Chegg Announces Major Workforce Cuts Amid AI Challenges
Chegg, the online educational platform, revealed on Monday that it’s cutting 45% of its workforce and reinstating its former CEO, as the company navigates what it describes as the “new realities of AI.” This decision follows earlier layoffs this year in response to declining web traffic and revenue.
Specifically, the company will lay off 338 employees, as the popularity of AI tools like ChatGPT diverts student engagement from its services. Chegg, known for textbook rentals and tutoring support, finds itself facing stiff competition from these AI advancements that are reshaping the educational landscape.
In a surprising turn, Dan Rosensweig will return as CEO effective immediately, replacing Nathan Schultz, who previously took over. Rosensweig, who had led Chegg since 2010 before resigning in April 2024, will also serve as an executive advisor.
Chegg’s statement pointed to a significant drop in both traffic and revenue due to shifts in AI dynamics and a decrease in visits driven by Google towards content publishers. The company noted that it’s rethinking how it operates its academic learning products, indicating a commitment to investing in AI-driven solutions.
Furthermore, Chegg plans to maintain its independence, following a strategic assessment earlier this year. The board unanimously concluded that remaining a standalone public entity offers the best chance for maximizing shareholder value.
Founded two decades ago, Chegg is striving to adapt by integrating new features, such as AI-generated flashcards, to enhance student learning experiences. Yet, competitors like OpenAI and Anthropic are making headlines with attractive pricing and features to capture the attention of college students.
Earlier this year, Chegg filed a federal antitrust lawsuit against Google, alleging that Google’s AI features were negatively impacting its traffic and sales figures.
While Google maintains that its overview promotes a more diverse range of sites, Chegg’s efforts to navigate these challenges might reshape its future.
These layoffs are projected to save the company between $100 million and $110 million, albeit with associated transition costs of around $15 million to $19 million. It’s worth noting that Chegg had already let go of 22% of its workforce in May, which it attributed to the rise of AI.
At that time, Chegg also revealed plans to shut down its physical offices in the U.S. and Canada by year-end as a cost-saving measure in new product development and administrative expenses.
The New York Stock Exchange had cautioned Chegg in April about the risk of delisting due to its stock trading around 60 cents, which is concerning for companies trading below $1 for 30 straight days. Fortunately, by May, the stock had recovered to above $1.
On Monday, however, Chegg’s stock dipped by 1% in premarket trading and has seen a decline of approximately 14.3% since the start of the year.
