James Tahaney loads textbooks onto a pallet for shipment at the Chegg warehouse in Shepherdsville, Kentucky, April 29, 2010.
John Sommers II | Bloomberg | Getty Images
The rapid rise of artificial intelligence appears to be taking a toll on the stocks of online education companies. Chegg And Coursera.
Both stocks fell more than 10% on Tuesday after issuing disappointing forecasts in part because of students’ use of AI tools such as ChatGPT.
Chegg, which announced the appointment of a new CEO, said it expects second-quarter revenue to be between $159 million and $161 million, less than the $174 million expected by analysts interviewed by LSEG.
As a result, Jefferies downgraded the stock to Underperform and lowered its price target from $7 to $4, suggesting a 2% downside from Monday’s close.
“We question CHGG’s ability to return to sustainable growth as free AI tools become an attractive alternative to a paid CHGG subscription,” analyst Brent Thill wrote in a note Tuesday.
Chegg year so far
Chegg saw a final drop of 20% on Tuesday, bringing its year-to-date decline to almost 50%.
Current CEO Daniel L. Rosensweig, who will be replaced by Nathan Schultz on June 1, touted the company’s progress in generative AI during the conference call.
“We view the proliferation of AI and our ability to uniquely harness its potential in education as a transformational moment for Chegg,” he said.
However, Thill questioned whether users would pay for AI when they can get it for free elsewhere.
“CHGG has historically beaten its free competitors to market, but we believe the AI wave presents a truly credible free product experience compared to CHGG’s paid subscription,” he said.
Chegg’s optimistic comments on AI were a far cry from last year’s first-quarter conference call, when Rosensweig said ChatGPT was impacting the company’s new customer growth rate.
After Chegg’s most recent results, Morgan Stanley lowered its price target from $7 to $6.50 and maintained its underweight.
“On an absolute basis, Chegg’s negative growth and margin compression illustrate that the company still has work to do to demonstrate that AI headwinds have turned into AI tailwinds,” he said. wrote analyst Josh Baer in a note Tuesday.
However, JPMorgan noted that Chegg is making progress in its generational transformation in AI and is confident that Schultz is the right person for the CEO role.
“We believe Schultz brings product expertise and operational insight as Chegg navigates its GenAI transformation and seeks to restore subscriber and revenue growth,” analyst Bryan Smilek wrote in a note Tuesday. He maintained his neutral rating and reduced his price target from $9 to $8.
Meanwhile, Coursera said it expects second-quarter revenue in the range of $162 million to $166 million, below the consensus estimate of $178 million, according to LSEG. It also said it forecast earnings before interest, taxes, depreciation and amortization for the quarter in the range of -$2 million to $2 million, compared to the $5 million expected by analysts polled by StreetAccount.
Coursera shares were last down 11% on Tuesday, bringing its 2024 decline to 45%.
Coursera year so far
Coursera is also trying to use AI to its advantage.
Wall Street remains largely optimistic on the stock, but some companies have reduced their price targets. RBC Capital Markets, for example, maintained its outperform rating on the stock, but lowered its price target from $25 to $18, suggesting a 51% upside from Monday’s close.
“While we believe GenAI content/products and international self-help (e.g. local payments) should provide a boost, we expect some investor reluctance on accelerating into the second half now integrated into forecasts, until they get more visibility,” analyst Rishi Jaluria wrote in a statement. note Tuesday.
Goldman Sachs also lowered its price target from $15 to $10.50 and reiterated its sell rating. The company expects investor discussions to focus on near-term demand recovery.
“Longer term, questions remain regarding the timing (in terms of adoption curves) and scale of how companies will integrate generative AI into their ecosystems and the role Coursera’s platform will play in this context (which is also likely to impact the Consumer segment as well),” Goldman said.
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