AI "kills" online education? American giant Chegg's market value plummets by 99%, announces massive layoffs of 45%

The American online education giant Chegg, which benefited from the wave of remote learning during the pandemic, is now facing an existential crisis brought on by generative artificial intelligence. On Monday local time, Chegg announced it would cut 45% of its global workforce, equivalent to about 388 positions. The company, which was founded 20 years ago, directly attributed this move to the "new reality of artificial intelligence" and a decrease in traffic from search engines like Google. This is the second round of large-scale layoffs for Chegg in a short period, following a 22% reduction in May of this year. Alongside the layoffs, Chegg also made a series of significant adjustments. The company announced that former CEO Dan Rosensweig would immediately return to replace Nathan Schultz, who had been in the position for only a few months. Additionally, the company has ended its strategic review process that began earlier this year, deciding to abandon options such as sale or privatization and continue operating as an independent publicly traded company. Behind these drastic upheavals is the collapse of Chegg's market value. The company's stock price has plummeted 99% from its historical high of $113.51 in February 2021, with its market value evaporating from a peak of about $14.7 billion to approximately $156 million. Once a Wall Street star, it is now struggling to adapt to the AI era. Difficult Transformation: 45% Layoffs to Address AI Impact Chegg's latest restructuring plan is its most aggressive measure taken to address its business difficulties. The company stated in a release that the decision to lay off 45% of its workforce is aimed at reducing costs and streamlining operations to adapt to the AI-driven industry shift. Reports indicate that this restructuring is expected to incur related costs of approximately $15 million to $19 million, which will be incurred before the first quarter of 2026. As of December 31, 2024, the company had 1,271 employees. Chegg clearly pointed out that its core business is facing a double whammy. On one hand, generative AI tools represented by OpenAI's ChatGPT are becoming increasingly popular among students, directly eroding the market for services such as homework help and tutoring that Chegg provides. On the other hand, the company believes that the AI summary feature in Google search results has harmed its website traffic and sales, and it filed a lawsuit against Google regarding this in February of this year. At a critical juncture for the company's transformation, Chegg has chosen to bring back an experienced veteran to take the helm. Dan Rosensweig will immediately return to serve as CEO again. He was an executive at Yahoo and led Chegg for 14 years from 2010 until stepping down in April 2024. His successor Nathan Schultz is stepping down as CEO but will continue to serve as the company's executive advisor. Schultz was the company's Chief Operating Officer before taking over as CEO From Peak to Valley: The Former Star with a 99% Market Value Erosion Previously, Chegg initiated a strategic review to explore various possibilities, including the sale of the company or privatization. However, Monday's announcement put an end to that. The company stated, "After careful consideration of multiple proposals, the board unanimously decided that maintaining its status as an independent publicly traded company is the best opportunity to maximize long-term shareholder value." Chegg's sharp decline is another striking example of how the tech wave has disrupted traditional business models. During the COVID-19 pandemic, as the world shifted to remote learning, the demand for Chegg's textbook rentals, homework help, and online tutoring services surged, driving its stock price to a historic high of $113.51 in February 2021. However, with the rise of generative AI, its business moat was quickly eroded. Its stock price plummeted by 85.6% in 2024 and has continued to decline by over 10% this year. In April of this year, due to its stock price being below $1 for 30 consecutive trading days, Chegg received a delisting warning from the New York Stock Exchange. Although its stock price returned above $1 in May, the crisis has not been averted