CHGG

CHEGG, INC

NYSE · INDUSTRIALS · SERVICES-EDUCATIONAL SERVICES

0.70

+0.03 +4.48%

USD · close Oct 23

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How CHGG rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

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Risks Related to Our Business and Growth Failure to successfully execute our skilling-focused business-to-business strategy and realize the anticipated benefits of our business transformation and related restructuring plan could have a material adverse effect on our business financial results.
We are evolving our learning platform into a skilling-focused business-to-business organization, building on our existing businesses in professional language learning, workplace readiness and AI-related skills courses.
This transformation involves a number of risks, including organizational, operational, financial, and technological challenges, such as the risks that we may not be able to develop novel or useful products, that we may not be able to attract or retain customers to these products, or that we may not have or hire the right talent to execute our business strategy in a competitive job market.
Further, market acceptance of new product and service offerings will be dependent in part on our ability to include functionality and usability that address customer needs, and to optimally price our offerings and services to meet customer demand and cover our costs.
Our go-to-market strategy also must adjust to customers' changing preferences, and there can be no assurance that our go-to-market approach will adequately and completely address such preferences.
New product and services offerings may also increase our risk of liability and cause us to incur significant technical, legal or other costs.
Additionally, our transformed organization will compete with numerous other organizations, many of which have greater resources and offer their products at a lower price than we do.
We may not be able to implement and realize the anticipated benefits from our strategy or business evolution plan.
Events and circumstances, such as financial or unforeseen difficulties, delays and unexpected costs, may occur that could result in our not realizing desired outcomes.
Even if the anticipated benefits and savings of our strategy and business evolution plan are substantially realized, there may be consequences, internal control issues, or business impacts that were not expected.
Additionally, because of our restructuring efforts in connection with our strategy and business evolution plan, we may experience a loss of continuity, loss of accumulated knowledge or loss of efficiency during transitional periods.
Reorganization and restructuring can require a significant amount of management and other employees' time and focus, which may divert attention from operating activities and growing our business.
Our revenue has declined and our business depends on our ability to continue to attract new learners to, and retain existing learners on, our learning platform.
Our business depends on our ability to attract new customers to use our products and services and to engage and retain existing customers to our learning platform while maintaining pricing levels.
Our Academic Services business, representing the majority of our revenues, depends on small transactions made by a widely dispersed student population with an inherently high rate of turnover primarily as a result of graduation, and our Skilling business depends on attracting both enterprise customers and engaging with individual learners.
The rate at which our customer base expands or declines, the rate at which we retain existing learners, and the engagement with our learning platform may fluctuate because of several factors, including, among others: • our ability to locate and attract new customers to use our products and services and convert visitors to paying subscribers given the availability of competing content, including free content; • our ability to attract new customers to grow our Skilling business; • our ability to engage learners with our content; • our ability to introduce new products and services that are favorably received by business customers and learners, including integrating AI-enabled products; • piracy and unauthorized use of our content; • our ability to localize our content, localize our pricing, localize our payment and commerce tools, and create new apps in different languages and for different geographies to further our international expansion through increased conversion and retention; • our ability to increase our total addressable market beyond STEM-B (science, technology, engineering, mathematics and business); • changes in customer spending levels and habits; and • the effectiveness of our sales and marketing efforts, including generating word-of-mouth referrals.
If we do not attract more customers, retain our existing customers, or if customers do not increase their level of engagement with our platform, our revenues will continue to decline.
The willingness of business customers to invest in their workers is subject to numerous factors, including the overall economy, and the student demographic is characterized by rapidly changing tastes, preferences, behavior, brand loyalty, and price sensitivity.
Attracting new customers depends not only on our investment in our brand and content and our marketing efforts, but also on the perceived value of our products and services versus alternatives, some of which are free.
If our efforts to satisfy our existing customer base are not successful or become less effective, or if the cost of such efforts were to significantly increase, we may not be able to attract new customers and we may not be able to retain existing customers on our platform.
