Chegg, the online education company based in Santa Clara, is laying off 319 workers. It's the second major cut at Chegg in six months as the homework-help company struggles against modern artificial intelligence chatbots.
Chegg announced the new layoff round, which will hit 21% of its workforce, in a filing with the Securities and Exchange Commission on Tuesday. The company delivered the news alongside another brutal quarterly financial report; Chegg lost more than $212 million from July through September. CEO Nathan Schultz, in prepared remarks accompanying the report, expressed some optimism but called it a "trying time" for his company. Chegg provides grammar and plagiarism checkers, plus course-by-course study help, along with much-used textbook solution guides.
"Technology shifts have created headwinds for our industry and Chegg's business specifically," Schultz said. "Recent advancements in the AI search experience and the adoption of free and paid generative AI services by students, have resulted in challenges for Chegg. These factors are adversely affecting our business outlook and are requiring us to refocus and adjust the size of our business."
He specifically called out Google's AI overviews, a recent change to search results that pulls information from news outlets and sites like Chegg and summarizes above the classic blue links. Schultz said that his team believes Google is "shifting from being a search origination point to the destination" in an attempt to keep market share.
Schultz also blamed generative AI chatbots like OpenAI's ChatGPT, saying that students see the tool and others like it as "strong alternatives" to Chegg. Web traffic has dropped sharply as a result, Schultz wrote. A Wall Street Journal story published Saturday said Chegg "is trying to avoid becoming [ChatGPT's] first major victim" and that the company had lost more than 500,000 subscribers, some who paid almost $20 a month, since the chatbot's 2022 launch.
Despite the negative business impact, it seems Chegg is experimenting with new tech. Schultz said in the remarks that the company had formed an "arena" to evaluate AI models and aims to "integrate AI into the full learning journey."
The layoff round, Schultz said, is meant to save $60 to $70 million in 2025, and builds on the cost cuts from June's 441-worker layoff. But it's unclear the cuts will be enough. Per its filed financial results, Chegg's July through September revenue has now dropped for three straight years, and the company's losses for the year totaled $830 million through September.
Chegg's stock price tells a bleak story, too. After years of steady growth, Chegg's market cap boomed during the pandemic and online schooling, reaching a peak near $12 billion in early 2021. The following collapse has been intense: On Wednesday, Chegg was valued at around $159 million.
Company spokesperson Candace Sue told SFGATE Wednesday that all workers impacted by the layoff were offered severance pay and services to help them find new employment.