Shares of Chegg (CHGG 3.20%) fell as much as 11.5% early Friday, then settled to close down 2.19% after a Goldman Sachs analyst downgraded shares of the online education platform.
Goldman thinks AI will be a headwind for Chegg
In a note to clients this morning, Goldman analyst Eric Sheridan lowered his rating on Chegg to sell from neutral, and also reduced his per-share price target on the stock to $8 from $10. To justify his relative bearishness, Sheridan said he's reducing his revenue estimates for Chegg given a combination of its declining subscriber counts and increasing competition from other platforms leveraging generative AI solutions like ChatGPT.
Indeed, Chegg's subscription services customer count declined 8% year over year in the third quarter of 2023, to 4.4 million.
Chegg is also actively combatting the idea that generative AI will be a negative disruptive force; in a press release in November 2023, Chegg highlighted a recent global survey indicating that while 40% of undergraduate students worldwide have used generative AI for their college/university studies, around 55% indicated they prefer the involvement of human expertise in generating answers.
What's next for Chegg investors?
Chegg is set to deliver fourth-quarter 2023 results on Feb. 5, 2024. For perspective, the company's current guidance calls for Q4 revenue of $186 million at the midpoint, with adjusted EBITDA of around $63 million.
Whether Chegg meets that guidance remains to be seen. But given this word of caution heading into the new year from a leading Wall Street firm, it's no surprise to see Chegg stock falling in the meantime.
