2023-05-02 08:12:56 ET
Chegg ( NYSE: CHGG ) swung even lower in the premarket session on Tuesday after the online learning company's warning on the impact of ChatGPT startled investors and analysts.
While Chegg ( CHGG ) topped revenue and EPS estimates with the Q1 earnings report , 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 ( CHGG ) services relied on by students.
The negative update on ChatGPT cited by Chegg ( CHGG ) 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
Needham considers the roll-out of CheggMate as the key near term catalyst for the story, but without evidence the product will be live by the Fall semester a Hold rating on CHGG was kept in place.
Meanwhile, Jefferies downgraded Chegg ( CHGG ) to Hold from Buy due to the AI headwinds cutting deeply into the fundamental story. "Shares appear cheap at 8x our lowered FY24 EBITDA estimate, but with no growth and existential fears from AI, we believe shares are fairly valued," warned analyst Brent Thill.
On Seeking Alpha, analyst Vlad Deshkovich made the case that Chegg ( CHGG ) is an AI turnaround buy.
Shares of Chegg ( CHGG ) showed a 44.56% drop at 8:10 a.m. on Tuesday to drop to more than a five-year low.
More on Chegg:
- Read more views on Chegg from Seeking Alpha analysts
- View Chegg's growth metrics
- Read the earnings call transcript
- See the financial and valuation comparison of Chegg to its sector peers
- Dig into the Seeking Alpha Quant Rating on Chegg
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Online learning firm Chegg plummets to multi-year low on fears AI could be an existential threat