Chegg's $40B Skilling Bet Faces Deep Skepticism Amid AI-Driven Collapse

What happened

Chegg is attempting a bold pivot to the $40 billion global workforce skilling market by splitting operations into Chegg Skilling as a growth engine and Academic Services as a cash-flow generator. This move follows years of severe traffic declines in its legacy academic business, driven by Google's AI Overviews and generative AI substitution, which the DeepValue report confirms are structural and ongoing. The report highlights that Chegg's financials are deteriorating rapidly, with FY25 revenue down 39% YoY and Q4'25 down 49%, alongside negative free cash flow and NYSE listing risks due to a sub-$1 stock price. It assigns a 'POTENTIAL SELL' rating with a base case implied value of $0.60, emphasizing that the skilling pivot faces high execution risks and low probability of success. Investors must now watch for near-term proof points, such as Q1'26 results and Skilling revenue acceleration, to determine if Chegg can overcome these headwinds.

Implication

Chegg's pivot to skilling is a desperate move in a competitive market, requiring rapid scaling while its core academic business faces persistent AI-driven traffic erosion. The company's financial health is precarious, with cash dwindling to $85M and negative free cash flow, compounded by NYSE compliance risks that could shrink the investor base. Management's cost cuts may not keep pace with revenue declines, and any failure in Skilling growth could trigger further capital impairment or corporate actions. The DeepValue report advises waiting for concrete evidence, such as Skilling revenue exiting Q3 above $20M quarterly or Academic Services decline moderating, before considering investment. Overall, the equity offers no margin of safety and is best left on the sidelines until Chegg demonstrates sustainable cash flow and credible turnaround metrics.

Thesis delta

The new article confirms Chegg's strategic emphasis on the skilling market, but it does not shift the investment thesis from the DeepValue report. The report already incorporates this pivot and maintains a skeptical view due to execution risks, ongoing traffic headwinds, and lack of proof points. Therefore, the thesis remains unchanged: Chegg is a high-risk, potential sell unless Skilling accelerates and Academic Services stabilizes by mid-2026.