Chegg Announces Layoffs, Cites AI Impact

Chegg, the online education company (CHGG), announced on Monday a significant restructuring initiative, including a 45% workforce reduction impacting 388 employees. This strategic realignment comes in response to the disruptive influence of artificial intelligence (AI) and declining organic search traffic, which the company cites as primary drivers behind recent revenue declines.

Founded two decades ago, Chegg has experienced headwinds from the proliferation of generative AI platforms like OpenAI’s ChatGPT. Students increasingly leverage these tools for academic assistance, impacting demand for Chegg’s traditional services. Furthermore, Chegg’s February lawsuit against Google (GOOGL) underscores the company’s concerns over the impact of AI-generated search summaries on its traffic and subscription rates. The lawsuit alleges that these AI-driven summaries are diverting users away from Chegg’s website, directly affecting revenue generation.

In a statement this Monday, Chegg reiterated its position, attributing business challenges to the dual impact of AI adoption and “reduced traffic from Google to content publishers.” This underscores the vulnerability of content-driven businesses reliant on search engine optimization (SEO) in an era of rapidly evolving AI-powered search paradigms. The changing search landscape necessitates a comprehensive re-evaluation of digital marketing strategies and content delivery models.

“As a result, and reflecting the company’s continued investment in AI, Chegg is restructuring the way it operates its academic learning products,” the company stated, signaling a strategic pivot towards integrating AI more deeply into its core offerings. This suggests a potential shift from providing pre-existing solutions to developing AI-powered tools that assist students in learning and problem-solving.

This latest round of cuts follows a previous layoff of 22% of Chegg’s workforce in May, further illustrating the company’s proactive measures to adapt to the rapidly changing educational technology landscape. These cost-cutting measures are intended to free up capital to further invest in new technology and adapt their business model, the company said in a statement.

Chegg, which went public in 2013, witnessed a peak stock price of $113.51 in February 2021, fueled by the Covid-19 pandemic and the subsequent surge in remote learning. However, the stock has since experienced a dramatic decline, losing a substantial portion of its value, reflecting the market’s assessment of the company’s long-term prospects amidst the AI disruption. The market capitalization which reached a high of $14.7 billion now sits closer to $156 million, according to recent data.

Chegg’s diverse offerings include textbook rentals, homework assistance, tutoring services, and a recently introduced suite of AI-driven tools such as automated flashcard generation. These initiatives highlight the company’s efforts to leverage AI to enhance its existing offerings and attract new customers.

In a leadership reshuffle, Dan Rosensweig has returned to the CEO position, effective immediately, succeeding Nathan Schultz, who transitions to an advisory role. Rosensweig, previously a top executive at Yahoo and CEO of Chegg from 2010 to April 2024, brings extensive experience to navigate the company through this period of transformation.

Chegg also announced its decision to remain a standalone public company, concluding a strategic review process initiated earlier this year. This decision signals confidence in the company’s ability to adapt and thrive as an independent entity in the evolving educational technology market.

“After thoughtful consideration of multiple proposals, the board unanimously determined that remaining an independent public company offers the best opportunity to maximize long-term shareholder value,” the company stated, suggesting that potential acquisition offers did not align with the company’s strategic vision or valuation expectations.

Earlier this year, Chegg faced the possibility of being delisted from the New York Stock Exchange after the stock price fell below $1. However, the company successfully regained compliance with listing requirements, demonstrating its commitment to maintaining its position on the exchange.