Inadvertently, ChatGPT has destroyed a publicly traded company that was once worth tens of billions of dollars.
The company's name is Chegg, one of the top online education platforms in the United States.
However, since the launch of ChatGPT, Chegg has lost over 500,000 paid subscribers, its stock price has plummeted 99% from its 2021 peak, and its market value has evaporated by about $14.5 billion.
The reason for such a huge impact is that Chegg underestimated the speed of AI technology progress.
Even before the release of ChatGPT, Chegg had noticed it. But at the time, they believed that ChatGPT would not pose a threat to them, as ChatGPT sometimes gives incorrect answers.
But unexpectedly, the world changed completely in less than a year. In 2022, Chegg's financial reports did not mention "AI" at all. But in the 2023 annual report, AI appeared nine times, seen as the company's main threat.
Chegg's story deeply tells us a truth: in an era of rapid technological change, when the times abandon you, it won't even give you a heads-up.
01 Users Drained by ChatGPT, Market Value Evaporated by 98%
In the United States, Chegg is well-known among students. Chegg was founded in 2006 and went public on the New York Stock Exchange in 2013. It not only provides the sale and rental of used and new textbooks, but also specializes in the academic gray industry, providing students with answers to textbooks, exams, and writing assignments.
▲Chegg went public on the New York Stock Exchange in 2013
The real driver of Chegg's takeoff was the 2020 pandemic. The sudden pandemic brought huge attention to the entire online education industry, and Chegg also successfully rode the wave.
In early 2020, Chegg's stock price was $39. By February 2021, Chegg's stock price reached a high of $115, an increase of 195%, and its market value also reached $11.7 billion.
Behind this was the complete explosion of Chegg's performance. In the first quarter of 2020, Chegg's revenue was $132 million. By the first quarter of 2021, Chegg's revenue had grown to $198 million, an increase of 50%.
During this period, Chegg's number of subscription users was also growing rapidly. In the second quarter of 2019, Chegg's quarterly user scale was 2.229 million. By the second quarter of 2022, Chegg's quarterly user scale had grown to 5.27 million.
But the good times didn't last long. With the end of the pandemic and the recession of the online education boom, Chegg's revenue also began to decline.
▲Changes in Chegg's revenue in recent years (Note: 2024 revenue does not include Q4)
In November 2021, Chegg experienced a rare stock price plunge of nearly 50%. The reason was that Chegg's revenue guidance (especially for Q4 2021) was lower than analysts' forecasts. Chegg said that campus education was recovering and students' reliance on online learning was declining, which directly impacted the company's growth.
By the second quarter of 2022, Chegg's revenue was $195 million, a 2% year-over-year decline. This was its first decline since the pandemic.
But that's not all, the release of ChatGPT dealt Chegg the most fatal blow.
ChatGPT's powerful answering ability has sparked a global AI frenzy, and more and more American students are starting to use ChatGPT to assist with homework, and Chegg has also observed user attrition in its internal data.
In May this year, Chegg CEO Rosensweig said in a conference call that ChatGPT had stolen their users, and Chegg withdrew its financial forecast for the rest of the year, causing its stock price to plummet 48% in a single day.
Since the launch of ChatGPT, Chegg has lost more than 500,000 paid subscription users. Investment bank Needham's survey found that only 30% of college students plan to use Chegg in the fall 2024 semester, down from 38% in the spring semester; 62% of college students plan to use ChatGPT, up from 43% in the spring semester.
From the beginning of the year to date, Chegg's stock price has fallen 84.77%, with a total market value of only $178 million, a 98% drop from its peak, and the stock price has fallen from $115 to less than $2.
The just-released Q3 2024 report shows that Chegg's revenue declined 13.5%, its operating profit margin was -163%, and it was barely supported by its textbook rental business.
▲Chegg's stock price changes over 5 years
So why did ChatGPT have such a huge impact on Chegg?
02 The Cost of Underestimating Technological Progress
To be honest, it has a lot to do with Chegg's business.
Chegg's core business is to help college students with homework answers, but each user needs to pay $19.95 per month. To better serve college students, Chegg has also built a database of millions of answer sets.
This is Chegg's core moat. Because all the questions in the question bank are solved by the 70,000 STEM degree experts and Indian employees hired by Chegg. In India, Chegg has thousands of outsourced employees to provide manual answers for practice questions.
But this seemingly impregnable moat has been completely shattered in the AI era.
Unlike "traditional question bank search", AI education products like Gauth and Question.AI only need the user to take a photo or send the text of the question, and they can automatically generate the answer.
Compared to Chegg, which can only provide answers without detailed solution steps and customized tutoring, AI education products can not only provide free answers, but also provide detailed solution steps and customized tutoring. More importantly, products like Gauth and Question.AI are all free.
In other words, AI education products have truly "downscaled" Chegg.
Of course, Chegg has not missed the opportunity to catch up, but the opportunities have all been avoided one by one.
After the release of ChatGPT, some Chegg employees felt that ChatGPT would not pose a threat to them because ChatGPT sometimes gives incorrect answers. But they underestimated the speed of technological progress. A few months later, they were surprised to find that GPT-4's answers were sometimes better than Chegg's expert-provided answers.
It wasn't until last December that Chegg launched its own AI education product, Cheggmate, in collaboration with OpenAI. This product uses Chegg's database of millions of answers and GPT-4 technology to quickly answer students' questions and generate quizzes.
How late is this timing? You should know that Question.AI from Zuoyebang was launched in the US in May 2023. That means Cheggmate was a full six months later than Question.AI.
But Chegg's collaboration with OpenAI soon ended. In May this year, Chegg turned to AI data startup Scale AI to build AI systems for the platform's subjects.
▲Opening Chegg's website, a "GPT flavor" hits you
Now, Chegg's website looks a lot like ChatGPT, with a text box opening the site that asks "How can I help you today?" just like OpenAI's application.
Nevertheless, Chegg has clearly missed the best window for transformation. In April, Gauth officially announced that its user base has reached 200 million.
03 AI's Industrial Revolution Has Begun
Although in the eyes of many, the landing of AI seems not smooth. But from an industry perspective, AI has already undergone profound changes in some industries. This is particularly evident in the field of education.
The May OpenAI and Google I/O conferences both featured education as one of the key demonstration scenarios. GPT-4 demonstrated the ability to solve equations, and also released a video of the Khan Academy founder's son solving math problems with GPT-4. Google has also released a new AI model, LearnLM, aimed at helping students solve homework problems.
The application of AI in the education sector has already shaken the confidence of many investors in traditional education. In addition to Chegg, the stock performance of another online education company, Coursera, is also not optimistic. Since the beginning of the year, Coursera's stock price has fallen by 64%.
In the education industry, there are also companies that have achieved good business growth through the active application of AI technology. Duolingo is a positive example.
In March 2023, Duolingo introduced ChatGPT-4 to Duolingo and actively integrated AI technology into its business scenarios (AI real-time dialogue practice, AI analysis of answer situations and learning progress), ultimately driving a 50% increase in the number of paying users.
▲ Comparison of three stock prices
Chegg's predicament is not temporary, but a structural change in the industry.
Such examples are unfolding in many traditional industries. With the progress and implementation of AI technology, the competitive advantage of some companies in certain scenarios may disappear overnight, such as real-time translation, language learning, and telemarketing.
As OpenAI CEO Sam Altman shared at an event this year, although the short-term impact of AI may not be as disruptive as expected, its long-term consequences may be far-reaching. In this process, a major challenge is how society can keep up with the pace of this change.
This article is from the WeChat public account "Crow Intelligence Says", author: Intelligent Crow, authorized for release by 36Kr.
