scorecardChegg plunges 23% as it shrugs off the threat of ChatGPT after giving disappointing 2023 outlook
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Chegg plunges 23% as it shrugs off the threat of ChatGPT after giving disappointing 2023 outlook

Matthew Fox   

Chegg plunges 23% as it shrugs off the threat of ChatGPT after giving disappointing 2023 outlook
Stock Market2 min read
  • Chegg fell as much as 23% on Tuesday after it gave investors a disappointing outlook for 2023.
  • The online education company also defended itself from the perceived threat of ChatGPT.

Shares of Chegg plunged as much as 23% on Tuesday after the online education company reported fourth-quarter earnings and defended itself from the potential threat of ChatGPT.

While Chegg's earnings beat analyst estimates, it offered guidance for 2023 that was underwhelming to investors.

The company said it expects to generate revenue of $745 million to $760 million, below the average analyst estimate of $818 million. Meanwhile, the company's guidance for a gross margin of between 71% and 73% fell short of analyst estimates for a margin of 75%.

On top of the missed guidance, Chegg fielded questions about the potential threat ChatGPT could have on its business.

ChatGPT is a natural language chatbot that allows users to have human-like conversations on a myriad of topics. Just two months after its release, users of ChatGPT are using the platform to assist with writing emails, developing code, and answering questions on a range of subjects, like investing. And students are using the platform to help them complete homework, write essays, and study for tests.

That is essentially the bread and butter of what Chegg offers to students, and ChatGPT could theoretically eat into its subscriber base if its answers prove to be as accurate and helpful as Chegg's.

But according to CEO Dan Rosensweig, artificial intelligence is a technology that could ultimately help Chegg more than hurt it.

"We believe AI will have a significant effect on human capabilities and humanity overall. But AI and machine learning models are not new to Chegg. We have been leveraging these technologies within our platform for years, and we believe these continued advancements will benefit Chegg as students," he said on Chegg's earnings call.

As an example, Rosensweig said Chegg has been using GPT2 technology inside of its writing products, which help the company improve its ability to provide features related to grammar and paraphrasing.

The company said its implementation of these technologies have helped it improve the quality and speed of its content development while reducing costs.

"We will continue to build and leverage AI tools, including those from OpenAI and others, allowing us to expand our content capabilities, increase the number of ways students can learn through our platform and increase our efficiency," Rosensweig said.

But Wall Street analysts were skeptical and asked whether Chegg has seen a negative impact to its subscriber growth following the release of ChatGPT in November. Rosensweig responded he's seen nothing "that is noticeable."

He also expects Chegg to integrate ChatGPT into its business once it's offered as an application programming interface (API).

"They've [ChatGPT] already said that they do not plan to keep it free. They can't run it if it's free. So it's going to be an API-based business where we will be participating and using it to enhance our product," Rosensweig said.

And for now, Rosensweig sees much room for improvement for the current slate of artificial intelligence offerings, especially when it comes to their accuracy.

"It doesn't do what we do yet," Rosensweig said. "I think we've discovered this maybe 6% overlap in what they can provide versus what we provide. And of the 6%, I think currently, 50% of them were wrong."