ChatGPT's Popularity With Students Takes Toll on Education Services Company

Education services provider Chegg has seen its market valuation decline by nearly $1 billion due to the rising popularity of the chatbot ChatGPT, which students are using to complete homework, Reuters reports.

Chegg CEO Dan Rosensweig has confirmed that the company has seen a notable spike in student interest in ChatGPT since March and believes that it has impacted the company's new customer growth rate.

As a result, Chegg has suspended its full-year outlook, causing the company's shares to fall by 47% in early trading on Tuesday, May 2.

Students Using ChatGPT

According to a survey released by BestColleges.com in late March, 43% of college students reported using ChatGPT or a comparable AI program.

Despite a considerable number of students expressing ethical concerns about the usage of these tools, a majority of 61% believed that AI tools like ChatGPT would soon become the norm. This reality is already coming for firms like Chegg.

But it looks like the firm has an answer.

CheggMate, an AI-powered study aide tailored to children's needs, was unveiled last month by Chegg at a time when schools were wrestling with the ramifications of the versatile AI chatbot.

According to a press release at the time, Cheggmate is an "AI-enhanced learning service built with OpenAI's most advanced model" that promises to help students learn more effectively in the shortest time.

However, analysts have said that it is unclear if CheggMate would be enough to counter the slowdown in the company's core business.

What's next for Chegg?

Reuters also reports that analyst Brent Thill at Jefferies has downgraded Chegg's stock to "hold" and has warned that there are fears Chegg's core business could become extinct as consumers experiment with free AI tools.

If losses hold through the session, Chegg will lose $994 million in market capitalization. Chegg's UK rival Pearson PLC has also seen a decline in its shares, shedding nearly 11.5% on Tuesday.

Additionally, Chegg has said that it is postponing its full-year guidance owing to uncertainty about the impact on results.

It expects total sales in the second quarter to be between $175 million and $178 million, falling short of Wall Street expectations of $186.3 million.

According to analysts, Chegg must make significant changes in a quickly changing environment, which is like "dancing in the rain without getting wet."

Since OpenAI introduced ChatGPT to the public, numerous sectors, including banking, media, and education, have contemplated the implications of generative AI development.

Bloomberg tells us that while investors from the United States to China have pursued stocks that claim to be working on similar models, it is uncommon for CEOs to attribute a company's underperformance to artificial intelligence, followed by such a significant selloff.

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