Yahoo Finance Chegg stock soars after company touts AI advances
Three months ago, Chegg's (CHGG) stock tanked nearly 50% in a day as the company admitted OpenAI's ChatGPT had begun to take market share in the online teaching aid market.
On Monday, the online learning platform changed its tune. ChatGPT, Chegg CEO Dan Rosensweig said, isn't currently a comparable product in the long run.
"Once students recognize that they do very different things ... they will use ChatGPT, but they're not going to try to use it for the things that they use Chegg for," Rosensweig said on the company's earnings call Monday night.
Chegg stock soared nearly 30% after Tuesday's opening bell.
The turnaround of the AI narrative at Chegg would be welcome news for the company with shares down more than 60% this year entering earnings, largely due to the rise in popularity of ChatGPT. In May, Rosensweig noted that the first quarter marked the first time ChatGPT had begun to impact the company's growth rate.
In the second quarter, the company still saw subscribers decline 9%, but Rosensweig noted the tick down in growth might've bottomed during the period. He also said part of the year-over-year declines in the past couple quarters should be attributed to tough comparisons resulting from substantial growth during COVID when students learned completely remotely.
"We were seeing declining new account growth, and it was pretty substantial," Rosensweig said. "And that is improving each and every month, including in July. So we are getting closer to our objective of returning to growth."
Initially, Chegg had announced the launch of Cheggmate, which would use parts of ChatGPT's technology in collaboration with OpenAI. The company is now adding an integration with ScaleAI, which will use Chegg's own data and history to create new learning experiences tailored to specific students. Chegg still plans to pursue its partnership with ChatGPT, it said, but that will be used more for conversation and not directly learning.
"CHGG will continue to leverage its partnership with OpenAI, & we do not believe the Scale AI partnership is exclusive, meaning Chegg can add other (large language model) providers over time," JPMorgan analyst Doug Anmuth wrote in a note Tuesday morning. "Additionally, we believe the Scale AI partnership comes with both lower costs & faster implementation speed vs OpenAI & other alternative providers."
Still, Chegg isn't out of the woods yet when it comes to AI pressures. Jefferies analyst Brent Thill maintained his Hold rating on Chegg and $11 price target, noting the company's guidance for $151 million-$153 million in Q3 revenue didn't move the needle.
"Q3 guidance was mixed as the Fall semester remains an unknown," Thill wrote. "AI will remain an overhang to the story until CHGG can prove it can beat out free AI offerings."
Josh Schafer is a reporter for Yahoo Finance.
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