Online study and academic help platform Chegg (NYSE: CHGG) announced better-than-expected revenue in Q3 CY2025, but sales fell by 43.1% year on year to $77.74 million. On the other hand, next quarter’s revenue guidance of $71 million was less impressive, coming in 13.7% below analysts’ estimates. Its non-GAAP loss of $0 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

Chegg’s third quarter results were driven by ongoing declines in its legacy academic services, which management attributed to reduced traffic caused by the rise of artificial intelligence (AI) and changes in Google’s search algorithms. CEO Dan Rosensweig explained that “Google traffic dropped by 50%,” significantly impacting the company’s subscriber base and advertising revenue. Despite these challenges, Chegg’s focus on cost discipline, including a major restructuring, helped exceed Wall Street’s revenue and non-GAAP profit expectations, as management emphasized the company’s ability to generate cash from its existing database and technology assets.

Looking forward, Chegg’s outlook is shaped by a strategic pivot to skilling services, particularly through its B2B offerings in language learning and job-related skills. Management sees the skilling market as a substantial opportunity, with Rosensweig highlighting the company’s plan to invest all growth resources into the Chegg Skilling unit. He stated that the business is “expected to grow at double-digit pace” and pointed to ongoing investments in AI-powered learning tools and new distribution channels as critical to achieving sustainable growth. However, management acknowledged the transition’s difficulties and the need for continued operational efficiency to support future profitability.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to decisive restructuring actions, a clear split between legacy and growth businesses, and targeted investments in B2B skilling.

• Company restructuring completed: Chegg overhauled its structure, splitting operations between a cash-generating legacy academic business and a growth-focused Chegg Skilling unit. This move included significant workforce reduction, affecting nearly 400 employees, and a reallocation of resources to position skilling at the company’s core.

• AI’s impact on legacy traffic: The rise of AI-driven tools and changes in Google’s search visibility led to a sharp drop in traffic for Chegg’s traditional academic services. Management cited a 50% decrease in Google-driven visits, directly reducing subscriptions and advertising sessions for Chegg Study and related products.

• Cost discipline and margin improvement: Through restructuring and tighter expense controls, non-GAAP operating expenses fell by 46% year over year, supporting a notable improvement in operating margins. Management expects further expense reductions into 2026, aiming for a leaner cost base and improved cash flow.

• Growth in B2B skilling: The Chegg Skilling business, which includes Busuu for language learning and Chegg Skills for workforce training, is reporting double-digit growth. Management highlighted successful B2B partnerships, such as with Guild, and a shift away from direct-to-consumer models as central to this momentum.

• Product repositioning and channel expansion: Busuu’s pivot from consumer-facing to B2B enterprise sales, particularly in Europe and upcoming Latin America expansion, is a key focus. Management emphasized investment in AI-powered conversational learning and plans to broaden distribution through new partnerships and channels beyond Guild.

Drivers of Future Performance

Chegg’s guidance is shaped by ongoing investment in skilling products, operational efficiency, and expansion into new enterprise channels, amid continued pressures on its legacy business.

• Skilling business expansion: Management expects double-digit growth in Chegg Skilling, driven by increased investment in language learning and workforce training assets. The B2B model, especially through partnerships like Guild and channels in Europe and Latin America, is seen as more stable and less susceptible to consumer traffic changes.

• Continued cost optimization: The company will maintain strict control over non-GAAP operating expenses, targeting further reductions by 2026. Investments in AI are expected to lower capital expenditures while maintaining product quality, supporting future free cash flow generation.

• Legacy business headwinds: While the academic services segment will continue to generate cash, management does not anticipate growth due to persistent declines in search-driven traffic and competitive pressures from AI tools. The business will be run for cash, with minimal additional resource allocation.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will be watching (1) the pace of B2B skilling adoption and the success of new distribution partnerships, (2) ongoing reductions in operating expenses and achievement of targeted cost savings, and (3) the stability of cash generation from the legacy academic business amid persistent traffic challenges. Progress in AI-driven product enhancements and expansion into new geographies will also be key to tracking Chegg’s turnaround.

Chegg currently trades at $0.95, up from $0.89 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).

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