Chegg, a Santa Clara-based online education company, has announced another round of layoffs, cutting 319 jobs, or 21% of its workforce. This marks the second major staff reduction in just six months, signaling deep challenges for a company grappling with the disruptive impact of generative AI tools and Google’s evolving search features.
The layoffs were disclosed in a filing with the Securities and Exchange Commission (SEC) on Tuesday, coinciding with a dismal quarterly financial report. Chegg reported losses exceeding $212 million between July and September, continuing a pattern of declining revenues over the past three years.
CEO Nathan Schultz acknowledged the difficult circumstances, describing it as a “trying time” for the company. The layoffs are part of a broader restructuring effort aimed at cutting costs and reshaping the company’s focus. Chegg expects these cuts to save between $60 and $70 million in 2025, following a similar cost-cutting move in June that saw 441 employees laid off.
However, despite these measures, Chegg’s financial outlook remains bleak. The company has reported losses of $830 million for the year through September, and its stock price has plummeted from its pandemic-era highs, leaving its market capitalization at a mere $159 million compared to a peak of nearly $12 billion in 2021.
AI and Google: Key Drivers of Chegg’s Challenges
Schultz pointed to two major factors eroding Chegg’s business: advancements in artificial intelligence and changes to Google’s search platform. AI tools like OpenAI’s ChatGPT have rapidly gained traction among students, providing free and highly capable alternatives to Chegg’s paid services, such as grammar checkers, plagiarism tools, and step-by-step textbook solutions.
“Recent advancements in the AI search experience and the adoption of free and paid generative AI services by students have created headwinds for our industry,” Schultz stated. Generative AI chatbots allow users to ask detailed questions and receive instant, personalized responses—a compelling offering for students seeking homework help or study guidance.
Additionally, Google’s recent introduction of AI-powered search summaries, which provide direct answers and overviews above traditional search results, has further diminished web traffic to Chegg. Schultz criticized these changes, saying Google has transitioned “from being a search origination point to the destination,” limiting users’ need to visit other websites, including Chegg.
Subscriber Losses and Declining Revenues
The impact of these technological shifts on Chegg’s business has been stark. The company has seen a significant drop in web traffic and a loss of more than 500,000 subscribers since ChatGPT’s launch in 2022. Many of these former customers were paying nearly $20 per month for Chegg’s services. This steep decline in subscription revenue has put immense pressure on the company, which had relied on steady growth in its customer base to sustain its business model.
Chegg’s financial results reveal the extent of the problem: revenue for the July through September period has declined for three consecutive years. While the company benefited from a surge in demand during the pandemic’s online learning boom, it has struggled to adapt to the post-pandemic landscape, where AI tools are rapidly reshaping how students access educational resources.
Exploring AI as a Path Forward
Despite its challenges, Chegg is attempting to pivot toward a future that embraces AI rather than fights it. Schultz revealed that the company has formed an “arena” to evaluate various AI models and is working to integrate AI technology into its broader learning platform. The goal is to create a more comprehensive “learning journey” for students that combines Chegg’s existing tools with the capabilities of modern AI.
While this shift could open up new opportunities, it remains unclear whether Chegg can successfully compete with established AI tools or regain its lost subscriber base. The company’s leadership has expressed cautious optimism but acknowledges that the road to recovery will be difficult.
A Bleak Market Picture
Chegg’s dramatic fall from grace underscores the challenges facing companies reliant on legacy models in a rapidly evolving digital landscape. Once a dominant player in the online education space, Chegg’s market capitalization has declined by over 98% from its 2021 peak. This collapse reflects both the broader slowdown in the edtech sector and Chegg’s specific struggles to adapt to AI-driven competition.
While the layoffs and cost-cutting measures may provide temporary relief, the company’s financial trajectory suggests that deeper structural changes will be needed to ensure long-term survival. For now, Chegg is focusing on providing severance and job placement services for its laid-off employees, while attempting to find a path forward in an increasingly crowded and competitive market.
Chegg’s challenges highlight the disruptive impact of generative AI on traditional industries, particularly those reliant on subscription-based models. The rise of tools like ChatGPT and Google’s AI-enhanced search platform has fundamentally reshaped how students access information and educational resources, leaving companies like Chegg struggling to remain relevant. As Chegg explores new strategies and technologies, its ability to adapt and innovate will determine whether it can reclaim its position in the market or become another casualty of the AI revolution.
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