Chegg Stock Plunges 9.2% in a Month: Time to Buy the Dip?

Chegg, Inc. CHGG has seen its shares slide 9.2% over the past month, underperforming the Zacks Internet – Software industry’s 5.9% decline, the broader Computer and Technology sector’s 1.4% gain, and the S&P 500’s 0.5% rise. Currently trading at $1.29, the stock is down 52.7% from its 52-week high of $2.73 but remains 193.2% above its 52-week low of $0.44.

CHGG's 1-Month Performance

Despite the volatility, investors are asking whether the stock’s depressed valuation — now at a 0.38X forward 12-month price-to-sales (P/S) ratio compared with the industry’s 5.45X — makes it a contrarian buy or a value trap. This is also cheaper than peers like Coursera COUR, Udemy UDMY and Duolingo DUOL, which trade at substantially higher valuations due to stronger user growth and engagement metrics.

Earnings estimates for 2025 and 2026 have stayed flat over the past 60 days, suggesting cautious sentiment. The Street expects earnings to decline from 75 cents per share in 2025 to break-even in 2026, while revenues are projected to fall 33.8% in 2025 and 12.2% in 2026.

Against this backdrop, let’s examine Chegg’s strengths and challenges to gauge whether this dip presents an opportunity.

Revenue Pressure Persists Despite Guidance Beat

Chegg’s second-quarter 2025 results painted a mixed picture. Total revenues fell 36% year over year to $105.1 million, though that was better than feared. Adjusted EBITDA of $23.1 million showed progress on profitability initiatives, yet the top line continues to face structural headwinds. Subscription Services revenue plunged 39% to $89.7 million, reflecting weak student acquisition and a 40% drop in subscribers to 2.6 million.

The decline stemmed largely from reduced organic traffic due to Google’s AI Overviews, which altered search algorithms in ways that undercut Chegg’s visibility. While average revenue per user and retention improved modestly, these gains were insufficient to offset lost traffic. The issue highlights how dependent Chegg remains on third-party platforms for user acquisition — a vulnerability that could persist as search and generative AI evolve.

Challenges Clouding the Near-Term Outlook for Chegg Stock

The introduction of AI Overviews continues to disrupt Chegg’s growth model by diverting student queries toward generative tools integrated directly into Google Search. This has forced the company to rely more heavily on paid channels and brand partnerships, increasing customer acquisition costs. 

Competition across the education technology space is also intensifying. Coursera and Udemy continue to expand their enterprise solutions and credential offerings, while Duolingo has leveraged AI to enhance gamified language learning, directly competing with Chegg’s Busuu platform. In this environment, Chegg’s heavy reliance on its core Study product to fund expansion adds execution risk. 

Financially, Chegg remains unprofitable on a GAAP basis. The company posted a $35.7 million net loss in the second quarter and burned $12 million in free cash flow due to severance and hosting prepayments tied to restructuring. While adjusted metrics suggest a gradual path to stabilization, sustained improvement will depend on halting subscriber declines and reigniting growth across its new verticals.

Strategic Review Adds Uncertainty but Offers Optionality

Chegg’s management has launched a strategic review to assess potential paths forward — including a sale, a go-private transaction or remaining independent. Such moves often unsettle investors in the short term but may also unlock long-term value, particularly if the company finds a strategic partner capable of accelerating its AI transformation or improving distribution.

The company recently regained compliance with NYSE listing standards after earlier price weakness, indicating regained confidence from investors and management alike. However, the ongoing review underscores the uncertainty surrounding Chegg’s future direction and the timeline for any potential restructuring or transaction. For now, the market remains in wait-and-see mode.

Expense Control Strengthens Profitability Outlook for CHGG Stock

Despite its challenges, Chegg’s cost discipline remains a bright spot. The company reduced non-GAAP operating expenses by 33% year over year to $64 million in the second quarter, aided by layoffs, vendor consolidation and process efficiencies. Management expects $165–175 million in total non-GAAP expense savings for 2025 and another $110–120 million in 2026.

