With the rise of generative AI, students are turning more to AI tools like ChatGPT, impacting traditional online education companies. The performance guidance previously announced by online education companies Chegg and Coursera was disappointing, with both companies' stocks falling by over 10% on Tuesday.
Chegg expects second-quarter revenue to be between $159 million and $161 million, below analysts' expectations of $174 million. Investment bank Jefferies downgraded the stock from hold to underperform and lowered its target price from $7 to $4, implying a 44% drop from Monday's closing price.
Meanwhile, Morgan Stanley reduced Chegg's target price from $7 to $6.50 and maintained its underweight rating. The bank's analysts stated that Chegg's negative growth and declining profit margins indicate that the company still needs to do more to prove that the AI headwind has turned into a tailwind.
On Tuesday, Chegg's stock price fell by over 25% to $5.32, with a year-to-date decline of 50%.
At the same time, another online education platform Coursera expects second-quarter revenue to be between $162 million and $166 million, lower than analysts' expectations of $178 million. The company also stated that EBITDA for the quarter is expected to be between -$2 million and $2 million, while analysts expected $5 million.
On Tuesday, Coursera's stock price dropped by over 13% to $10.28, resulting in a decline of over 45% since 2024.
Some companies have lowered Coursera's target price. RBC Capital Markets maintained its overweight rating on the stock but reduced its target price from $25 to $18, implying a 51% upside from Monday's closing price.
Goldman Sachs lowered Coursera's target price from $15 to $10.50 and reiterated its sell rating. The company expects investor discussions to focus on short-term demand recovery. Analysts say that in the long run, it is still unknown how the company will integrate generative AI into its ecosystem and what role it will play against the backdrop of the AI trend on Coursera's platform, which could also impact the consumer sector

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Online education companies Chegg and Coursera's previously announced performance guidance disappointed investors, leading Wall Street to downgrade ratings or target prices. The stock prices of the two companies plummeted by 25% and 13% respectively during Tuesday's trading session

Online education stocks plummet! Blame it on students' love for using ChatGPT