Online education giant Chegg announced a significant reduction of its workforce yesterday, citing pressures from the rise of AI tools and an overall decline in web traffic. The company, known for textbook rentals, homework help, and tutoring services, said it would lay off roughly 22% of its employees, amounting to 248 staff members. Chegg's steps to streamline its operations have come as students increasingly turn to AI-powered platforms, including ChatGPT, further intensified by Google's AI Overviews, which keep users within its search ecosystem, as per a report by Reuters.
With an ongoing decline in subscribers and revenue, the Santa Clara-based company is shuttering its offices in the U.S. and Canada by year-end. Charges estimated between $34 million to $38 million are tied to the restructuring, which aims to save between $45 and $55 million in 2025, and $100 to $110 million the following year, according to details from Chegg's SEC filing
During Chegg's Q1 earnings call, CEO Nathan Schultz conveyed that despite exceeding revenue and adjusted EBITDA expectations and seeing a promising strategic review process, the company forecasted that the challenging trends would worsen. Schultz mentioned Chegg's exploration of a range of outcomes to maximize shareholder value, such as potential acquisitions or going private, as described by Business Wire. Chegg expects a continued decrease in Q2 with estimated revenues between $100 and $102 million and an adjusted EBITDA of $16 to $17 million.
The company has been proactive in diversification efforts, expanding its business-to-institution pilots, and licensing its proprietary Q&A content to language model companies. Schultz emphasized the strength of their core Chegg Study product, along with growth in the company's Busuu language learning service, projecting a revenue of about $48 million for Busuu in 2025. Despite these initiatives, Chegg is bracing for impact against the increasingly competitive landscape marked by tech giants and AI behemoths. Schultz affirmed the difficult decision to part ways with the employees but sees it as essential to align costs with the company's outlook, as reported by Business Wire.
Chegg's financial strategies have included cost savings from restructurings in 2024 and secured a lease termination agreement for early exit from its Santa Clara headquarters, reducing obligations by $5.3 million.