Additionally, even if we succeed in establishing brand awareness and loyalty, we may be unable to maintain and grow our customer base if we cannot offer competitive prices for our products and services, adequately prevent unauthorized account sharing of our subscription program services, or prevent the piracy and illegal reproduction of our content.
These new technologies have resulted in headwinds to our business, and over time, the accuracy of these tools and their ability to handle complex questions is expected to improve, which would further disrupt our business.
Our products and services compete for customers, and we expect such competition to increase as our industry evolves rapidly.
The competitors for our language learning platform primarily include similar language learning platforms such as GoFluent, Speexx, and Duolingo.
For our workforce skilling program, we face competition from other online learning platforms and online “skills accelerator” course providers, both white-label and co-branded, which compete for adult learners through third party institutions, including 2U, Inc., Simplilearn, General Assembly, Galvanize, Inc., Flatiron School, Codecademy, DataCamp, and Lambda, Inc.
For Chegg Study, our competitors primarily include platforms that provide study materials and online instructional systems, such as Course Hero, Quizlet, Brainly, and Khan Academy.
We expect Google may continue its shift from being a search origination point to the destination, which could materially adversely affect our business, operating results and financial condition.
("Google"), asserting federal antitrust claims and common-law unjust enrichment claims, in connection with Google's expansion of its AIO search experience ("Google suit").
See "— Adverse litigation judgments or settlements resulting from legal proceedings in which we are or may be involved could expose us to monetary damages or limit our ability to operate our business" in this "Risk Factors" section.
In addition, we have licensed certain of our content to other entities who may use this content to train AI models that may compete with our products in the market.
Further, our ability to continue to develop and effectively deploy AI technologies depends on access to specific third-party large language models, equipment and other physical infrastructure, such as processing hardware and network capacity, which we cannot control the availability or pricing of, especially in a highly competitive environment.
This shift in student behavior impacts education technology companies broadly, where students see generative AI products like ChatGPT and others as strong alternatives to vertically specialized solutions for education such as Chegg.
As a result, we have experienced, and could continue to experience, a material adverse effect on our operating results, growth and financial condition.
Chegg derives a significant portion of its revenue from students attending U.S. colleges; and as such, a further decrease in the number of students enrolled in U.S. colleges could materially negatively impact our business, growth, results of operations, and financial condition.
In addition, we face risks in doing business internationally that could constrain our operations, increase our cost structure, and compromise our growth prospects, including: • the need to localize and adapt content for specific countries, including translation into foreign languages; • local laws restricting students from accessing online education platforms such as ours; • data privacy laws that may require data to be handled in a specific manner, including storing, processing, and encrypting data solely on local servers; • varying levels of internet technology adoption and infrastructure, and increased or varying network and hosting service provider costs; • difficulties in staffing and managing employment of individuals in foreign operations, including differing compensation and benefits regulations, relying on professional employer organizations and staffing agencies to provide personnel, foreign employees becoming part of labor unions, employee representative bodies, workers’ councils or collective bargaining agreements, and challenges relating to work stoppages or slowdowns; • different pricing environments, difficulties in adopting and supporting new and different payment preferences, and collections issues; • new and different sources of competition and practices which may favor local competitors; • the ability to protect and enforce intellectual property rights abroad; • the educational regulatory regime in certain countries and their ability to levy civil and criminal penalties on, or completely block students from accessing, services like Chegg; • compliance challenges related to the complexity of multiple, conflicting and changing governmental laws and regulations, legal systems, and alternative dispute systems, including, but not limited to, employment, tax, privacy and data protection, economic sanctions and export controls, U.S. and other anti-boycott authorities, anti-money laundering laws, and anti-bribery laws and regulations such as the U.S.
Given the current environment of uncertainty, we may not be able to provide annual financial guidance accurately, or at all.
We expect our results of operations to fluctuate in the future based on a variety of factors set forth above and elsewhere in this "Risk Factors" section, which may result in period-to-period comparisons of our results of operations not being a good indicator of our future or long-term performance.
In August 2024, Google broadly rolled out its AIO search experience, which displays AI-generated content at the top of its search results.
This experience, which includes questions and solutions for education, keeps users on Google search results instead of leading them to Chegg’s site.
While we continue to study these changes and adjust our marketing strategy, we expect Google to continue its shift from being a search origination point to the destination, which could materially adversely affect our business, operating results and financial condition.

