Will Chegg's AI Upgrades Fix the Collapse in Its Legacy Traffic?

Core Insights - Chegg, Inc.'s core academic business has faced significant challenges due to the rapid adoption of generative AI and a decline in Google-driven traffic, leading to over a 40% year-over-year revenue drop in Q3 2025 [1][9] - The company is investing heavily in AI to enhance efficiency and user experience, allowing it to utilize its database of over 130 million questions to automate content delivery and reduce costs [2][9] - Chegg's AI strategy aims to stabilize cash flows from its legacy business while transitioning towards Chegg Skilling, focusing on B2B skilling and workforce education [3][4] Company Strategy - Chegg acknowledges that it cannot compete directly with free AI answers from search engines, positioning its AI enhancements as a means to prolong the legacy business while funding new initiatives [3][4] - The company is shifting its long-term growth focus towards B2B skilling, language learning, and workforce AI education, indicating a strategic pivot in response to market trends [4][7] Competitive Landscape - Chegg operates in a competitive ed-tech market alongside Duolingo and Udemy, each employing different strategies to capture market share [5][7] - Duolingo leads in language learning with a gamified app, while Udemy leverages a vast marketplace model to meet professional learning needs [6][7] - Chegg's challenge lies in demonstrating that its pivot to B2B skilling can yield sustainable growth amidst competition from established players [7] Financial Performance - Chegg's stock has seen a 2.4% increase over the past month, outperforming the Zacks Internet - Software industry and the S&P 500 Index [8] - The stock is currently trading at a forward 12-month price-to-sales ratio of 0.27, indicating a discount compared to industry peers [11] - Earnings estimates for 2025 have widened to a loss of 14 cents, while estimates for 2026 have improved to a profit of 18 cents, suggesting potential recovery [13][14]