The rapid adoption of OpenAI’s ChatGPT weighed on the new account growth of Chegg (NYSE:CHGG), an education technology company. Following the update, investors dumped CHGG stock, which slumped about 38% in after-hours trade. The headwinds from ChatGPT could hinder its growth in the short term, at least until its own AI (Artificial Intelligence)-related initiatives start to boost its user growth.
Don't Miss out on Research Tools:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
The company’s CEO, Dan Rosensweig, said that student interest in ChatGPT significantly spiked in March, adversely impacting its new customer growth.
Nonetheless, Rosensweig highlighted that the company continued to see strong retention rates and expects a positive recovery in enrolment trends.
The company is also prioritizing the utilization and incorporation of AI into its services. It introduced CheggMate in cooperation with OpenAI. Rosensweig highlighted that CheggMate would leverage ChatGPT’s power and the company’s proprietary data to offer a distinctive learning tool.
The company expects CheggMate to expand its addressable market, lower content costs, and strengthen its user relationship.
In terms of the company’s Q1 performance, Chegg’s total revenues decreased 7% year-over-year to $187.6 million. Meanwhile, its subscription service revenues fell 3% during the quarter. The company posted adjusted earnings of $0.27 a share, exceeding the analysts’ consensus estimate of $0.26 per share.
While Chegg surpassed Street’s forecast, Q2 guidance came below estimates.
Following the Q1 earnings release, Goldman Sachs analyst Eric Sheridan cut his price target on CHGG stock and maintained a Hold recommendation. Sheridan places CHGG in the “show me camp” because ChatGPT’s challenges require more clarification, and the company’s own forward AI initiatives demand “data-driven proof points” to inspire investor confidence.
What’s the Prediction for CHGG Stock?
While CHGG is leveraging AI to enhance its offerings, it remains a wait-and-watch story to see how it plays out. However, given the near-term headwinds from ChatGPT, analysts are cautiously optimistic about the CHGG stock.
It has received four Buy and eight Hold recommendations, translating into a Moderate Buy consensus rating. Further, analysts’ average price target of $21.11 implies 19.94% upside potential from current levels.
