Former CEO, Chegg
Students don’t understand money,’ Chegg CEO says
#Chegg #CheggCEO #YahooFinance
Chegg CEO Dan Rosensweig joins Yahoo Finance anchor Brad Smith and Brian Sozzi to discuss college enrollments, students opting for summer school, international student trends, and the need for financial literacy and mental health education.
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About Dan Rosensweig
Dan Rosensweig, the former CEO of Chegg, has spoken extensively about the impact of generative AI on the education technology sector. He stated that he was the first public company CEO to publicly acknowledge that ChatGPT would affect his business, an admission he said led to a 48% drop in the company's stock value. Rosensweig has described the period following the launch of ChatGPT-4 as a time of rapid transformation for Chegg, noting that the company had to "rip the product down to its roots and reinvent it on the fly." He has argued that while general-purpose AI models like ChatGPT can provide answers, they lack the accuracy and personalized learning support that Chegg offers, calling ChatGPT an "illusion of accuracy." Rosensweig has emphasized that Chegg's proprietary dataset of roughly 100 million questions and its vertical specialization provide a competitive moat against generalist AI. Rosensweig has also discussed Chegg's post-COVID recovery, describing the company as "digging out of a hole" created by a surge in subscribers during the pandemic followed by a decline. He noted that the company started a year with about 9% fewer customers than the previous year but expressed optimism that new AI-powered products, including automated answers through Chegg's own language models, would help reinvigorate growth. Beyond Chegg's business, Rosensweig has spoken about his personal motivation for investing in women's sports, which he said was sparked by his experiences with Stanford athletes and a desire to address gender inequities. He has also been critical of the higher education system, arguing that it is too expensive and does not provide sufficient employable skills, and has advocated for making student loan repayment tax-free for employers.
Transcript (15 segments)
✨ AI-enhanced transcript with speaker attribution
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Unknown0:05
Shares of Chegg are in focus as investors eye a 9% increase in the number of subscribers in the second quarter. The company also increased the midpoint for its full-year revenue and adjusted operating profit guidance ranges. Joining us now to discuss is Chegg President and CEO Dan Rosensweig. Dan, good to see you again here. Noted on your conference call, we're seeing an increase in summer school enrollments. What do you think is driving that?
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Dan Rosensweig0:27
Well, what they tell us is driving it is that over the course of the last year or two, they took fewer classes and they took easier classes. And so this summer they're making it up. And usually strong summers indicate strong fall. And our research suggests that 83% of all students that we surveyed in summer school have already signed up for or intend to go to college in the fall. So that's all good signs. We're just reluctant to forecast it yet because things change a lot these days.
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Unknown1:03
Of course, for education, especially here in the U.S., markets have been so reliant on international students as well that are enrolling in the U.S. Are you seeing any resurgence of international students who decided to step back from perhaps some of the U.S. institutions during the early onset of the pandemic and even the year after that? Is that coming back, and what are you noticing within the data? What's that telling you?
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Dan Rosensweig1:26
Yeah, no, it's a great question. And what we're noticing is that we're capturing them, they're just not necessarily coming to U.S. schools. They're going to Canada, they're going to Australia, they're going to other places now. And they still subscribe to Chegg, so we're fortunate. But the U.S. schools are facing a really difficult situation because of travel bans, COVID, and the rest. And so it's going to be a difficult, bumpy road for U.S. colleges as it relates to international students.
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Unknown1:53
And what about in terms of market share, Dan? Are you guys sort of expanding the institutions that you're affiliated with, the publishers you're affiliated with?
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Dan Rosensweig2:04
Yeah, so market share is something that we've always been a leader in. And even in the downturn, when 1.5 million students just didn't show up for college, and we've been digging out of that hole, and I think quite successfully and faster than we thought, that's all good news. We've been picking up market share all the way because we serve every student at every school. It doesn't matter if you're a four-year college, two-year college, online, not online, we're there for every student everywhere. And that's been our advantage with the highest quality, lowest cost homework help. So for us, it's a matter of is the TAM growing, not our market share. Our market share has been great and continues to grow. What we expect is that our TAM in the U.S. market will grow because we're adding content for about 10 million students that we didn't serve before through our new product, University. So we're pretty excited about the future.