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Summary of Risk Factors Below is a summary of the principal factors that make an investment in our common stock speculative or risky.
This summary does not address all of the risks that we face.
Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common stock.
Risks Related to Our Business and Growth • Our revenue has declined and our business depends on our ability to continue to attract new learners to, and retain existing learners on, our learning platform. • If we fail to innovate and offer new products and services in response to rapidly evolving technological and market developments, including AI, our competitive position and business prospects may be harmed. • We face competition in all aspects of our business, including with respect to AI, and we expect such competition to increase. • Our exploration of strategic alternatives may not be successful and may disrupt our ongoing business, result in increased expenses and present certain other risks. • U.S. colleges have faced, and may continue to face, reduced enrollment, which could negatively impact our business and results of operations. • Our international operations, and the expansion thereof, subject us to increased challenges, risks, and costs, which could adversely affect our business, financial condition, and results of operations. • We have a limited operating history in international jurisdictions and our expansion efforts into international markets may not be successful. • The uncertainty surrounding the evolving educational landscape, including the impact of AI on learning and education, the state of the student including the amount and the extent to which AI will impact study habits and how students learn and/or complete their assignments, and the demand for our evolving offerings make it difficult to predict our operational trends and results of operations. • If our efforts to drive user traffic, including search engine optimization, social media campaigns, and other marketing, are not successful, student discovery of, and engagement with, our learning platform could decline, which may harm our business and results of operations. • If our efforts to build and maintain strong brands are not successful, we may not be able to grow our student user base, which could adversely affect our results of operations. • Our business depends on general economic conditions and their effect on spending behavior by students and advertising budgets. • We have a history of losses, and we may not achieve or sustain profitability in the future. • If we do not retain our senior management team and key employees, we may not be able to sustain our growth or achieve our business objectives. • We have undertaken, and may in the future undertake, internal restructuring activities that could result in disruptions to our business or otherwise materially harm our results of operations or financial condition. • We depend on mobile app stores and operating systems to grow our student user base and their engagement with our learning platform. • Our wide variety of accepted payment methods subjects us to third-party payment processing-related risks, including risks associated with credit card fraud. • We rely on Amazon Web Services (AWS) and other third-party software and service providers to provide systems, storage, and services for our website and any disruption of such services or a material change to our arrangements could adversely affect our business. • Our growth strategy includes acquisitions, and we may not be able to execute on our acquisition strategy or integrate acquisitions successfully. • If we fail to convince brands of the benefits of advertising on our learning platform, or if platforms such as Google Chrome, Safari, or Firefox limit our access to advertising and marketing audiences, or the data required to effectively reach those audiences, our business could be harmed. • We may need additional capital, and we cannot be sure that additional financing will be available on favorable terms, if at all. • Our core value of putting students first may conflict with the short-term interests of our business. • Adverse litigation judgments or settlements resulting from legal proceedings in which we are or may be involved could expose us to monetary damages or limit our ability to operate our business. • If we are not able to manage the growth of our business both in terms of scale and complexity, our business could be adversely affected. • Our business is seasonal, and disruptions during peak periods can make, and have made, our operating results difficult to predict.
Risks Related to Our Industry • Government regulation of education and student information is evolving, and unfavorable developments could have an adverse effect on our business, results of operations, and financial condition. • Colleges and certain governments may restrict online access or access to our website, which could lead to the loss of or slowing of growth in our student user base and their level of engagement with our platform. • If we are required to discontinue certain of our current marketing activities, our ability to attract new students may be adversely affected. • We are subject to U.S. trade control laws that may restrict growth prospects and impose liability if we are non-compliant.
