#What Happened
Chegg announced on Monday it would lay off approximately 45% of its workforce, equating to around 388 employees. This drastic measure reflects the company's response to the evolving landscape due to artificial intelligence (AI) and reduced web traffic from internet search engines, particularly Google. Chegg, which focuses on online education, has struggled with falling revenues as generative AI tools, such as ChatGPT, gain traction among students. Earlier this year, Chegg filed a lawsuit against Google, asserting that AI-generated search result summaries harmed its traffic and sales. Back in May, the company had already reduced its staff by 22% due to a similar rationale involving AI adoption.
The organization has stated that it is now restructuring its academic offerings in light of these challenges. Founded two decades ago, Chegg went public in 2013 and enjoyed a stock price high of $113.51 in early 2021 but has since plummeted nearly 99%, with its current market cap around $156 million. In a further shake-up, Dan Rosensweig has returned as CEO, replacing Nathan Schultz, as Chegg has decided to remain an independent public entity after reviewing various strategic proposals.
#Why It Matters
These layoffs and changes signal significant turbulence within Chegg, reflecting broader concerns about the impact of AI on traditional educational service models. For investors, this could lead to a decrease in confidence as the company navigates its path forward amid declining revenues and market capitalization. The operational restructuring may yield new opportunities or further risks, depending on the effectiveness of its pivot.
#What to Watch Next
Retail investors should pay attention to Chegg's ongoing restructuring efforts and the performance of its new AI-driven educational tools. Future quarterly earnings reports will also be crucial in gauging how well the company manages to adapt in this rapidly changing industry. Additionally, any progress in the legal battle with Google may provide insights into the competitive landscape.
#Quick Take
Chegg's layoffs and restructuring efforts showcase the company's struggle against the rapid rise of AI tools, which could keep shareholders on edge about long-term profitability.