Yahoo Finance Pearson shares fall after US digital learning rival says AI hurting its business
Almost £1bn has been wiped off the stock market value of the digital learning company Pearson after a US rival admitted that the rise of artificial intelligence chatbot ChatGPT is hurting its business.
Jittery investors sent Pearson’s shares down more than 15%, making it the biggest faller among London-listed companies on Tuesday, after the California-based online learning service Chegg reported a 5% drop in subscribers and pulled its full-year guidance.
“Since March we have seen a significant spike in student interest in ChatGPT,” said Chegg chief executive, Dan Rosensweig, whose company saw its share price almost halve after publication of its first quarter results. “We now believe it’s having an impact on our new customer growth rate.”
Pearson, which last week published first quarter results that beat its own forecasts, said that its business is much more ChatGPT-proof than Chegg, which offers on-demand answers to college course questions for $19.95 a month.
“Chegg is a fundamentally different company with a different business model,” said a spokesperson for Pearson. “We are a highly diversified company, with 80% of our profits coming from businesses outside higher education.”
The company also said its subscription service, Pearson+, continues to grow, with user numbers up threefold since last spring.
“While ChatGPT could be seen as an alternative for students seeking answers to their homework we do not see it as an alternative to Pearson’s text books, courseware, and learning platforms that provide trusted programmes that are adopted by colleges, and have to be followed and consumed by students for about 70% of higher education courses,” said analysts at JP Morgan. “The difference is that Pearson provides the content and sets the questions whereas Chegg and ChatGPT provide answers to those questions.”
Chegg has previously clashed with colleges in the US over accusations that its technology enables students to submit answers that are not their own.
Last month, the company launched a service built with ChatGPT-4, called CheggMate. “[We are] embracing [generative AI] aggressively and prioritising our investments to meet this opportunity,” said Rosensweig.
“Investors will inevitably worry about the readacross to Pearson as another supplier to the US Higher Ed market,” said Thomas Singlehurst, an analyst at Citi. “Generative AI is a great tool for ‘cheating’ [but] less good (for now) for content creation/assessment. Net/net, though, it seems likely it will weigh on sentiment for the broader educational services space in the short term.”
Shares in Pearson closed down 133p to 754p, to value it at £5.4bn.
