Chegg's Q1 2025 Earnings: Navigating Stormy Waters with Strategic Shifts

Chegg (NYSE: CHGG), the edtech giant, faces a pivotal quarter as it prepares to report Q1 2025 earnings on May 12, 2025. The company’s outlook is clouded by persistent revenue declines and subscriber losses, yet management has doubled down on cost-cutting, AI-driven innovation, and legal battles to reclaim its footing. Here’s what investors need to know.

Earnings Preview: A Rocky Road Ahead

Chegg’s Q1 2025 guidance paints a stark picture. Revenue is projected to fall to $114–$116 million, a 34% year-over-year drop from $174.35 million in Q1 2024. The decline reflects shrinking demand for its core tutoring services, with subscription revenue expected to plummet 23% YoY to $104–$106 million. Meanwhile, the EPS is forecasted to be a loss of <$0.01, marking a dramatic shift from the $0.26 profit reported in Q1 2024.

Key Challenges: Google’s Shadow and Shrinking Subscribers

Chegg’s struggles stem largely from external and internal headwinds:

1. Google’s AI Overviews (AIO):
2. Google’s push to prioritize its own AI-generated content in search results has reduced Chegg’s non-subscriber traffic by 49% in January 2025, worsening an 8% drop reported in Q2 2024. This traffic曾 was critical for converting free users into paying subscribers.

3. Chegg has filed a federal lawsuit accusing Google of anti-competitive practices, seeking to force a return to fair search algorithms. The outcome could redefine Chegg’s traffic—and revenue—trajectory.

4. Subscriber Decline:

5. Chegg’s subscriber base has shrunk 31.5% since Q1 2023, dropping to an estimated 3.22 million in Q1 2025. Retention improved by 15 basis points in Q4 2024 due to product upgrades, but the overall trend remains alarming.

6. Market Competition:

7. AI-driven edtech rivals like ChatGPT and Khan Academy are eroding Chegg’s unique value proposition. Students now face a choice between free AI tools and Chegg’s paid services, complicating pricing strategies.

Strategic Shifts: Cost Cuts, AI, and Legal Gambits

Chegg is fighting back with aggressive restructuring and innovation:

1. Cost Savings:

2. Over 700 jobs were cut in 2024, aiming to save $100–$120 million annually in non-GAAP costs by 2025. Gross margins are expected to hold steady at 66–67%, while adjusted EBITDA dips to $13–$14 million.

3. AI Integration:

4. AI now reduces content creation costs by over 70%, enabling Chegg to maintain quality while slashing expenses. New tools like Solution Scout let students compare AI answers (e.g., from GPT or Llama) with Chegg’s verified solutions, addressing trust issues.

5. Enterprise Expansion:

6. Chegg’s Busuu language-learning subsidiary saw 9% YoY revenue growth in 2024, with enterprise sales rising 46%. The company aims to expand institutional partnerships to 35+ schools by year-end, targeting improved student retention and graduation rates.

1. Legal and Marketing Push:
2. Chegg’s lawsuit against Google is high-stakes, but victory is uncertain. Meanwhile, its “Get a Grip” campaign (featuring a mascot named Ace the Octopus) and TikTok ads have boosted awareness among younger users by 16%.

Investor Takeaways: A Turnaround in the Works?

While Q1 2025 will likely disappoint, Chegg’s long-term strategy shows promise:

• Cost discipline and AI efficiency could stabilize margins even as revenue contracts.
• Enterprise partnerships and Busuu’s growth provide diversification, with $100–$120 million in annual savings easing cash flow pressures.
• Legal outcomes are critical: If Chegg wins its Google case, traffic could rebound, reigniting subscriber growth.

However, risks remain. A prolonged Google battle, further subscriber declines, or weak TikTok marketing results could pressure the stock, which has already fallen 31% post-earnings in February.

Conclusion: Betting on Chegg’s Resilience

Chegg’s Q1 2025 earnings will test investor patience. With revenue down sharply and losses looming, the stock (currently at $25.80) faces near-term headwinds. Yet the company’s restructuring, AI investments, and enterprise push position it to break even by late 2025, with EPS expected to grow 121% annually from a loss of $0.19 in 2024 to a profit of $0.42 in 2025.

The key question is whether Chegg can stabilize its subscriber base and win its legal battle against Google. If successful, it could reclaim its role as a leader in edtech. For now, Chegg’s future hinges on execution—and a favorable ruling from the courts.

Final Verdict: Hold for the long term, but brace for volatility.

Data as of April 2025. Past performance does not guarantee future results.