Shares of Chegg Inc. Fall After Disappointing Sales Forecast

After-hours trading indicates a decline in shares of Chegg Inc. on Monday, following the company's forecast for lower-than-expected sales for the first quarter. Additionally, Chegg stated that it is currently uncertain when it will experience growth in revenue and margin.

Chegg Inc., an education-technology platform that provides textbook rentals and tech-powered homework assistance, is in the process of transforming into a more AI-driven organization. The company aims to address concerns raised by management last year regarding the negative impact of students' increased use of ChatGPT on its overall performance. To encourage a rebound in account growth, Chegg has also decided to reduce prices for its services.

According to Chegg's statement, the projected sales for the first quarter are estimated to be between $173 million and $175 million. This is below the analyst consensus of $180.1 million, as reported by FactSet data.

In the fourth-quarter earnings report, Chegg revealed an 8% year-over-year decrease in sales, amounting to $188 million. However, this figure exceeded analyst expectations of $185.9 million.

Net income for the fourth quarter was reported as $9.7 million, or 9 cents per share, compared to $1.9 million, or 1 cent per share, during the same period in the previous year. Adjusted earnings per share aligned with analyst forecasts, totaling 36 cents per share.

Another significant announcement made by Chegg on Monday was the appointment of David Longo as the new Chief Financial Officer, effective February 21. This change comes as Andy Brown, the current CFO, prepares to retire.

After falling nearly 10% immediately following the release of the earnings report, the company's stock experienced a slight recovery with a 1.7% decrease after hours. Over the past year, Chegg's stock has seen a significant decline of 55.8%, with the majority of this decline occurring in May 2021.

Chegg's AI Integration Boosts Student Engagement

Chief Executive Dan Rosensweig of Chegg announced that the company's AI-powered chatbot, ChatGPT, has been instrumental in driving their new-customer growth rate. Chegg has recently revamped its entire platform to incorporate advanced AI capabilities, such as the development of extensive language models, automated answering systems, and coding algorithms to improve the accuracy and depth of responses.

Rosensweig emphasized that the integration of AI into Chegg's services is an ongoing and iterative process. The introduction of automated-answering technology has had a profound impact on student engagement. Chegg witnessed an immediate and significant result as their automated answers provided over 2.2 million solutions to students in January alone. This number is three times higher than the amount of new questions asked and answered during the same period last year.

To expand their customer base, Chegg initiated price reductions for new accounts in the United States last month. The decision was influenced by the successful implementation of similar pricing strategies internationally. Remarkably, in the fourth quarter, Chegg observed growth in new customers outside of the U.S. for the first time in two years.