Chegg Announces Major Layoffs Amid Shift to AI Tools
Chegg, the online education platform known for its textbook rentals and tutoring services, has announced significant layoffs as part of a strategic effort to streamline operations. On Monday, the company revealed it would cut approximately 22% of its workforce, amounting to 248 employees.
Response to Market Trends
This drastic measure comes as students increasingly gravitate toward AI-powered platforms like ChatGPT, diminishing the reliance on traditional edtech services. Chegg has been experiencing a notable decline in web traffic over the past several months, with management warning that this trend may worsen before any signs of improvement emerge.
The Impact of Google’s AI Expansion
According to Chegg, the expansion of Google’s AI Overview features is constraining web traffic within its search ecosystem. This shift is gradually transitioning users to Google’s Gemini AI platform, further affecting Chegg’s performance.
Moreover, other AI companies, including OpenAI and Anthropic, are actively courting academics by offering free subscriptions, which intensifies the competitive landscape for Chegg.
Strategic Restructuring
In the wake of these challenges, Chegg has outlined a comprehensive restructuring plan. This includes closing its U.S. and Canada offices by the end of the year and scaling back on marketing and product development efforts.
The company aims to reduce general and administrative expenses as part of its cost-cutting measures. The anticipated charges from these changes are estimated to fall between $34 million and $38 million, primarily impacting financial results in the second and third quarters of this year.
Future Financial Outlook
Despite the layoffs and restructuring measures, Chegg is optimistic about future cost savings. The company expects to achieve savings between $45 and $55 million in 2025 and between $100 and $110 million in 2026 due to these efforts.
Quarterly Performance Report
Chegg also released its first-quarter results on Monday, revealing a 31% decline in subscribers, bringing the total down to 3.2 million. Additionally, the company reported a 30% decrease in revenue, which fell to $121 million. Behind this, subscription services revenue plunged by nearly one-third to $108 million.
Legal Challenges with Google
In a related development, Chegg filed a lawsuit against Google in February. The lawsuit alleges that Google’s search features are eroding demand for original content and undermining the ability of publishers to compete. This, in turn, contributes to a decrease in visitors and subscribers for Chegg.
Current Workforce Status
As of December 31, Chegg employed 1,271 individuals. The recent layoffs represent a significant reduction in its workforce, reflecting the urgent need for the company to adapt to changing market conditions.
Conclusion
Chegg’s recent strategic moves signify a broader trend in the education technology sector as firms react to the growing influence of AI. The company’s efforts to realign its operations may help stabilize its performance in the long term, but the immediate impacts are deeply felt, both internally among employees and externally among its user base.
Questions and Answers
1. What prompted Chegg to lay off employees?
Chegg is laying off employees due to a significant decline in web traffic and competition from AI-powered platforms like ChatGPT.
2. How many employees will be affected by the layoffs?
Approximately 248 employees, or 22% of Chegg’s workforce, will be laid off as part of the restructuring plan.
3. What changes is Chegg making in its operations?
Chegg plans to close its U.S. and Canada offices and reduce marketing, product development, and administrative expenses.
4. What are the expected financial impacts of these measures?
The restructuring is estimated to incur charges of $34 million to $38 million, with anticipated future cost savings between $45 and $110 million over the next two years.
5. What legal action has Chegg taken against Google?
Chegg has filed a lawsuit against Google, claiming that its search engine is hurting demand for original content and negatively affecting Chegg’s ability to compete.
