Chegg gets schooled in AI downside

A student works in Wilson Library on the campus of the University of North Carolina at Chapel Hill, North Carolina
A student works in Wilson Library on the campus of the University of North Carolina at Chapel Hill, North Carolina, U.S., September 20, 2018. Picture taken on September 20, 2018.

NEW YORK, Feb 8 (Reuters Breakingviews) - Artificial intelligence is already spurring a hunt among investors for winners and losers. College textbook-rental company Chegg (CHGG.N) risks becoming the latter. Its stock slumped nearly one-fifth on Tuesday, after it forecast shrinking revenue in 2023. Even though boss Dan Rosensweig told analysts he had seen no effect from the rise of sophisticated chatbots like ChatGPT, it’s hard to see how AI won’t harm an industry already facing a grinding decline.

The chief problem for companies like Chegg is that tumbling undergraduate enrollment already means fewer future customers. To grow, Chegg must win an ever-bigger share of a shrinking market. ChatGPT could have significant effects on the education market: The bot has already passed some law and business exams, although not with flying colors. Rosensweig argues that Chegg can use the technology to its own advantage, matching students with the right content and constructing personalized study plans.

Investors aren’t so confident, judging by the 30% fall in the company’s shares in 2023 so far. That’s greater than the 20% downgrade in analysts’ forecasts of Chegg’s earnings in 2023, according to Refinitiv. By contrast, other companies that have started putting AI to work, like online publisher BuzzFeed (BZFD.O), have seen their stock soar. Every investment craze creates unexpected winners. Given its sheer disruptive potential, the ascent of the smart chatbot will also create losers – both real and perceived.

(By Jonathan Guilford)

(The author is a Reuters Breakingviews columnist. The opinions expressed are their own)

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Editing by John Foley and Sharon Lam

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