Pearson shares plummet after ChatGPT warning from US rival Chegg

2 May 2023, 13:44 | Updated: 25 July 2023, 11:47

University of Cambridge graduation ceremony
University of Cambridge graduation ceremony. Picture: PA

Chegg withdrew its annual guidance on Monday after seeing a drop in sign-ups as a result of the AI software.

Shares in London-listed education publisher Pearson plummeted on Tuesday as a major US rival warned that its finances were being hit by the popularity of ChatGPT.

California-based Chegg said on Monday that the AI software was having an impact on how many students were signing up to its services.

The hit has been so pronounced that the company withdrew its guidance for the full year and warned that second-quarter revenue will be significantly lower than what Wall Street analysts expected.

Chegg’s share price dropped by more than 40% as a result in pre-market trading in the US – and its woes knocked Pearson, a major rival, whose shares were trading down around 9% in London.

“We believe that generative AI and large language models are going to affect society and business, both positively and negatively, at a faster pace than people are used to,” said Chegg chief executive Dan Rosensweig.

“Education is already being impacted and, over time, we believe that this will advantage Chegg.

“In the first part of the year, we saw no noticeable impact from ChatGPT on our new account growth and we were meeting expectations on new sign-ups.

“However, since March we saw a significant spike in student interest in ChatGPT. We now believe it’s having an impact on our new customer growth rate.”

Mr Rosensweig said that while the company was not attracting customers as rapidly, those who had already signed up seemed to be sticking around.

“Fortunately, we continue to see very strong retention rates, suggesting that those students who already understand the value of Chegg continue to choose us and retain us at high rates,” he said.

Later this month the business plans to launch a beta version of its own ChatGPT-powered systems.

By Press Association