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Are Chegg's Aggressive Cost Cuts Enough to Protect Its Margins?

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Key Takeaways

  • Chegg's Q2 2025 revenues fell 36% to $105.1M as subscriptions and users dropped amid AI-driven search shifts.
  • Operating expenses plunged 72% to $202.5M, with $165-$175M in 2025 savings and $100-$110M expected in 2026.
  • AI integration across Chegg Study, Skills and Busuu aims to stabilize long-term growth and profitability.

Chegg, Inc. (CHGG - Free Report) witnessed a gloomy second quarter of 2025, with revenues of $105.1 million being down 36% year over year and subscription services revenues falling 39% to $89.7 million. The subscriber base plunged 40% to 2.6 million, largely due to lower traffic stemming from Google’s AI Overviews. However, amid a steep fall in the top line, the company maintained a robust streak of cost-cutting, which is aimed at stabilizing its profitability structure.

Chegg is currently taking aggressive steps to reduce its total operating expenses across multiple fronts, including workforce reduction and office closures, necessary cuts in operating expenses, lease and real estate rationalizations and significant capital expenditure reductions. Through these restructuring efforts, during the first six months of 2025, its total operating expenses declined year over year by 72% to $202.5 million. Besides, owing to CHGG’s disciplined cost management and restructuring actions, it expects to realize adjusted expense savings of between $165 million and $175 million for 2025, with an additional $100-$110 million in adjusted savings expected in 2026.

However, sustaining margins will depend on how fast Chegg can offset subscriber erosion with growth in its Busuu and Skills businesses. Given the increased demand for AI tools across digital learning, CHGG is intently focusing on incorporating AI into its business model through its diversified service offerings, including Chegg Study, Chegg Skills and Busuu, and shifting away from its Q&A-based subscription model.

Along with the cost management efforts, the business enhancement strategies are expected to catalyze Chegg’s margin scale in the upcoming term.

Chegg’s Market Competition Position

Chegg operates in a highly competitive landscape that spans school programs, online education and digital learning services. Key market players like Duolingo, Inc. (DUOL - Free Report) and Udemy, Inc. (UDMY - Free Report) represent distinct yet overlapping challenges within the broader edtech ecosystem.

Duolingo dominates the language-learning niche with its gamified app and AI-driven engagement. With a strong mobile presence and daily user engagement, Duolingo has built a brand synonymous with accessible, bite-sized learning. Contrarily, Udemy has aggressively leveraged AI-powered upskilling, launching its Innovation Studio, acquiring Lummi to enhance course material creation (particularly in visuals and design), and introducing generative AI tools such as AI Learning Assistants and Role Plays for soft skills development.

Compared with Duolingo and Udemy, Chegg’s legacy content base, existing learners and its Busuu platform give it a foothold in language learning and academic support. Overall, Chegg’s edge over Duolingo and Udemy is modest, as it can survive and even thrive if its AI enhancements are well-executed comparatively.

CHGG Stock’s Price Performance & Valuation Trend

Shares of this California-based education technology company have surged 179.9% in the past six months, significantly outperforming the Zacks Internet - Software industry, the Zacks Computer and Technology sector and the S&P 500 index.

Zacks Investment Research
Image Source: Zacks Investment Research

CHGG stock is currently trading at a discount compared with the industry peers, with a forward 12-month price-to-sales (P/S) ratio of 0.41, as evidenced by the chart below. The discounted valuation of the stock, compared with its peers, advocates for an attractive entry point for investors.

Zacks Investment Research
Image Source: Zacks Investment Research

Earnings Estimate Trend of CHGG Stock

CHGG’s bottom-line estimates for 2025 indicate a loss per share, while those of 2026 indicate break-even earnings. Over the past 60 days, the loss estimates for 2025 have remained stable at $0.11 per share, with those for 2026 remaining constant at a breakeven point.

Zacks Investment Research
Image Source: Zacks Investment Research

Although the estimated figures for 2025 indicate a downtrend of 114.7% year over year, estimates for 2026 indicate 100% growth.

Chegg stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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