U.S. accounts last month, following successful implementation of similar pricing strategies internationally. The company observed growth in new international customers for the first time in two years during the fourth quarter. Executives anticipate a gradual improvement in engagement, acquisitions, and retention, leading to a positive impact on total subscribers and revenue over time.
