According to Forbes, Chegg has seen its stock decline 99% and market capitalization plunge roughly $14.5 billion since peaking in February 2021, with the company laying off 45% of its workforce (388 employees) amid collapsing revenue. The education company reported Q2 revenue down 23% to $105 million with an operating loss of $36.5 million, while forecasting Q3 revenue $10 million below analyst expectations. Since ChatGPT’s November 2022 launch, Chegg has lost over 500,000 subscribers as students increasingly choose free alternatives, with a Needham survey showing 62% of students now plan to use ChatGPT versus only 30% for Chegg. The company’s competitive position has deteriorated significantly as Google’s AI Overviews and free AI tools decimate its search-driven traffic model, creating an existential crisis for the 20-year-old education platform.
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The Unraveling of a Once-Dominant Model
Chegg’s fundamental problem isn’t just competition—it’s complete business model obsolescence. The company built its empire on what I’d call the “homework answer archive” approach: paying human contractors $15-30 per solution, building a massive database, and charging students monthly access. This model worked brilliantly in a pre-AI world where creating quality educational content required significant human expertise and effort. However, generative AI has essentially automated the very service Chegg sells, turning what was once a valuable proprietary database into a commodity that students can access instantly and freely through tools like ChatGPT. The speed of this disruption is unprecedented in education technology—we’re witnessing the complete devaluation of a business model that took decades to build.
Why Chegg’s AI Countermeasures Failed
What’s particularly telling is how poorly Chegg has executed its AI strategy. Rather than building genuinely innovative educational technology, the company has consistently deployed what industry observers correctly identify as “thin wrapper” solutions around existing AI models. CheggMate and the more recent “Solution Scout” represent superficial adaptations rather than meaningful technological differentiation. This approach reveals a deeper strategic failure: Chegg misunderstood that in the AI era, competitive advantage comes from unique data, specialized models, and deep integration—not just slapping your brand on generic AI capabilities. Meanwhile, companies with far greater resources—including Google with its AI Overviews and OpenAI with ChatGPT—are providing comparable or superior functionality for free, making Chegg’s $19.95 monthly subscription increasingly difficult to justify.
Structural Challenges Beyond AI Competition
Beyond the immediate AI threat, Chegg faces structural challenges that make recovery unlikely. The company’s reputation as a cheating tool has created institutional resistance that free AI alternatives don’t face. Universities actively monitor Chegg usage for academic dishonesty, creating a psychological barrier for students even as the company tries to reposition as a “learning companion.” Additionally, Chegg’s EBITDA projections of $7.5 million—nearly $6 million below consensus—suggest the company fundamentally misjudged both the timing and severity of the AI disruption. The dramatic traffic decline from Google search, dropping from -8% in Q2 2024 to -49% by January 2025, indicates this isn’t a temporary setback but a permanent reconfiguration of how students access educational help.
The Busuu Acquisition: Desperate Bet or Lifeline?
Chegg’s acquisition of language learning platform Busuu for $436 million in 2022 represents either a strategic pivot or a costly distraction. While some analysts value Busuu at $430 million—significantly above Chegg’s current market cap—the language learning space is already dominated by well-funded competitors like Duolingo. More importantly, language learning represents a fundamentally different business than homework help, requiring different marketing, product development, and customer acquisition strategies. Chegg’s core competency in homework solutions doesn’t naturally transfer to language education, and the company’s limited resources may be better spent on salvaging its primary business rather than diversifying into new competitive arenas.
Realistic Survival Prospects and Investor Outlook
Despite trading 16% below Wall Street’s $1.20 price target, Chegg faces near-insurmountable challenges. The company’s cash position of approximately $95 million after accounting for layoff costs provides limited runway for yet another strategic pivot. More concerning is the psychological shift among students—once they experience free, instant AI assistance, returning to paid services becomes increasingly unlikely. The education technology landscape has permanently changed, and companies built around information arbitrage rather than genuine pedagogical innovation face extinction. While the Busuu asset provides some theoretical floor value, Chegg’s core business appears structurally doomed in an AI-dominated educational environment where the marginal cost of homework help has dropped to zero.
