Chegg’s Earnings Call: Challenges and Strategic Moves

Chegg Inc ((CHGG)) has held its Q1 earnings call. Read on for the main highlights of the call.

Chegg’s recent earnings call painted a mixed picture of its current financial health and strategic direction. While the company is making strides in diversifying its revenue streams and expanding its business institution efforts, significant challenges remain. The call highlighted successful licensing agreements, but also underscored revenue declines, restructuring efforts, and the impact of macroeconomic challenges, suggesting a tough operating environment for Chegg.

Exceeded Q1 Revenue and EBITDA Guidance

Chegg managed to surpass its revenue and adjusted EBITDA guidance for the first quarter of 2025, generating approximately $16 million in free cash flow. This achievement indicates a positive financial performance despite the broader challenges the company faces.

Expansion of Business Institution Effort

The company has expanded its business institution effort significantly, growing from 5 to 15 pilots from the fourth quarter to the first quarter, with an ambitious target of reaching 40 by the end of the year. This expansion is a key part of Chegg’s strategy to diversify its revenue streams.

Successful Licensing Agreements

Chegg has entered into two successful licensing agreements to provide question-and-answer pairs to language model companies. These agreements generated $4 million in the first quarter and are expected to bring in an additional $7 million in the second quarter, showcasing Chegg’s ability to leverage its content in new ways.

Busuu Revenue Growth

Busuu, Chegg’s language learning service, reported a 7% increase in revenue year-over-year for the first quarter, with its B2B business seeing a substantial 29% year-over-year increase. This growth highlights the potential of Busuu as a significant contributor to Chegg’s overall revenue.

Chegg Skills Pilot Programs

Chegg Skills has launched pilot programs with EdifyOnline and Noodle, focusing on AI programs to support higher education initiatives in India. These programs are part of Chegg’s efforts to innovate and expand its educational offerings.

Significant Revenue Decline

Despite some positive developments, Chegg reported a total revenue of $121 million for the first quarter of 2025, marking a 30% decrease year-over-year. Subscription Services revenue also declined by 31%, reflecting the ongoing challenges the company faces.

Restructuring and Layoffs

In response to the financial pressures, Chegg announced a restructuring plan that will impact 248 employees, or 22% of its workforce. The plan includes significant cost-cutting measures, such as closing offices in the US and Canada, aiming to align costs with the business outlook.

Ongoing Macroeconomic and Industry Challenges

Chegg continues to face macroeconomic and industry challenges, including competition from AI companies like Google and OpenAI. These pressures are affecting the company’s ability to maintain its market position and financial performance.

Q2 Financial Outlook

Looking ahead, Chegg expects total revenue for the second quarter to be between $100 million and $102 million, reflecting continued financial pressures. The company is also forecasting a gross margin in the range of 64% to 65%, indicating a cautious outlook amid ongoing challenges.

In summary, Chegg’s earnings call highlighted a company in transition, facing significant challenges but also pursuing strategic initiatives to diversify and strengthen its business. While revenue declines and restructuring efforts underscore the difficulties ahead, successful licensing agreements and growth in services like Busuu offer some optimism for the future.