CHGG (Chegg) - The Collapse Explained
Current Status:
Price: $1.77 (Dec 20, 2024)
Market cap: $104 million (down from billions at peak)
Stock down ~84% in 2024 (from $10+ to under $2)
52-week range: $0.44 - $1.90
This is one of the most dramatic collapses in EdTech history.
What Does Chegg Do?
Original Business (Legacy - Now Dying):
Chegg Study: Homework help service for students
Students paid monthly subscriptions (~$20/month)
Relied heavily on Google search traffic for customer acquisition
New Business (Small Growth Business):
Chegg Skills: Job training courses (especially AI skills)
Busuu: B2B language learning for corporations
Combined "Chegg Skilling" = $70M revenue (2024), growing 14%
Why The Stock Collapsed: The Perfect Storm
1. ChatGPT Absolutely Destroyed Them (Nov 2022 Onwards)
Before ChatGPT:
Student searches Google: "how to solve calculus problem"
Google shows Chegg result
Student subscribes to Chegg ($20/month)
After ChatGPT:
Student asks ChatGPT directly (FREE)
Gets instant answer with step-by-step explanation
No need for Chegg subscription
The Numbers:
Metric | 2023 | 2024 | Change |
|---|---|---|---|
Revenue | $716M | $618M | -14% |
Net Income | +$18M | -$837M | Disaster |
Subscribers | Collapsing | Collapsing |
2. Google Traffic Dropped 50%
Google changed search algorithms
Chegg's organic traffic cut in half
Company filed lawsuit against Google (ongoing)
Lost their primary customer acquisition channel
3. Massive Restructuring & Write-Downs
2024 Losses Breakdown:
Q1: -$1.4M (manageable)
Q2: $617M (huge impairments/write-downs)
Q3: $213M (more write-downs)
Q4: -$6M
Full Year: -$837M loss
These massive losses were from:
Writing down the value of Chegg Study business
Goodwill impairments
Asset impairments
Recognition that the legacy business is dying
4. Revenue Collapse
Q3 2024 Results:
Revenue: $78M (down 42% YoY)
Adjusted EBITDA: Only $13M
Free cash flow: Negative (FTC settlement + severance)
Q3 2025 Guidance (recent call):
Total revenue: $70-72M
Skilling business: $18M (growing 14%)
Legacy business: Shrinking rapidly
5. Massive Cost-Cutting
October 2024 Restructuring:
Laid off ~400 employees (about 30-40% of workforce)
Reduced annual costs from $536M → under $250M
Split company into 2 units:
The Business Model Destroyed
What Killed Chegg:
1. Zero Marginal Cost Competition
ChatGPT is free, instant, and often better
Claude, Gemini, Perplexity all compete
Students have no reason to pay $20/month
2. Loss of Distribution
Google traffic (primary source) cut 50%
Students going directly to AI tools
Can't compete on paid advertising
3. Commodity Product
Homework help is now commoditized by AI
No differentiation vs free AI
Network effects reversed (fewer students = worse service)
CEO Dan Rosensweig's Pivot (Returned Oct 2024)
The Plan:
Milk the legacy business for cash as long as possible
Grow the Skilling business (B2B focus)
Target: Double-digit growth in Skilling
Current Financial Reality
Balance Sheet (Q3 2024):
Cash: $112M
Net cash: $49M (after debt)
Burning cash on restructuring
2026 Targets:
Operating expenses: Under $250M (down from $536M)
CapEx: Cut 60% to ~$11M
Focus on positive free cash flow
Why Investors Are Terrified
The Bear Case:
Legacy business dying faster than expected
Skilling business too small
Balance sheet concerns
Existential risk
The Bull Case (if you're optimistic):
Undervalued at $104M market cap
Proven management
Growing market
The Brutal Truth
Chegg is a textbook example of:
AI disruption destroying a business model overnight
Why subscription businesses with no moat are vulnerable
How quickly a $10B+ company can become a $100M company
The Timeline:
Nov 2022: ChatGPT launches
May 2023: CEO warns AI is hurting business, stock crashes 50% in one day
2024: Full collapse as reality sets in
Dec 2024: Stock at $1.77, down 95%+ from all-time highs
What happens next:
Legacy business will slowly die (2-5 year tail)
Skilling might grow but too small to matter near-term
Company needs to either:
Bottom line: Chegg is the poster child for "what happens when AI makes your product obsolete." The stock collapsed because their core business was destroyed by free, better alternatives, and the replacement business is too small to save them.
