Shares of Chegg (NYSE: CHGG) fell as much as 11.5% early Friday, then settled to close down 2.19% after a Goldman Sachs analyst downgraded shares of the online education platform.
Goldman thinks AI will be a headwind for Chegg
In a note to clients this morning, Goldman analyst Eric Sheridan lowered his rating on Chegg to sell from neutral, and also reduced his per-share price target on the stock to $8 from $10. To justify his relative bearishness, Sheridan said he's reducing his revenue estimates for Chegg given a combination of its declining subscriber counts and increasing competition from other platforms leveraging generative AI solutions like ChatGPT.
Indeed, Chegg's subscription services customer count declined 8% year over year in the third quarter of 2023, to 4.4 million.
Chegg is also actively combatting the idea that generative AI will be a negative disruptive force; in a press release in November 2023, Chegg highlighted a recent global survey indicating that while 40% of undergraduate students worldwide have used generative AI for their college/university studies, around 55% indicated they prefer the involvement of human expertise in generating answers.
What's next for Chegg investors?
Chegg is set to deliver fourth-quarter 2023 results on Feb. 5, 2024. For perspective, the company's current guidance calls for Q4 revenue of $186 million at the midpoint, with adjusted EBITDA of around $63 million.
Whether Chegg meets that guidance remains to be seen. But given this word of caution heading into the new year from a leading Wall Street firm, it's no surprise to see Chegg stock falling in the meantime.
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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Chegg. The Motley Fool has a disclosure policy.
