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Chegg stock is trading sharply lower today and looks set to fall to a new record low after the company talked about considering various “alternatives” to enhance shareholder value. At the same time, the company announced that it had filed a lawsuit against Google.
Notably, Chegg has been battling falling revenues for the last many quarters. In Q4, the company’s revenues fell 24% YoY to $143.5 million while it posted a net loss of $6.1 million. The company’s subscriber numbers have been gradually falling and during Q4 its subscribers fell 21% to 3.6 million.
Chegg Reported a YoY Fall in Revenues
Looking at the full-year numbers, the company’s revenues fell 14% to $617.6 million while it posted a GAAP net loss of $837.1 million. However, its adjusted net income was $85 million while adjusted EBITDA stood at $149.7 million last year.
Meanwhile, despite spending $25 million in cash towards employee severance costs related to restructuring, Chegg posted positive free cash flows of $4.8 million in the quarter. Last year, it repurchased $116.6 million in aggregate principal amount of its 2026 convertible notes and ended the year with total cash of $528 million while its net debt was -$42 million.
Having cash in excess of its debt liabilities and cash-generating operations has helped Chegg survive the current slump at a time when several former pandemic-era darlings have gone bust. However, the outlook does not look rosy for Chegg either and the company expects to post revenues between $114 million to $116 million in Q1 2025 as compared to $174 million in Q1 2024.
Chegg Is Conducting a Strategic Review
Amid continued deterioration in its numbers including the fall in subscribers, Chegg announced a strategic review and also said that it has sued Google blaming the search giant for much of its woes.
In its release, Chegg said that it retained Goldman Sachs to conduct “a strategic review process and exploring a range of alternatives to maximize shareholder value, including being acquired, undertaking a go-private transaction, or remaining as a public standalone company.”
The company said that the strategic review and Google lawsuit are “connected” as it would “not need to review strategic alternatives if Google hadn’t launched AI Overviews, or AIO, retaining traffic that historically had come to Chegg, materially impacting our acquisitions, revenue, and employees.”
CHGG Filed a Lawsuit Against Google
In its lawsuit, Chegg makes three main arguments against Google. First is reciprocal dealing wherein Google forces other companies, including Chegg to supply their proprietary content to get included in its search function.
Second is what Chegg terms “monopoly maintenance” where Google allegedly exercises its monopoly power within search unfairly against companies like Chegg. Finally, Chegg accuses Google of “unjust enrichment” or “reaping the financial benefits of Chegg’s content without having to spend a dime.”
It said that AI overviews “has transformed Google from a search engine into an answer engine, displaying AI-generated content sourced from third-party sites like Chegg. Google’s expansion of AIO forces traffic to remain on Google, eliminating the need to go to third-party content source sites.”
Chegg said that its nonsubscriber traffic plummeted by nearly half in January which is much wider than what it saw in previous quarters,
Digital Publishers Versus Google
Notably, digital publishers have anyways been up in arms against AI behemoths like Google and OpenAI accusing them of scrapping through their original work to train their AI models without compensation.
In its Q4 earnings call, Chegg said, “It’s about the digital publishing industry. It’s about the future of Internet search. In summary, our complaint challenges Google’s unfair competition, which is unjust, harmful and unsustainable. While these proceedings are just starting, we believe bringing this lawsuit is both necessary and well-founded.”
Incidentally, Chegg filed its lawsuit in Washington DC, where last year a federal judge Amit Mehta ruled that Google has a monopoly in the online search market.
Meanwhile, Google has said that the company would defend the lawsuit with a spokesperson saying “With AI Overviews, people find Search more helpful and use it more, creating new opportunities for content to be discovered. Every day, Google sends billions of clicks to sites across the web, and AI Overviews send traffic to a greater diversity of sites.”
All said, Chegg stock which anyways trades at a fraction of its 2021 highs looks set to erode investors’ wealth even further looking at the carnage in pre-markets.
