CHGG Q1 Earnings Call: Revenue Decline, Cost Cuts, and Strategic Alternatives Take Center Stage

Online study and academic help platform Chegg (NYSE:CHGG) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 30.4% year on year to $121.4 million. Its non-GAAP loss of $0.06 per share was significantly below analysts’ consensus estimates.

Is now the time to buy CHGG? Find out in our full research report (it’s free).

StockStory’s Take

Chegg’s first quarter results were driven by continued declines in its core subscription business, as referenced by CEO Nathan Schultz, who cited ongoing industry headwinds and increased competition from generative AI tools. Schultz emphasized the company’s efforts to diversify revenue through early-stage content licensing deals with leading technology firms and an expanding institutional pilot program. He also noted that operational restructuring and workforce reductions were implemented to address the ongoing subscriber and traffic declines affecting the business. CFO David Longo highlighted that these cost-saving measures are designed to realign Chegg’s expense base with its reduced revenue outlook, following two rounds of restructuring in 2024 and further cuts announced this quarter.

Looking ahead, Chegg’s management signaled that persistent macroeconomic and industry challenges will continue to create pressure on revenues and subscriber growth in the near term. Schultz cautioned that “business trends will worsen before they get better,” referencing competitive threats from large language models and changes in student behavior. The company is prioritizing diversification through content licensing, institutional sales, and investments in Busuu and Chegg Skills, both of which are expected to become more meaningful contributors. Ongoing strategic review efforts, including potential acquisition or going private, remain active, with Schultz describing early discussions with interested parties as encouraging. Cost containment and new business lines are central to Chegg’s path forward.

Key Insights from Management’s Remarks

Chegg’s management attributed the quarter’s performance to severe subscription declines in its main business, offset by nascent revenue streams and aggressive cost reduction measures.

• Content licensing gains: Management highlighted two new licensing agreements with major technology companies, leveraging Chegg’s proprietary question-and-answer archive. CEO Nathan Schultz noted that these deals represent a small fraction of Chegg’s content library and are considered pilots, with the potential for broader adoption as large language models seek high-quality, human-verified data to train their systems.
• Institutional pilot program expansion: The business-to-institution (B2B) initiative grew from five to 15 university pilots over the quarter, aiming to reach 40 by year-end. Schultz explained that these partnerships use a seat-based licensing model, providing students access to Chegg’s services via their institutions and addressing colleges’ concerns over student persistence and graduation rates.
• Product and feature updates: Chegg released Solution Scout, which allows students to compare outputs from multiple AI models alongside Chegg’s proprietary content, and introduced Create, an AI-powered feature enabling students to generate study material from their own classwork. These updates are designed to differentiate Chegg Study amid rising AI competition.
• Busuu and Skills performance: The Busuu language learning unit delivered 7% year-over-year revenue growth, with management pointing to successful AI-driven enhancements and strong B2B momentum. The Chegg Skills product entered new pilot partnerships in India and the U.S., with management forecasting positive adjusted EBITDA for both Busuu and Skills by 2026.
• Restructuring and cost control: Chegg announced another major restructuring, including a 22% workforce reduction and closure of U.S. and Canada offices. These actions are expected to generate $45–$55 million in savings for 2025 and over $100 million annually from 2026, following earlier cost-cutting measures in 2024.

Drivers of Future Performance

Chegg expects ongoing industry disruption, AI competition, and further cost alignment to shape its outlook for the remainder of the year.

• AI-driven competition intensifies: Management acknowledged that free AI-powered tools from large technology companies are eroding Chegg’s direct-to-student traffic and subscriber base. Schultz specifically cited Google’s AI Overviews and OpenAI’s student offerings as major headwinds, signaling that these dynamics are expected to worsen before stabilizing.
• Revenue diversification efforts: The company aims to offset subscription declines by expanding content licensing deals and institutional contracts. Management believes these new revenue streams could become more meaningful over time but cautioned that they are in early stages and have yet to fully replace lost subscription revenues.
• Ongoing cost reductions: Chegg’s restructuring initiatives are intended to realign its expense base with shrinking revenues. Management expects that, combined with previous cuts, these actions will significantly lower operating costs, but acknowledged that the near-term outlook remains pressured as the core business continues to contract.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be monitoring (1) the scale and commercial impact of Chegg’s content licensing agreements with additional technology partners, (2) the conversion rate of institutional pilots into longer-term contracts with colleges and universities, and (3) execution and follow-through on cost reduction plans. We will also track Busuu’s ability to sustain growth and Chegg Skills’ progress toward profitability.

Chegg currently trades at a forward EV/EBITDA ratio of 2×. In the wake of earnings, is it a buy or sell? Find out in our full research report (it’s free).

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