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Chegg stock plummets on ChatGPT, AI impacts on new customer growth

Yahoo Finance markets reporter Josh Schafer joins the Live show with a report on Chegg and a new warning about how the company will be impacted by ChatGPT.

Video transcript

SEANA SMITH: Let's get to a big mover today, and that is Chegg. The stock hitting a new 52-week low, trading at the lowest level that we've seen since April 2017. You're looking at losses of about 50%. Chegg's CEO Dan Rosensweig saying on the company's earnings call last night that they are losing market share to ChatGPT. Joining us now, Yahoo Finance reporter Josh Schafer. Josh, you've been reporting on this story today. Certainly, the Street's a little bit worried about the comments that we heard from Rosensweig about ChatGPT. How big of a threat do you think this really is to their business?

JOSH SCHAFER: It seems like a lot based on the market reaction, right? I mean, you're seeing that stock off, as you said, Seana, about 50% today. And the stock had been down over the past several months already on fears of ChatGPT. And I think one thing to point out when we talk about Rosensweig's comment there was that was part of the prepared remarks. Chegg came into this earnings call ready to basically warn that ChatGPT is starting to be a legitimate concern for them. And this comes a week after they've started-- or announced a partnership with OpenAI to use ChatGPT-4 to build out their own AI product.

So I think that's part of the investor concern here, too, is Chegg is clearly saying AI is part of the future of online learning, but they need OpenAI and ChatGPT to create that product. And so when you think about the larger investor story here, the question becomes, how much is Chegg going to have to pay to be able to use OpenAI and include that in their platform? And then what are they going to sell it for?

And when that was asked on the call, Chegg didn't have a straight answer on what the plan is as far as monetizing AI goes or when AI is even going to come to market for Chegg. And so clearly some big concerns here, Akiko, as far as where things are headed next for Chegg.

AKIKO FUJITA: Yeah, Josh, that's interesting because I read those comments, and I sort of thought, well, is this part of Dan Rosensweig setting the expectation because their AI development is still far behind? I mean, how much catchup do they have to do? And are they kind of dead in the water at this point?

JOSH SCHAFER: They definitely have to do a lot of catchup. And I think really what the problem is going to become is, you're dealing with students. And specifically when you talk about Chegg, a lot of their students end up being college students, right, and it spreads on college campuses. And one point that Brent Thill of Jefferies made today in his note that I thought was interesting was, Chegg benefited from word of mouth and spreading on college campuses basically by becoming popular.

That's what ChatGPT is right now when you think about what's happening with the Gen Z era, the fastest growing app ever. That's what ChatGPT and OpenAI have done. And so to see what was once a growth catalyst for Chegg when you think about word of mouth and students sort of saying, hey, I have this great study tool, you should check it out. Well, now ChatGPT is being used in that way. And I should mention, ChatGPT is free. Most options on Chegg are not free. When you're a student, you're probably going to lean toward that free option if you do find it helpful.

AKIKO FUJITA: Yeah, certainly a very important distinction there. All right, Josh, thanks so much for that.