Chegg's Stock Plummets Due to Competition from ChatGPT
Chegg, an education technology company, faced a huge setback when its CEO Dan Rosensweig recently warned investors in a conference call that OpenAI's free ChatGPT service was affecting the company's growth rate. Chegg's shares lost almost half their value after the announcement.
Rosensweig reported that earlier this year, the company was meeting expectations for new sign-ups for its educational services, but the trend shifted in the past few months. He said, "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 rate."
ChatGPT, launched in November by OpenAI, quickly became a global phenomenon. Schools started blocking access to it because it could easily answer take-home test questions and assist students with their assignments. However, ChatGPT is not solely responsible for Chegg's decline as the company has been facing a tough market competition in the education sector.
Chegg shares were trading above $100 earlier this year when most students attended online classes amid the pandemic. But after Rosensweig's warning, Chegg's shares tumbled 48% and closed Tuesday at $9.08.
Rosensweig mentioned that students who usually pay for Chegg's services during midterms or finals were now reluctant to pay for subscriptions as ChatGPT provided similar services for free. To counter ChatGPT's challenge and to stay in the competition, Chegg has launched its AI companion called CheggMate. This new tool is supported by OpenAI’s latest and most advanced artificial intelligence model, GPT-4, and will empower students in real-time with greater accuracy than before.
Rosensweig called Tuesday's stock sell-off "extraordinarily overblown" in an interview with CNBC. However, there is no denying that Chegg is facing stiff competition from ChatGPT, which has been growing at a rapid pace.
