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Chegg says benefits of AI push will ‘take time’ as sales forecast comes up short

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Shares of Chegg Inc. slipped after hours on Monday, after the education-technology platform forecast first-quarter sales that were below expectations and said it was “too early to predict when we will return to revenue and margin growth.”

The company, which offers textbook rentals and tech-powered homework assistance, offered the forecast as it tries to become a more AI-driven outfit, after management last year expressed concern that students’ increased use of ChatGPT was weighing on its fortunes. Chegg is also cutting prices for its services in hopes of a bigger rebound in account growth.

Chegg
CHGG,
-2.82%

on Monday said it expects first-quarter sales of between $173 million and $175 million. That fell below analyst estimates of $180.1 million, according to FactSet data.

In its fourth-quarter earnings report, the company said sales fell 8% year over year to $188 million. That figure, however, came in above analyst estimates for $185.9 million.

The company reported fourth-quarter net income of $9.7 million, or 9 cents a share, compared with $1.9 million, or 1 cent a share, in the same period last year. Adjusted earnings per share came in at 36 cents a share, in line with analyst forecasts.

Chegg on Monday also said it had appointed David Longo as its new chief financial officer, effective Feb. 21. The company’s current CFO, Andy Brown, is retiring.

After falling nearly 10% in the minutes following the company’s earnings release, shares recovered and finished the after-hours session down just 0.3%. The stock is down 55.8% over the past 12 months, with much of that hit sustained last May.

At that time, Chief Executive Dan Rosensweig said he believed OpenAI’s ChatGPT chatbot was “having an impact on our new-customer growth rate.” In its earnings release Monday, Chegg said that in less than a year, it has overhauled its entire platform to bring in more AI capabilities — including building out large language models, automated answering capabilities, and coding to hone the depth and accuracy of those answers.

Rosensweig on Monday said that the process of working AI into all aspects of Chegg’s services was “ongoing and iterative.” Its automated-answering technology, he said, was helping to boost student engagement.

“The impact has been immediate and significant,” he said. “In January, Chegg’s automated answers delivered more than 2.2 million solutions to students, which is three times the number of new questions asked and answered this time last year.”

Chegg said that it began testing out price cuts for new accounts in the U.S. in the middle of last month. Those efforts followed what the company characterized as success with those pricing plans internationally. In the fourth quarter, executives said Chegg saw growth in new customers outside of the U.S. for the first time in two years.

“The green shoots in engagement, acquisitions and retention will take time to build our renewal base before we see a positive impact on total subscribers and revenue,” Brown said.



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