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You Ask Chegg Answers: Potential Top AI Investment

Sep. 08, 2023 1:02 PM ETChegg, Inc. (CHGG)AI, COUR, PRDO5 Comments


  • Chegg's stock has trended downward despite recent positive news and reaching new highs earlier in the year.
  • The company's valuation suggests a potential upside of 40% based on comparisons to peers and Wall Street analysts.
  • Chegg's deep value, earnings consistency, and industry-leading position in the education space make it an enticing investment if they can leverage AI, but there are risks to consider.

Chegg.com Campus Takeover"s "Late Night with Chegg" - Austin

Sarah Kerver/Getty Images Entertainment

Smarter Answers = Better Product + Improved Returns

Chegg (NYSE:CHGG) has struggled over the last year of trading, moving down around 52% over the same period, despite reaching new 52-week highs around $30 about this time last year. Chegg specializes

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Comments (5)

I remember studying for the CPA exam with the Becker materials and thought it was so much better structured and easy to learn with their content than just going to lectures and reading the texts(and much cheaper than my degree). So I think the question at hand is weather or not the data set(or content) that they have is or will stay proprietary and will that be enough to ultimately make the product better. We can all use google now to search for info to questions on a topic in school but some people prefer using Chegg.
ProbabilisticInvestor profile picture
This is a dying company that was caught flatfooted by LLMs and has no good answers for it. Their subscription model is going to increasingly become untenable given that the GPT-4 subscription is about the same cost. Speaking as someone who still teaches at a large undergrad university, I can tell you (anecdotally of course) that the students i've talked to find sites like coursehero and chegg pretty worthless now. Professors are being incentivized to rethink the way we look at homework and tests both of which companies like chegg heavily rely on. Similarly, their AI tutoring sounds gimmicky, like a wrapper around gpt but which won't offer anything that the next generation of LLMs can't. IMHO, this is a dinosaur on the very long road to extinction.
@ProbabilisticInvestor -
A) you are speculating on what their AI platform will be.
B) I speak with college students regularly (mentoring, youth support, kids and their friends) all of whom swear that Chegg is a big help. Yes, some use it to cheat but most say they learn far better from Chegg than from their professors. (And at a dramatically lower cost).
C) If you listen to Chegg CEO (and don’t approach this topic with confirmation bias), I think you will see that not only does Chegg want to reduce/eliminate cheating, they are on the forefront of pushing for different ways to think about homework and testing.

Frankly the education is system is an expensive and outdated model and here you have a company trying to help initiate change. Most professors are so stuck in their classic process they can’t see the forest for the trees and just wish to complain.
I think there is far more risk in investing $100-$300k in a four year undergrad college degree hoping it will lead somewhere and struggling to learn from a tenured fossil than to believe that students (and others) will spend $19 a month to learn better
ProbabilisticInvestor profile picture
@flat baroque I have no issue with students using online platforms to learn (honestly, i couldn't care less if they use it to cheat or legitimately). My main point is that I know AI fairly well as my phd is in stats and my day job for the last five years has been a senior data scientist at a large tech company and companies like Chegg are having their entire business model pulled from under their feet.

A) I'm not speculating about their AI platform - they've announced their partnership with open AI and have been open about what they think it will be able to accomplish. It's not so different from what a lot of specific journals / companies are doing trying to train LLMs on specific datasets to have them become more specialized (in this case, tutoring / academic help). The idea behind is that maybe it would help keep the LLMs from hallucinating and making up things that aren't accurate (e.g. citing fake articles). They're not alone in this search and what they're presenting is a band aid for the business model, but it doesn't really change the fact that they're bleeding out. As the LLMs get more powerful, even the free versions of them will be as good as what Chegg is charging for so it's not that I think students won't be incentivized to use online resources, it's that now there are (almost) comparable resources that students can use for free like Chat-GPT3 and soon there will be better resources that will be free.
BAII Capital profile picture
@ProbabilisticInvestor I am a data scientist also and agree.
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