Chegg Announces Major Layoffs as AI Disruption Reshapes Edtech Landscape

Chegg Inc., once a dominant player in the education technology sector, announced plans to cut approximately 22% of its workforce as the company grapples with the transformative impact of artificial intelligence on its business model. The Santa Clara, California-based company, known for its homework help and textbook rental services, is the latest casualty in an industry being rapidly reshaped by AI tools.

The layoffs will affect about 400 employees, according to Reuters, marking a significant restructuring as Chegg attempts to navigate a challenging competitive landscape dominated by emerging AI technologies. The company’s stock, which has already plummeted nearly 90% from its pandemic-era highs, fell an additional 4% following the announcement.

“We are taking decisive action to align our cost structure with the current market reality,” said Dan Rosensweig, Chegg’s CEO, in a statement reported by Reuters. This restructuring comes as the company faces mounting pressure from generative AI tools that offer students free alternatives to Chegg’s subscription-based services.

The company has explicitly pointed to Google’s AI offerings as a key factor in its declining fortunes. According to TipRanks, Chegg’s management specifically cited Google’s AI Note-Taking app as a competitive threat that has contributed to its struggles. The tech giant’s entry into educational tools represents a formidable challenge for specialized edtech companies like Chegg, which lack the vast resources and technological infrastructure of major tech corporations.

Financial results underscore Chegg’s precarious position. In its first quarter earnings report, the company posted a net loss of $29.9 million, or $0.26 per share, compared to a loss of $22.6 million, or $0.18 per share, in the same period last year, as reported by Yahoo Finance. Revenue declined 4% to $174.9 million, falling short of analyst expectations.

Perhaps most concerning for investors is the company’s guidance for the second quarter, projecting revenue between $153 million and $155 million—significantly below the $171.7 million analysts had anticipated, according to Yahoo Finance. This downward revision suggests Chegg’s challenges may be accelerating.

The company’s subscription service, Chegg Services, has been particularly hard hit, with revenue declining 5% year-over-year to $153.7 million. Subscriber numbers fell 8% to 4.3 million, reflecting the difficulty in retaining customers in an environment where free AI alternatives are readily available.

Chegg has attempted to adapt to the AI revolution by launching its own AI-powered study assistant called CheggMate, developed in partnership with Claude, as noted by Slashdot. However, this initiative has thus far failed to reverse the company’s declining fortunes.

The broader implications for the edtech sector are significant. As reported by MarketScreener, Chegg’s struggles highlight how AI tools are fundamentally reshaping the educational technology landscape, potentially threatening established business models that rely on subscription services for academic assistance.

For Chegg, the path forward remains uncertain. The company plans to focus on “operational efficiencies” while continuing to invest in AI capabilities, but whether these efforts will be sufficient to compete in an increasingly AI-dominated market remains to be seen.