Risks Related to Taxes and Accounting Matters • We may be subject to greater than anticipated liabilities for income, property, sales, and other taxes, and any successful action by federal, state, foreign, or other authorities to collect additional taxes could adversely harm our business. • Our effective tax rate may fluctuate as a result of new U.S. and worldwide tax laws and our interpretations of those new tax laws, which are subject to significant judgments and estimates.
The ongoing effects of the new tax laws and the refinement of provisional estimates could make our results difficult to predict. • Our earnings are affected by the application of accounting standards and our critical accounting policies, which involve subjective judgments and estimates formulated by our management.
Risks Related to Intellectual Property • Failure to protect or enforce our intellectual property and other proprietary rights could adversely affect our business, financial condition, and results of operations. • Misuse of our platform and content, including digital piracy and improper sharing and misappropriation of user credentials, may continue to adversely affect our business, financial condition, and results of operation. • If we become subject to liability for the Internet content that we publish or that is uploaded to our websites by students or other users, our results of operations could be adversely affected. • Changes in or our failure to comply with the requirements for eligibility for the Digital Millennium Copyright Act (DMCA) safe harbors could harm our business. • We are, and may in the future be, subject to intellectual property claims, which are costly to defend and could harm our business, financial condition, and results of operations. • Some aspects of our technology include open-source software, and any failure to comply with the terms of one or more of these open-source licenses could harm our business.
Risks Related to Data Privacy • The compromise of our information technology systems or data, including through computer malware, viruses, hacking, phishing attacks, spamming and other security incidents, could harm our business and results of operations. • We collect, process, store and use personal information and other sensitive data, which subjects us to stringent and evolving U.S. and foreign laws, governmental regulation, contractual obligations, policies and other legal obligations. • Public scrutiny of Internet privacy issues and actual or perceived failure to comply with our obligations with respect to privacy and data security could harm our business, including by damaging our reputation and relationships with students and educators. • We are subject to privacy and cybersecurity laws across multiple jurisdictions which are highly complex, overlapping, and which create compliance challenges that may expose us to substantial costs, liabilities, or loss of customer trust.
Our actual or perceived failure to comply with these laws could harm our business. • Our business, including our ability to operate internationally, could be adversely affected if new legislation or regulations are adopted or due to changes in interpretations or implementations of current legislation and regulations.
Risks Related to Ownership of Our Common Stock • Our stock price has been and will likely continue to be volatile. • We may be subject to short-selling strategies that may drive down the market price of our common stock.
Risks Related to Our Business and Growth Our revenue has declined and our business depends on our ability to continue to attract new learners to, and retain existing learners on, our learning platform.
Our business depends on our ability to attract new students to use our products and services and to increase retention and the level of engagement by existing students with our learning platform and maintain pricing levels.
The substantial majority of our revenues depends on small transactions made by a widely dispersed student population with an inherently high rate of turnover primarily as a result of graduation.
The rate at which our student user base expands or declines, the rate at which we retain existing students, and the engagement with our learning platform may fluctuate because of several factors, including, among others: • our ability to engage students with our suite of Subscription Services and the content contained therein; • our ability to introduce new products and services that are favorably received by students, including a new AI-enabled interactive and personalized user experience; • our ability to convert visitors to paying subscribers given the availability of free competitors and content; • piracy and unauthorized use of our content; • the decreasing number of students attending U.S. colleges; • our ability to localize our content, localize our pricing, localize our payment and commerce tools, and create new apps in different languages and for different geographies to further our international expansion through increased conversion and retention; • our ability to increase our total addressable market beyond STEM-B (science, technology, engineering, mathematics and business); • our ability to grow our skills business-to-business partnerships and partnerships with providers who link us to employers and their learners; • changes in student spending levels and habits; and • the effectiveness of our sales and marketing efforts, including generating word-of-mouth referrals.
