Chegg (NYSE:CHGG) shares tumbled after the online education company said ChatGPT is hurting growth, and issued a weak second-quarter revenue outlook.
“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,” CEO Dan Rosensweig said during the earnings call Tuesday evening. “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 rate.”
Otherwise, Chegg beat first-quarter expectations on the top and bottom lines.
AI “completely overshadowed” the results, Morgan Stanley analyst Josh Baer said in a note following the report. The analyst slashed his price target to $12 from $18.
While Chegg topped revenue and EPS estimates with the Q1 earnings repot, management warned that ChatGPT had a negative impact on new customer growth beginning in March with student interest spiking in the new AI tool. The fear is that ChatGPT may replace some of Chegg’s services relied on by students.
The negative update on ChatGPT cited by Chegg stands in stark contrast with messaging of no meaningful impacts seen at the time of last earnings in February or at a recent Morgan Stanley conference in early March.
“The optimistic scenario of the new AI powered Cheggmat’ solution insulating Chegg from external risks is highly unlikely, and we see continued risks ahead,” warned Morgan Stanley analyst Josh Baer on the sudden development
CHGG shares dumped $8.13, or 46.2%, to $9.46.