Chegg learns a hard lesson as virtual study boom falters

When US university campuses closed during Covid-19 restrictions in 2020, Chegg, a study help subscription service, looked poised to capitalise on the promise of a booming market for educational technology.

Confined to their laptops and cut off from the real-life support of lecturers, millions of students signed up to Chegg, which offers on-demand answers to college course questions for $14.95 a month. Group revenue rose 57 per cent year on year in 2020 while its subscriber count increased more than two-thirds, to 6.6m.

But 12 months on, the picture looks very different for the platform, which offers a library of answers as well as a service where freelance employees will answer a question for you.

Shares fell 21 per cent between the beginning of 2020 and end of 2021 and its most recent set of quarterly results, for the three months to September 30, revealed a decline in student sign-ups compared to the previous quarter, and sales projections that came in well below analysts’ estimates.

Part of Chegg’s woes stem from an ongoing legal dispute with Pearson after the FTSE 100 group in September alleged in a lawsuit that the California-based company had reproduced answers to its course materials illegitimately. Chegg has said it believes it was in “full compliance with copyright law” and is contesting the allegations.

But the plunge in its share price speaks to wider concerns about the online learning sector. One is the worry that as the pandemic subsides there will be a return to classroom learning. Between autumn 2019 and 2021 there was also a 7.8 per cent drop in undergraduate enrolment at US universities, continuing a decade-long downward trend.

A deeper fear is that by creating more direct routes to learning for students, some companies are enabling students to cheat their way to qualifications. Some universities are mulling action to identify where students are using services like Chegg and Course Hero, another subscription rival, to cheat.

Dan Rosensweig, Chegg’s chief executive, has in part blamed falling enrolment at US universities as young people choose to enter paid work instead for the plunge in the group’s stock.

“[In] such a robust economy, people who would normally go to community colleges . . . took the route of going to the economy and you really can’t blame them,” he told the Financial Times.

Subscribers to Chegg’s answers services soared during the pandemic, but the US company is viewed with suspicion by many academics ©  Dennis Diatel/Alamy 

He has called claims that the site enables cheating “unfortunate” and “nonsense”. Chegg said it is offering much needed access to learning support, like explanations or subject guides not offered by universities, to a student body that is more likely to be working and more technologically literate than ever.

“It has nothing to do with looking up answers,” Rosensweig said. “These are students that have had no support for most of their life — the way we are used by the overwhelming majority of students is to learn.”

But many academics disagree. C Edward Watson, associate vice-president at the Association of American Colleges and Universities, said the use of sites like Chegg to answer course questions had been “normalised” on campus, creating an “existential crisis” in higher education. “It calls into question the quality of the degree,” he said.

At a recent AAC&U conference, professors described confronting multiple incidences of students lifting answers from sites like Chegg or Course Hero, a non-listed competitor that allows students and academics to share course materials.

Educators said they were working to combat the threat by both improving support for students and cracking down where there were egregious violations of honour codes.

Lisa Yount, a philosophy professor at Savannah State University, said her team was using tactics ranging from presenting Course Hero with copyright claims to flooding the site with false information to catch students using it to cheat. “Our faculty team is now operation takedown, dismantle Course Hero,” she said.

Like Chegg, Course Hero, which was valued at $3.6bn following its December funding round, denies it is enabling cheating.

Column chart of Rolling 4-quarters ($m) showing Chegg sales rocketed in 2020

The California-based company, which in its most recent funding round attracted backers including Canadian pension fund Omers and Sequoia Capital, argued it is instead evening out unequal access to study support for “under-represented students”, as a part of a tech-enabled trend for sharing and online research in learning.

“We’re aligned with facilitating learning and stopping cheating,” said CEO Andrew Grauer. He argued Course Hero’s focus was “amplifying better teachers and better resources [while] stopping the abuses.”

Aneesh Venkat, partner at Sequoia Capital Global Equities, said at the time of the funding round that “online learning platforms will continue to play an essential role in supplementing the student learning and educator teaching experience in today’s learning economy”.

Although efforts to combat cheating have fallen short of an outright ban of Chegg and Course Hero, whether the accusations will limit their potential to grow — or lie behind the share drop of Chegg — is open to question.

Chegg is facing another legal battle through a securities fraud class action filed last month in California.

This claims the company failed to inform investors its growth was a short-term result of the pandemic moving learning online and that “defendants were also aware that the platform was helping students cheat on their exams”.

When lockdowns eased and students returned to campus, the lawsuit alleges, universities were able to crack down on cheating and “students predictably stopped subscribing to the platform”.

Chegg said it was “aware of the complaint” and that it “view[ed] the suit as lacking in merit and intend[ed] to defend the case vigorously”.

Nithin Pejaver, an analyst at Citi, said he was not “entirely convinced” that falling college enrolment was behind Chegg’s fallen share price. But he agreed with the company that cheating allegations were unlikely to be behind the fall.

Instead, he suggested, Chegg may have overestimated the total potential audience for its services — not reckoning with the possibility that it could be limited to those studying science and technology subjects or at community colleges. “Maybe Chegg is saturating the US market — that’s just a hunch that we are working with right now,” he said.

Aside from its own lawsuit, Pearson is moving into Chegg’s ground through a digital push, offering more interactive online textbooks and study tools.

Chegg and Course Hero insist they are prepared to navigate these rocky waters. Both are looking to expand to other areas of the education market — including workplace learning and languages — in part through acquisitions.

In August, Course Hero acquired AI platform QuillBot, which provides a grammar check and citation generator used by professionals as well as college students.

Chegg in November acquired Busuu, a digital language learning company and this month began including with its service tools directing students toward materials based on what their personalised data suggested.

“We do see a larger and larger need for learners to directly go online and seek to learn when they want and in ways that fit their needs,” Grauer said.

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