Capital expenditures were slashed by 60% to $7 million, with another 50% reduction expected in 2026. Chegg aims to save more than $50 million in CapEx between 2024 and 2026, partly by deploying AI to automate content creation and software development. These efforts should expand margins and position the company to generate positive free cash flow once restructuring costs subside.

AI-Driven Reinvention of Chegg Study

At the heart of Chegg’s comeback strategy is the transformation of its flagship “Chegg Study” into an AI-driven learning coach. The company has rolled out features like Solution Scout, AI flashcard generators, and smart study planners to make academic assistance more personalized. It also plans to add voice and visual tools powered by generative AI to improve engagement and learning outcomes.

This strategy mirrors what Duolingo has successfully achieved in gamified learning and what Coursera and Udemy are attempting with adaptive course recommendations.

Early data points are encouraging. Students using these AI-enhanced features reported a 23% improvement in learning outcomes and a 17% higher likelihood of continued use. Retention rates climbed 117 basis points in the second quarter, suggesting that Chegg’s technological investments are resonating with its remaining user base. While meaningful user growth may take time, the pivot to personalized, AI-powered education aligns well with long-term industry trends.

Busuu and Skills Offer Diversified Growth Paths

Chegg’s management is consciously diversifying beyond its core academic support business through Busuu and Chegg Skills — two verticals that target growing markets in language learning and professional upskilling.

Busuu’s second-quarter performance was particularly strong, with 15% year-over-year revenue growth and a 39% surge in its business-to-business (B2B) segment. The platform’s partnerships with Guild and corporate clients in Europe have boosted enterprise adoption, and retention rates have improved by 22 percentage points. Chegg expects Busuu to generate roughly $48 million in 2025 revenue and turn adjusted EBITDA positive by early 2026.

Chegg Skills, meanwhile, is positioning itself in the $40 billion global upskilling market. The company revamped its offerings around AI, digital literacy and career-readiness programs, leading to a 16% sequential increase in enrollments and an 11% rise in active users. Management’s pursuit of ACE Credit recommendations — which would allow Skills courses to count toward college credits — could create an appealing bridge between academic and professional learning. Both segments are expected to contribute meaningfully to profitability by 2026.

CHGG Stock’s Valuation: Deep Discount Reflects Execution Risk

At 0.38X forward P/S, Chegg trades at a fraction of the Internet – Software industry’s 5.45X and far below its three-year median of 1.05X. The stock also sits near the lower end of its three-year valuation range of 0.12X–4.61X. Such deep discounts typically attract value investors, but in Chegg’s case, they reflect legitimate execution risks.

Revenue declines, traffic loss from Google’s AI shift, and ongoing strategic uncertainty weigh on sentiment. Without a clear path to sustainable user growth or a definitive outcome from its strategic review, the multiple may remain compressed despite the cost improvements.

Conclusion

Consensus estimates imply continued revenue declines in 2025 and 2026 before stabilization thereafter. Management’s efforts to reinvent Chegg Study, expand Busuu, and scale Skills could eventually reshape the company’s growth trajectory, but these initiatives are still in early stages. Execution over the next 12–18 months — particularly in rebuilding user acquisition channels and converting AI investments into engagement — will determine whether Chegg’s turnaround gains traction.

Chegg’s stock may look cheap after its 9.2% slide, but the fundamental challenges tied to user acquisition and competitive pressure warrant caution. The company is making progress on cost control and AI transformation, yet the benefits will take time to materialize. For now, investors may prefer to wait for clearer signs of revenue stabilization or an outcome from the strategic review before adding exposure.

Given the unchanged earnings estimates, modest profitability improvements and lack of near-term catalysts, the stock’s Zacks Rank #3 (Hold) appears appropriate. While cost discipline and AI-driven innovation are encouraging, visibility into sustained growth remains limited. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research