Chegg’s CEO says the company “has rapidly pivoted” toward AI.
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Chegg
shares soared in late trading Monday after the provider of online learning software posted better-than-expected June quarter financial results, while laying out a new AI-focused strategy.
Chegg shares were up 28% higher in the after hours session Monday, to $12.81. It’s a contrast to the reaction to the company’s March quarter results, when Chegg shares fell nearly in half, after the company blamed disappointing performance on new competition from free generative AI chatbots like ChatGPT.
For the second quarter, Chegg (ticker: CHGG) posted revenue of $182.9 million, down 6% from a year ago, but ahead of the company’s guidance range of $175 million to $178 million. Subscription revenue was $165.9 million, down 5%, but also ahead of its forecast range of $159 million to $162 million.
Adjusted Ebitda, or earnings before interest, taxes, depreciation and amortization was $59.8 million, which topped Chegg’s forecast of $53 million to $55 million. Adjusted profits of 27 cents a share were two pennies shy of the Wall Street consensus.
In a statement, Chegg CEO Dan Rosensweig notes that the company launched the beta version of its generative AI experience in May, and that feedback has been very positive. “We believe we are in an unrivaled position to deliver a unique, personalized learning experience for students because we have the assets, the vision, and the balance sheet that no one else has,” he said.
For the September quarter, Chegg sees revenue of $151 million to $153 million, with subscription revenue of between $135 million and $137 million, and adjusted Ebitda of $34 million to $35 million.
“We’re entering an exciting new chapter for Chegg, catalyzed by the advances in artificial intelligence, Rosensweig said in remarks prepared for the company’s earnings call. “To take advantage of these new opportunities, Chegg has rapidly pivoted because we believe that category-defining companies with strong brand loyalty, sought-after services, and highly valuable data sets, can leverage AI to grow and will create outsized returns.”
He also said that recent survey data show that students see ChatGPT and Chegg “as complementary, with very different use cases.”
Rosensweig added that the company will roll out the new AI-enabled Chegg experience this fall.
“The new Chegg will combine the best of generative AI with Chegg’s proprietary high-quality solutions and demonstrated ability to improve student outcomes,” he said. “They can expect to see a much simpler conversational user interface, personalized learning pathways, more in-depth content, and the ability to transform it automatically into innovative study tools, such as practice tests, study guides, and flashcards.”
Rosensweig noted that Chegg is building its own large language models “trained with our unique data sets, and with the help of our 150,000 subject matter experts. We expect to deliver a significantly enhanced and differentiated learning experience for students compared with the generic models that are available today.”
Write to Eric J. Savitz at eric.savitz@barrons.com
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