Educational services company Chegg (CHGG) is suing Alphabet (GOOGL) over Google’s use of artificial intelligence (AI) summaries in its search engine. The company argues this keeps traffic on Google while diminishing the value of publishing content online.
Chegg warns in its lawsuit that this practice will result in a “hollowed-out information ecosystem of little use and unworthy of trust.” While Chegg notes this has dropped its own traffic and use of services, it also warns this is a larger danger to online search and publishing.
Alphabet argues against these claims, but it’s already facing scrutiny over an alleged domination of the search ecosystem. Additional lawsuits against it further these arguments as U.S. judges weigh what to do with the search giant.
Chegg Considers Strategic Alternatives
Alongside the lawsuit, Chegg warned investors that the company is pursuing strategic alternatives. That’s a red flag in the financial sector as it signals the company is running out of options to maintain operations.
Chegg’s warning includes several options the company will consider in its strategic review. Among them are a potential acquisition of its business, going private, or continuing its current public listing.
Investor confidence was hammered after this announcement, sending shares of CHGG stock down 30.77% as of this writing. That’s in addition to a 32.92% drop year-to-date. It also comes with heavy trading as 10.8 million shares change hands, compared to a three-month daily average of 2.49 million units.
Is CHGG Stock a Buy, Sell, or Hold?
Turning to Wall Street, the analysts’ consensus rating for Chegg is Moderate Sell based on three Hold and three Sell ratings over the last three months. With that comes an average price target of $1.67, a high of $3, and a low of $1. This represents a potential 54.63% upside for CHGG stock.
