Yahoo Finance Live’s Julie Hyman, Brad Smith, and Josh Schafer discuss the decline in stock for Chegg and recap CEO Dan Rosensweig’s remarks on AI.
JULIE HYMAN: Let's move on to another mover that is moving a lot, and that is Chegg. The shares plummeting some 45% right now after delivering lower-than-expected second quarter forecast. The education tech company seeing impacts from ChatGPT. And we actually had the chance to speak with Chegg CEO Dan Rosensweig about AI.
We talked to him in Davos earlier this year. And it just puts a fine point on how quickly things have changed. Listen to what he said then.
DAN ROSENSWEIG: I think we'd all agree after using ChatGPT, even as extraordinary as it is and even as the evolution that's going to come, it still needs human editors. The user interface, although cool, isn't really valuable to the students who are looking to learn and to evolve and need multi-platform, multimedia way of learning.
So we'll use it to continue to enhance what we offer, and that's why our service gets better and better and better and our NPS scores are through the roof. And so actually, I think it's going to be a real benefit to Chegg.
JULIE HYMAN: And so I think this just, again, emphasizes how quickly things have been evolving when it comes to the use of AI. Yahoo Finance's Josh Schafer is looking at the Chegg story for us. Josh?
JOSH SCHAFER: Yeah, Julie, so you sort of pointed to how quickly things have changed, right? And that was Rosensweig back in January. And he noted on the call yesterday that basically up until March, they hadn't seen a substantial impact from ChatGPT. But then he said on the call, however, "Since March, we have seen a significant spike in student interest in ChatGPT. We now believe it's having an impact on new customer growth rate."
Basically saying ChatGPT is part of the reason for that slowing business that Chegg was talking about. It was interesting too to note, Brad, that that was not brought up by analysts on the call. That was part of the prepared remarks. They were prepared to talk about ChatGPT and say, this is a little bit of a growing problem. And then it took over the call.
Then they just basically chatted about ChatGPT for a while. And one thing that stuck out to me was our friend Brent Thill over at Jefferies specifically asked them, are you contributing this loss 100-- or the decline 100% to ChatGPT? And Rosensweig said, yes.
BRAD SMITH: Wow.
JOSH SCHAFER: He said, it was not changed until March. He repeated that line again. And that just really stuck out to me when you think about the effect that ChatGPT is having.
BRAD SMITH: Even when they said that they've-- like, they've essentially tried to cozy up to ChatGPT and include this within CheggMate as well. So it seems like that's not going as well as planned.
JOSH SCHAFER: Well, CheggMate didn't seem to be the answer, at least for Wall Street analysts last night, because they don't have clear answers on how much they're going to invest into CheggMate, what the revenue proposition is for CheggMate, and when CheggMate is coming to market full time. So later this month, they're going to launch part of CheggMate, sort of a beta version of CheggMate.
But that's also the end of the school year. Chegg is a school platform, so they operate in the fall. So we're not going to get a clear look at CheggMate until at least the fall, likely '24. And now basically, analysts are saying this all revolves around AI, and Chegg doesn't have their own AI.
Like you said, Brad, they're partnering with OpenAI. So from an investor perspective, if they don't own-- if they don't own their own AI platform, that's less attractive as well.
JULIE HYMAN: Josh, just a little bit of like, man-on-the-street reporting or anecdotal reporting on this, you guys had the chance to meet my younger son last week when he was there for Take Your Child to Work Day. I have an older one as well who is in middle school, and he told me that kids are already using ChatGPT for their assignments.
Now, if you're talking about 13-year-olds that are already using this, that-- middle school is not really Chegg's bread and butter, but you're talking about future potential customers who are already going to be AI native when it comes to how they're using it.
Now eventually, maybe the schools will figure out a way to block this in some way, but it just sort of tells you where the future of education could be and some of the challenges that are going to be ahead for the company and for the education system for that matter.
JOSH SCHAFER: Well, and, Julie, with that too, Brent Thill also noted in his note that that's something that Chegg had grown on-- was word of mouth around, say, college campuses. Chegg became very big. I remember when I was in college, everyone was using Chegg. It became very popular. And in some ways it was used for students to cheat in the same way people are afraid that ChatGPT could be used for students to cheat because it can sort of give you answers.
But basically, his base case was, well, if that's how Chegg spread and now people are talking about ChatGPT in the same way and it's spreading among students, then you can see basically what was the former growth story for Chegg now playing out for ChatGPT and OpenAI and taking back that market share.
BRAD SMITH: All right, investors today not grading Chegg on a curve here, it seems. Shares down by about 48%. Our own Josh Schafer covering the story for us. Thanks so much, Josh.