Chegg, the US-based online education platform, is making significant cost-cutting moves due to increasing pressure from AI-driven learning solutions like ChatGPT. The company is laying off 248 employees, which amounts to 22% of its workforce, as part of its efforts to stay relevant in a rapidly changing market.
Key Points:
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Restructuring: Chegg’s decision is aimed at reducing costs and realigning its focus, as students increasingly turn to AI platforms over traditional study help and textbook rental services.
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Office Closures: The company plans to shut down its US and Canada offices by the end of 2025.
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Cost Savings: Through these changes, Chegg expects to save between $45 to $55 million in 2025, and up to $110 million in 2026.
Financial Impact:
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Subscriber Decline: In the first quarter of 2024, Chegg reported a 31% drop in its subscriber base, falling to 3.2 million. The company also saw a 30% year-on-year revenue decline, dropping to $121 million, with subscription revenue seeing a similar decline.
The Role of AI:
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Student Preferences: A significant part of the issue for Chegg is the growing student preference for AI-powered alternatives, such as ChatGPT, which provide fast, free, and often more convenient solutions.
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AI in Search: Platforms like Google now feature AI-generated summaries in search results, which has made it difficult for content-based platforms like Chegg to maintain visibility. Earlier this year, Chegg even took legal action against Google, accusing it of hurting publishers by drawing traffic away with its AI features.
Financial Restructuring:
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The restructuring will result in costs between $34 million and $38 million, which are expected to be accounted for in the second and third quarters of the year.
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Workforce Reduction: At the end of 2023, Chegg had 1,271 employees, but with this downsizing, it is joining a growing list of businesses adjusting to the rapid shift towards AI in education and other sectors.
Chegg’s struggles highlight how rapidly the landscape is shifting, with AI innovations challenging traditional models in education and content delivery. The company's efforts to adapt will likely continue to focus on reducing operational costs and reevaluating its position in an increasingly AI-driven market.
