Chegg stock price forecast: irrational sell-off amid ChatGPT risks

Chegg (NYSE: CHGG) stock price nosedived by more than 37% in extended hours after the company expressed concerns about ChatGPT. The shares dived to $11, which was much lower than where it closed at $17.60. Other online education stocks like Coursera also dipped.

Chegg stock chart by TradingView

Is ChatGPT a threat to Chegg?

Chegg reported strong results on Monday. The company’s revenue came in at $188 million while the number of users rose to 5.1 million. Its subscription revenue came in at $168 million while its skills income came in at $19 million while gross margins jumped.

The company has a strong balance sheet, with over $1.2 billion in cash even as it continued to repurchase its shares.

These strong numbers did not have a role in the Chegg stock price performance. The main catalyst was a statement by management about the impact that ChatGPT and other generative AI products were having in its business. The CEO said:

“In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth, and we were meeting expectations on new sign ups. However, since March, we saw a significant spike in student interest in ChatGPT. We now believe it’s having an impact on our new customer growth.”

Irrational sell-off

Therefore, Chegg stock price crashed as investors believe that ChatGPT will completely disrupt its business. However, I believe that investors, who are mostly driven by fear and greed, tend to overreact to issues. It is greed that helped drive the C3.ai stock price sharply higher earlier this year. Now, as I wrote here, C3.ai stock price has plunged by over 44% in the past 30 days.

I believe that ChatGPT will not replace Chegg because of the human factor and the fact that artificial intelligence will not disrupt key areas of education. For example, Chegg makes money selling eBooks to students from around the world. It now has over 400k titles and a subscription package that starts at $4.99. ChatGPT will not replace that. 

Further, the company has access to thousands of educators. Again, while ChatGPT is doing a good job, I believe that human interaction in education is important. We saw this with the failure of online education during the Covid-19 pandemic.

Most importantly, Chegg has also embraced ChatGPT, using the CheggMate tool. The tool will combine the features of ChatGPT and the advanced features offered by Chegg.

Therefore, there is a likelihood that the Chegg stock price sell-off has been overdone. As such, while the shares could remain under pressure for a while, there is a likelihood that it will bounce back as investors embrace the new normal.