Chegg Shares Pops 12% despite ChatGPT and AI Hype Suppressing Its Growth

Chegg Inc (NYSE: CHGG) shares closed Wednesday trading at $10.17, up 12 percent from the day’s opening price. The student learning platform has significantly been negatively impacted by the rise of artificial intelligence including ChatGPT. Moreover, CHGG shares dropped more than 44 percent of its value after the company released its quarterly earnings results on Monday.

The hype surrounding ChatGPT and OpenAI has significantly reduced Chegg’s traffic considerably. Nevertheless, Chegg is optimistic it can turn things around with its upcoming Cheggmate beta, an AI-focused platform. Notably, Chegg CEO Dan Rosensweig stated that Cheggmate is slated to be unveiled this month in order to negate the effects of GPT-4.

“In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth and we were meeting expectations on new sign-ups,” Rosensweig said during the earnings call Monday evening. “However, since March we saw a significant spike in student interest in ChatGPT. We now believe it’s having an impact on our new customer growth rate.”

Chegg, Its Shares and the Market Outlook

Chegg declined to issue a market outlook for the remaining part of the year due to the uncertainties caused by the rise of AI platforms like ChatGPT. Nevertheless, the company noted that it anticipates revenues for this quarter to come in between $175 million and $178 million, which is far below analysts’ expectations of $193.6 million according to a report by FactSet.

As expected, there has been a significant influx in the use of ChatGPT and its products by learning students in the past few months. Nevertheless, Chegg officials say their sign-ups will continue to rise after most of the students realize that GPT-4 is not as accurate as purported.

Additionally, the company’s Cheggmate is slated to have more informative and well-organized data collected from years of Chegg history. As a result, the company is positive there will be more profitable quarters ahead.

Currently, the company is valued at approximately $1.09 billion, with approximately 119.72 million shares outstanding. Having declined approximately 59 percent YTD, most of the analysts have issued a hold rating on CHGG shares and an average price target of about $14.

For instance, analysts at Piper Sandler said in a report that there are significant questions surrounding the pricing model, AI-related expenses, and whether advancements in AI “democratize their core offering to the extent that their competitive barriers are lowered”. The firm,  which has an equivalent of a hold rating on the Chegg shares, cut its price target on CHGG to $11 from $17.

Nonetheless, the company has been generating free cash flow and has enough cash to pay off its debts.

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