Why Chegg (CHGG) Stock Is Down Today

What Happened?

Shares of online study and academic help platform Chegg (NYSE:CHGG) fell 3.7% in the afternoon session after the company agreed to pay $7.5 million to settle Federal Trade Commission (FTC) allegations that it made canceling recurring subscriptions unnecessarily difficult for consumers. 

The FTC complaint stated that the online education platform failed to provide a simple way for users to cancel auto-renewing subscriptions for services like homework help. According to the FTC, Chegg also continued to charge nearly 200,000 customers after they had already requested to cancel their subscriptions, with these practices dating back to October 2020. The settlement payment will be used to provide refunds to consumers impacted by what the FTC described as unlawful cancellation practices.

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What Is The Market Telling Us

Chegg’s shares are extremely volatile and have had 99 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 3 days ago when the stock dropped 4.9% after continued concerns about the competitive threat posed by Artificial Intelligence (AI). 

The education technology company is considered vulnerable as its core business model is directly challenged by the rise of generative AI platforms like ChatGPT. A recent market analysis highlighted that companies with business models easily undermined by AI are at risk of becoming obsolete if they are slow to adapt. Chegg was specifically mentioned as an example of a firm whose value proposition has been questioned due to AI's capabilities, a factor that has previously caused its stock to plummet. The persistent threat from AI automating complex tasks continues to weigh on investor sentiment regarding the company's future growth prospects.

Chegg is down 15.2% since the beginning of the year, and at $1.43 per share, it is trading 46.2% below its 52-week high of $2.65 from December 2024. Investors who bought $1,000 worth of Chegg’s shares 5 years ago would now be looking at an investment worth $21.46.

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