Chegg Stock Plunges 45% in 3 Months: Should Investors Buy the Dip?

Chegg shares have plunged ~45% over the past three months as legacy academic traffic declines, AI-driven disruption and a year-over-year revenue contraction weighed on results. Management has completed a major restructuring that split the business into a legacy academic cash-generating unit and a growth-focused Chegg Skilling segment (consolidating Busuu and Chegg Skills), producing a 46% YoY reduction in non‑GAAP operating expenses in Q3 2025 and a plan to cut total non‑GAAP expenses from $536m in 2024 to under $250m by 2026. The skilling unit is gaining momentum—management projects ~14% YoY revenue growth in Q4 2025 and sustained double‑digit growth thereafter supported by B2B partnerships and geographic expansion—while lower capex (Q3 capex down 63% YoY), a net cash position of $49m and an improving 2026 EPS outlook ($0.18 consensus) underpin a materially discounted valuation (forward 12‑month P/S ~0.34x). Despite the attractive valuation and Zacks’ Strong Buy stance, near‑term recovery hinges on execution of the skilling pivot and stabilization of legacy traffic amid ongoing AI competition.

Analysis

Chegg shares have fallen 45.4% over the past three months versus a 10.1% decline in the Zacks Internet–Software industry, while the broader Computer & Technology sector rose 8.9% and the S&P 500 gained 6.5%, driven by declining traffic to legacy academic services, year‑over‑year revenue contraction and AI‑driven disruption. Management has completed a strategic reorganization splitting the business into a legacy academic cash generator and a growth‑focused Chegg Skilling unit (Busuu + Chegg Skills) and reported a 46% year‑over‑year reduction in non‑GAAP operating expenses in Q3 2025 with adjusted EBITDA above internal expectations.

The company projects Q4 2025 skilling revenue growth of ~14% year‑over‑year and sustained double‑digit growth thereafter, while guiding total non‑GAAP expenses down from $536 million in 2024 to under $250 million by 2026; Q3 capex fell 63% YoY with an additional ~60% reduction expected in FY2026. One‑time charges in Q3 included a $7.5 million FTC settlement and $5.5 million in severance, Chegg held $112 million in cash and investments and a net cash position of $49 million, and consensus 2026 EPS has risen to $0.18 (implying ~228.6% YoY growth).

Valuation now looks materially discounted with a forward 12‑month P/S of 0.34x versus peers Coursera (1.73x), Udemy (0.96x) and Duolingo (7.77x), creating a potential entry if execution on skilling and cash‑flow improvement materializes. Key risks are execution of the skilling pivot, stabilization of legacy academic traffic amid continued AI competition, and the company meeting its FCF and expense reduction milestones despite recent restructuring gains.

Key Decisions for Investors

• Consider a staged, size‑limited accumulation on material weakness given the 0.34x forward P/S and improving cost structure, but avoid full allocation until skilling execution is validated
• Increase exposure only after confirmatory quarterly evidence: skilling revenue growth at or above the ~14% YoY guide, rising seat counts/B2B contract activity (e.g., Guild), and sequential improvement in adjusted EBITDA and free cash flow
• Watch three near‑term financial triggers—non‑GAAP expense trajectory toward < $250m by 2026, FY2026 free cash flow improvement, and sustained capex reductions—and trim or hedge if these metrics stall
• If unable to accept execution risk, prefer peer exposure (Coursera, Udemy) highlighted in the article that show stronger engagement metrics despite higher valuations
• Use protective sizing or options hedges to limit downside given significant recent volatility and ongoing AI disruption to legacy academic traffic