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Unknown2:53
Daniel, on the call you teased some potential new services for next year. One, financial literacy, of course, hits home for us here at Yahoo Finance. What are you looking to launch in this arena?
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Dan Rosensweig3:03
You know, the three big areas in addition to academics that students need help with, and job skills of course which we offer through Chegg Skills, but it's really mental health, financial literacy, and soft skills. How do I interview? How do I write a resume? I mean, some of these people haven't even been to college in the last two years. They haven't really interacted with people. The mental health has gone through the roof. The challenges that students have now interacting with people, balancing structure in their lives, and then of course financial literacy, which you guys know everything about, because students don't understand money. That's why you saw all this move into Bitcoin and into Robinhood. They think of the stock market like it's FanDuel. They don't understand how to do budgets. So we're going to be there to help round out the student, not just in academic support, but job skills as well as life support.
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Unknown3:54
Yeah, what do you think they need to know to that end if they're viewing investing like FanDuel, and what skills do they need?
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Dan Rosensweig4:01
Well, first, well, they need to understand money. You know, when I grew up, you had a bank account, you had a savings passbook. And yes, I'm from decades long gone by, but today they don't even understand what they're spending. Everything's on the phone. It's just Apple Pay, it's Google Pay, it's PayPal, it's Venmo. So they're shifting money around, but they don't really understand how money works, how interest works for you and how interest works against you. So, you know, we were all taught about the benefits of compound interest. They're experiencing the opposite. They're experiencing college debt. 44 million Americans have $1.8 trillion in debt. That debt is going to have to start being repaid again in September. So they're going to be taking on huge expenses that they're not planning for. They just don't understand the way money works. No one's taught it to them in high school, no one's taught it to them in college, and that's a big mistake for this country if we're going to help them.
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Unknown4:48
And Dan, while we have you as well, if we were to see households really have to grapple with what a recession means for their educational spending as well, how would that impact enrollment from your perspective, and thus that trickle through to your business?
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Dan Rosensweig5:03
Yeah, what we're seeing, again, another great question, what we're seeing now is that students are looking at college as a 12-month endeavor, not a two-semester endeavor. What most people don't understand is the average age of a college student is 25. 26 of them already have a child. Most of the people taking online schools are women with jobs and children. So we're helping them by being available for them 12 months a year in their support. So they're taking fewer classes during the semester so they can work, and then they're working over the summer and taking classes to help catch up. And that seems to be a trend that would be really great for higher education and for Chegg. But we'll see if that trend continues since default. But the way they're handling it is they're working more hours and taking fewer classes each semester, but they're going to school for 12 months.
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Unknown5:51
Dan, you've been around tech for a long time. You know, since we last spoke at Davos a couple months ago, we've seen a lot of layoffs in tech. We're just seeing some breaking news now, Warby Parker laying off 63 employees, Auburn's laying off 8% of its workforce. Do you think we're at some type of bottom here, or things can get worse?
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Dan Rosensweig6:10
Well, look, you know, it's interesting. When this all happened in 2001, tech was not a big employer. So when all the layoffs happened, people didn't care or notice. Now tech employs people all over the country and all over the world for that matter. So it's not bottom yet. I mean, we've heard it pretty much everywhere. It's the large tech companies that were growing extraordinarily fast. Fortunately, Chegg is not in that situation. We are profitable, we produce cash flow, our EBITDA margins are above 30% and growing, our free cash flow is 50% of our EBITDA margins. So we're in a really strong position. We've always been judicious. But you're seeing it now with the largest companies are recognizing that consumer demand is going to slow down because prices are going up, not just in their products but in everybody's products. And when you have to choose, fortunately Chegg's a product people choose over more casual products like music or video. They need homework help if they're going to college, they need Chegg. But these other companies, I think you're going to see it a lot more in the fall once we start to see whether or not the recession kicks in and how deep it is and how long CEOs think it's going to go. So I think we're in for a very bad fall for the larger sort of enterprise companies and the consumer companies.
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Unknown7:19
Great insight as always. Always great to get some time with you, Dan Rosensweig, Chegg CEO. We'll talk to you soon.