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]

Financial Data and Key Metrics Changes - In Q3 2025, total revenue was $78 million, a decrease of 42% year-over-year, primarily due to reduced traffic leading to fewer subscribers and less subscription revenue [10] - Non-GAAP operating expenses were $49 million, a reduction of approximately $41 million, or 46% year-over-year, driven by restructuring efforts [11] - Adjusted EBITDA for Q3 was $13 million, representing a margin of 17% [11] - Free cash flow for Q3 was negative $900,000, impacted by a one-time $7.5 million settlement payment to the FTC and $5.5 million in severance payments [12] - The company concluded the quarter with cash and investments of $112 million and a net cash balance of $49 million [12] Business Line Data and Key Metrics Changes - The company has split into two units: Chegg Skilling, expected to have sustainable double-digit growth, and legacy academic services, focusing on cash generation [5][6] - Chegg Skilling is expected to end 2025 with strong momentum, anticipating a 14% year-over-year growth and full-year revenue of $70 million [8] - The legacy academic business is expected to generate cash for several years despite challenges from reduced Google traffic [22] Market Data and Key Metrics Changes - The skilling market is currently valued at over $40 billion, with a focus on workforce, AI, and language learning [7] - Chegg Skilling is positioned to capture growth in the B2B market, transitioning from a B2C model [16] Company Strategy and Development Direction - The company aims to rebuild and reinvent itself, focusing on the skilling market and leveraging its assets for long-term value creation [5][9] - A strategic shift towards the skilling market is seen as essential for future growth, with all growth resources allocated to this segment [16] - The company is investing in AI to enhance its offerings and improve operational efficiency [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the disruptive impact of AI on traditional business models and is adapting to these changes [5][6] - The company is optimistic about its ability to grow in the skilling market, with expectations of double-digit growth in the coming quarters [10][12] - Management believes they have hit the bottom and are now positioned for future growth and profitability [13] Other Important Information - The company has undergone significant restructuring, which included a reduction of nearly 400 employees to streamline operations [17] - The transition to a B2B model is expected to provide a more stable and secure business environment [24] Q&A Session Summary Question: Strategic product priorities for skilling and resource allocation - All growth resources will be directed towards the skilling business, focusing on B2B opportunities and sustainable growth [16] Question: Support for the legacy academic business - The legacy business will continue to operate efficiently, leveraging its existing database and technology to generate cash [22] Question: Initiatives for the Busuu business and growth confidence - The company is focusing on repackaging learning mechanisms for B2B and leveraging AI for conversational learning [27][29] Question: Investments and channels for the skilling business - The company is exploring new distribution channels and building a B2B Salesforce to expand its market reach [34][36] Question: Impact of reduced traffic on skilling business - The skilling business is not expected to face headwinds from reduced traffic, as it is positioned for growth [38]

Financial Performance - Total revenue for Q2 2025 was $105 million, a 36% year-over-year decrease[54] - Subscription Services revenue for Q2 2025 was $90 million, a 39% year-over-year decrease[65] - Chegg Study/Pack revenue decreased 44% year-over-year[14] - Adjusted EBITDA for Q2 2025 was $23 million[56] - Free cash flow for Q2 2025 was negative $12 million, impacted by severance payments[57] - Capital expenditures for Q2 2025 were $7 million, a 60% year-over-year decrease[61] Subscribers and Retention - Global Chegg Study/Pack subscribers decreased by 48% year-over-year[14] - Global Subscription Services subscribers decreased by 40% year-over-year[14] - Chegg Study/Pack monthly retention rate globally was 79.7%[14] Strategic Initiatives - The company is exploring strategic alternatives, including being acquired, undertaking a go-private transaction, or remaining as a public standalone company[12] - The company identified an additional $17 million in cost savings for 2026[11] - The company expects total non-GAAP expense savings in 2026 to be $110-120 million[11]

Financial Performance & Outlook - Total revenue for Q1 2025 was $121 million, a 30% year-over-year decrease[56] - Subscription Services revenue for Q1 2025 was $108 million, a 30% year-over-year decrease[66] - The company expects Q2 2025 total net revenue to be between $100 million and $102 million[66] - Q1 2025 free cash flow was $158 million, despite $8 million in employee severance costs[59] - Capital expenditures for Q1 2025 were $9 million, a 69% year-over-year decrease[62] - The company opportunistically repurchased $652 million in principal amount of 2026 convertible notes at a $78 million discount[65] Subscriber & Content Metrics - Global Chegg Study/Pack subscribers decreased by 37% year-over-year to 2295 thousand in Q1 2025[15] - Global Subscription Services subscribers decreased by 31% year-over-year to 3192 thousand in Q1 2025[15] - The company has executed two content licensing deals, generating $4 million in Q1 2025 and expecting an additional $7 million in Q2 2025, representing less than 5% of their content library[14, 56] Strategic Initiatives & Cost Savings - The company anticipates $45-$55 million in cost savings in 2025 and $100-$110 million in 2026 from restructuring initiatives, in addition to $120 million in savings from 2024 initiatives[12]