US online education giant Chegg plunged nearly 50%, how the education sector has operated recently

introduction

Online education is an important product of technological innovation and social change in recent years, and it is also a hot field that investors pay attention to and pursue. American online education company Chegg (CHGG), once a leader in this field, its stock price was affected by the new crown epidemic in 2020, rising sharply, from $30 to $115.21, with a market value of more than $12 billion, becoming the most valuable edtech company in the United States. However, on May 2, 2023, Chegg released its first-quarter earnings report and warned that second-quarter revenue would decline, mainly due to rising student interest in OpenAI's chatbot ChatGPT, which affected its business growth. Chegg's shares plunged 48.41% on the day to close at $9.08, the lowest since April 26, 2017, and their market value shrank to about $4 billion.

Chegg's plunge has triggered widespread attention and discussion in the market, and has also had a certain impact and impact on China's A-share education sector. China's A-share education sector is a large and diversified sector, covering all aspects from kindergartens to higher education, from training institutions to online platforms, from textbook publishing to educational equipment.

This article will analyze the impact and prediction of the collapse of Chegg on China's A-share education sector, and analyze and advise some individual stocks, hoping to help investors understand the development trend and changes of the online education industry, provide reference and suggestions, and promote rational and scientific investment decisions.

First, the reasons and effects behind Chegg's collapse

Chegg is a well-known online education company in the United States, providing subscription-based learning services to assist students in writing, arithmetic and studying materials. In 2020, Chegg achieved rapid growth and expansion benefiting from the disruption of in-person learning and increased demand for online learning due to the pandemic. Chegg achieved revenue of $642 million for the full year 2020, up 57% year-over-year, and net income of $114 million, up 216% year-over-year. Chegg had more than 6.5 million subscribers at the end of 2020 and acquired several related companies, such as math tutoring platform Mathway and programming tutoring platform Codecademy.

However, on May 2, 2023, Chegg released its first-quarter earnings report and warned that second-quarter revenue would decline, mainly due to rising student interest in OpenAI's chatbot ChatGPT, which affected its business growth. ChatGPT is an AI-based chatbot that can communicate with users in natural language and provide various learning aids, such as answering questions, writing suggestions, reviewing knowledge points, etc. After its launch in early 2023, ChatGPT quickly gained widespread attention and use, especially among the student population, becoming a strong competitor to Chegg.

In response to the threat of ChatGPT, Chegg has also introduced the GPT-4-based AI writing service CheggMate, which can provide personalized learning tutoring and content based on students' data and needs, while also reducing Chegg's content costs and increasing profitability. However, Chegg's introduction of AI writing didn't stop customer churn.

Chegg said in its first-quarter earnings report that its subscriber count was 6.3 million, up 9% year-over-year but down 3% sequentially, and revenue was $162 million, up 35% year-over-year, but below market expectations of $165 million. Chegg also expects second-quarter revenue of $145 million to $150 million, below market expectations of $167 million.

Chegg's earnings report and warning triggered a strong reaction and dissatisfaction in the market, causing its stock price to plunge 48.41% on the day to close at $9.08, a new low since April 26, 2017, and its market value shrank to about $4 billion. Chegg's plunge reflects not only its poor performance and market expectations, but also increased competition and accelerated change in the online education industry. Chegg's plunge had serious effects on itself, including:

• Shrinking market capitalization: Chegg fell from a market value of $12 billion at the end of 2020 to a market value of $4 billion on May 2, 2023, a shrinkage of nearly 70%, losing its leadership and advantage in the online education industry
• Confidence damaged: Chegg was seen as a star company and model student in the online education industry in 2020 to a loser and laggard in the online education industry in 2023, and his confidence and reputation were severely hit
• Business adjustment: Chegg is facing challenges and pressures from emerging competitors such as ChatGPT, and needs to adjust its business strategy and model to find new growth points and advantages

Second, the trend and opportunities of China's A-share education sector

China's A-share education sector is a large and diversified sector, covering all aspects from kindergartens to higher education, from training institutions to online platforms, from textbook publishing to educational equipment.

On May 3, 2023, China's A-share education sector may be negatively affected by the plunge of U.S. stock Chegg, with a pullback or volatility, and some stocks may face bearish or risks. Chegg's plunge has had an impact not only on the U.S. online education industry, but also on the global online education industry. Chegg's plunge has exposed some of the problems and challenges in the online education industry.

• Low user loyalty: Online education users tend to be driven by learning needs rather than brand loyalty, and users can easily be transferred or lost once better or cheaper services become available
• Fast technological innovation: The online education industry is a technology-driven and innovation-driven industry, and new technologies and innovations often bring new user experiences and values, such as ChatGPT is a typical example
• Fierce market competition: The online education industry is an industry with obvious scale effects and network effects, and market competition is often a winner-take-all or oligopoly game, and there is often a huge gap and advantages and disadvantages between competitors

Therefore, China's A-share education sector needs to be vigilant against the risks and pressures brought by Chegg's plunge, and at the same time seize the opportunities and space brought by Chegg's plunge. Other advantageous or innovative stocks in China's A-share education sector may have the opportunity to seize the opportunities and needs of the online education market and achieve a bucking trend or differentiation.

3. Analysis and recommendations of individual stocks

Based on the above analysis, we can analyze and make suggestions on some stocks in the China A-share education sector, as follows:

• Zhonggong Education (002607): As a leading stock in the education sector, under pressure from Chegg's poor performance and ChatGPT competition, it needs to pay attention to whether it can maintain stable growth and profitability. Zhonggong Education mainly provides training services in civil service examinations, public institution examinations, teacher qualification examinations, etc., with strong market position and brand influence, but also faces risks such as policy changes, market saturation, and user loss. It is recommended to hold with caution or reduce positions appropriately.

• China Science Biography (601858): Mainly engaged in the publishing, distribution, printing, production and service of science and technology books, periodicals, digital publications, etc., and also actively expanded its online education market, launching the ChatGPT Enterprise Edition subscription service. The biggest gainers in the education sector in recent times are popular and sought after by funds, but there are also risks of high valuations and bubbles. But faced with fierce competition and uncertain returns. It is recommended to sell or take profit at the high.

This blog only represents the author's personal views and does not constitute any investment advice or guarantee. Investors should independently judge and bear risks according to their own circumstances. The data and information in this blog has been obtained from publicly available sources and the author assumes no responsibility for its accuracy and completeness. If there are any errors or omissions in the content of this blog, please correct them.