Education technology company Chegg filed a suit on Monday in federal district court against Google, claiming that its AI summaries have hurt its online traffic and revenue. This comes after former CEO Dan Rosensweig said students engaging with OpenAI’s ChatGPT assistant were cutting into Chegg’s new customer growth.
Chegg reported a $6.1 million net loss on $143.5 million in fourth-quarter revenue, a 24% decline year over year, according to a statement. Analysts polled by LSEG had expected $142.1 million in revenue. Management called for first-quarter revenue between $114 million and $116 million, but analysts had been targeting $138.1 million. The stock was down 24% in extended trading.
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Chegg’s President and CEO Nathan Schultz has engaged Goldman Sachs to consider strategic options, including getting acquired and going private. Schultz added that Google forces companies like Chegg to “supply our proprietary content in order to be included in Google’s search function,” and that the search company uses its monopoly power, “reaping the financial benefits of Chegg’s content without having to spend a dime.”
However, Chegg also has its own AI strategy. In 2023, Chegg had announced CheggMate, an AI companion. CheggMate makes use of Chegg’s leading personalized learning platform, proprietary data set, and the advanced problem-solving capabilities of GPT-4 to create an AI conversational learning companion that empowers students to learn in real-time.
Schultz said that Chegg has also drawn on Meta’s open-source Llama, as well as models from privately held Anthropic and Mistral. The company reported that 3.6 million students had subscriptions in the fourth quarter, down 21%.
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According to a Google spokesperson, Google will defend itself against Chegg’s suit, which claimed that the search company violated sections one and two of the Sherman Antitrust Act of 1890. “Every day, Google sends billions of clicks to sites across the web, and AI Overviews send traffic to a greater diversity of sites,” the Google spokesperson added. Chegg, on the other hand, cited a federal judge’s ruling last August that Google holds a monopoly in the search market as part of its lawsuit.