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Investing.com — Chegg (NYSE:) reported better-than-expected second-quarter revenue and detailed plans to expand its foray into generative artificial intelligence as the online education company looks to take the AI fight to ChatGPT.
Chegg was up more than 22% in premarket Tuesday trading.
Chegg adjusted EPS of $0.28 on revenue of $182.9 million, compared with estimates of $0.29 on revenue of $176.5M.
The company said it saw year-over-year customer acquisition and retention rates improve during the quarter after launching its initial generative AI experience in May.
The online education company’s foray into AI comes as it looks to ward off the threat of generative artificial intelligence service ChatGPT.
Earlier this year, Chegg conceded that the use of free AI chatbots including ChatGPT for homework had dampened demand for its paid study tools.
But the company said that students “are not comfortable with the exact information ChatGPT puts out,” and now is making a bigger push into AI, announcing a partnership with Scale AI to develop the large language models.
“In order to further enhance our competitive moat and lower our costs, we are building our own large language models which gives us the ability to train them specifically for education,” it added.
For Q3, the company guided revenue in a range of $151M and $153M, in line with the consensus of $152.4M.
Morgan Stanley analysts hiked the price target by $1 to $13 per share after “strong” results.
“Strong Q2 results vs. guidance & positive customer acq. / retention trend commentary help calm fears of a steeper ChatGPT induced degradation; shares likely rally as some investors see better path ahead. We see a smaller rev, lower margin future, w/ lower capex allowing solid FCF,” they said.
JPMorgan analysts added:
“We’re encouraged by Chegg’s early steps along its GAI journey, as well as improving subscriber trends, & likely improving Fall enrollment trends should also support subscriber growth later this year. However, visibility remains limited, subscriber growth remains broadly under pressure, & Chegg is early in its AI-based transformation.”
(Additional reporting by Senad Karaahmetovic)
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