If we do not attract more students, retain our existing students, or if students do not increase their level of engagement with our platform, our revenues will continue to decline.
The student demographic is characterized by rapidly changing tastes, preferences, behavior, brand loyalty, and price sensitivity.
Developing an enduring business model to serve this population is particularly challenging.
Attracting new students depends not only on our investment in our brand and content and our marketing efforts, but also on the perceived value of our products and services versus alternatives, some of which are free.
If our efforts to satisfy our existing student user base are not successful or become less effective, or if the cost of such efforts were to significantly increase, we may not be able to attract new students as successfully or efficiently and we may not be able to retain existing students on our platform.
Additionally, even if we succeed in establishing brand awareness and loyalty, we may be unable to maintain and grow our student user base if we cannot offer competitive prices for our products and services, adequately prevent unauthorized account sharing of our subscription program services, or prevent the piracy and illegal reproduction of our content.
These new technologies have resulted in headwinds to our business, and over time, the accuracy of these tools and their ability to handle complex questions is expected to improve, which would be disruptive to education technology businesses, such as ours.
Global non-subscriber traffic to Chegg declined year-over-year 8% in Q2 2024, 19% in Q3 2024, 39% in Q4 2024 and we entered 2025 with trends looking even more unfavorable, at a 49% year-over-year decline for the month of January 2025, which has had, and if it persists or worsens, will continue to have a material adverse effect on our business.
Our products and services compete for students, and we expect such competition to increase as our industry evolves rapidly.
These competitors are using AI technology to build on their historical offerings.
For Chegg Study, our competitors primarily include platforms that provide study materials and online instructional systems, such as Course Hero, Quizlet, Khan Academy, and Brainly.
For Busuu, our competitors primarily include language learning platforms, such as Duolingo and Babbel.
For Skills, we face competition from other online learning platforms and online “skills accelerator” courses both in the direct-to-consumer category, including General Assembly, Galvanize, Inc., Flatiron School, Codecademy, DataCamp, and Lambda, Inc., as well as white-label and co-branded providers who compete for adult learners through third party institutions, including 2U, Inc., Simplilearn, and Kenzie Academy.
While we continue to study the changes and adjust our SEO strategy, we expect Google may continue its shift from being a search origination point to the destination, which could materially adversely affect our business, operating results and financial condition.
("Google"), asserting federal antitrust claims and common-law unjust enrichment claims, in connection with Google's expansion of its AIO search experience.
See “— Adverse litigation judgments or settlements resulting from legal proceedings in which we are or may be involved could expose us to monetary damages or limit our ability to operate our business.
Further, our ability to continue to develop and effectively deploy AI technologies is dependent on access to specific third-party large language models, equipment and other physical infrastructure, such as processing hardware and network capacity, as to which we cannot control the availability or pricing, especially in a highly competitive environment.
This shift in student behavior impacts education technology companies broadly, where students see generative AI products like Chat GPT and others as strong alternatives to vertically specialized solutions for education such as Chegg.
As a result, we have and could continue to experience a material adverse effect on our operating results, growth and financial condition.
Our exploration of strategic alternatives may not be successful and may disrupt our ongoing business, result in increased expenses and present certain other risks.
On February 24, 2025, we announced that we are undertaking a strategic review process and exploring a range of alternatives to maximize shareholder value, including being acquired, undertaking a go-private transaction, or remaining as a standalone public company.
This review will be ongoing with our continued investment, innovation, and execution.
We have not set a timetable for the completion of this process, and there can be no assurance that it will result in any transaction or outcome.
Whether the process will result in any transactions, and if we decide to pursue one or more transactions, our ability to complete any transaction, will depend on numerous factors, some of which are beyond our control.
Such factors include the interest of potential acquirers or strategic partners in a potential transaction, the value potential acquirers or strategic partners attribute to our businesses and their respective prospects, market conditions, interest rates and industry trends.

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Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

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