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

Shares of Chegg, Inc. CHGG have lost 45.4% in the past three months compared with the Zacks Internet – Software industry’s 10.1% decline. Over the same timeframe, the broader Computer and Technology sector gained 8.9% and the S&P 500 rose 6.5%.While the broader technology landscape has shown more resilience, Chegg continues to face several pressures that have weighed on its performance. The company is navigating declining traffic across legacy academic services, significant year-over-year revenue contraction and the operational reset tied to its recent restructuring. Ongoing shifts in student behavior, continued disruption from AI-driven alternatives and the transition toward a skilling-focused model have added layers of uncertainty around the pace of stabilization.CHGG Vs Industry, Sector, S&P 500Image Source: Zacks Investment ResearchThat said, Chegg is moving into a stronger position as the skilling unit builds momentum and is expected to deliver double-digit growth. The skilling business benefits from rising demand for workforce training, language learning and AI-related skills. Record cost reductions and a leaner structure provide further support as the company shifts resources toward this segment. Steady progress in Busuu and Chegg Skills, along with expanding distribution channels, helps the company navigate near-term pressures and focus on long-term growth.Let’s look at the key factors that can help investors assess whether this pullback presents an attractive entry point.Major Restructuring and Cost Reduction ProgramChegg has undergone a significant restructuring designed to reposition it for long-term profitability. The company emphasized that this was not a simple layoff but a complete reorganization that split operations into two units: the legacy academic business and the growth-focused skilling business. This shift allows Chegg to channel resources toward areas with higher growth potential while converting its legacy operation into a cash-generating unit.These actions have already had a material financial impact. In the third quarter of 2025, non-GAAP operating expenses fell 46% year over year, caused by the restructuring initiatives, while adjusted EBITDA outperformed internal expectations. The company also expects total non-GAAP expenses to decline from $536 million in 2024 to under $250 million by 2026, indicating a much leaner operating structure ahead.Skilling Business Momentum Supports Chegg’s TransitionA major pillar of Chegg’s strategic reset is the consolidation of Busuu and Chegg Skills into a single “Chegg Skilling” unit. This business is already showing meaningful traction, with the company projecting 14% year-over-year revenue growth for the fourth quarter of 2025 and expecting sustained double-digit growth beyond 2025. Demand for workforce upskilling in areas such as AI, language learning and job-related skills continues to strengthen, aligning with broader corporate training trends.The company’s pivot toward B2B channels, including a successful partnership with Guild, places the skilling business within a more stable contract-driven market. Chegg noted improving engagement levels, rising seat counts and ongoing expansion into new regions such as Latin America, all of which support the momentum building in this segment.Legacy Academic Operations to Support Chegg’s Cash FlowWhile the academic services segment has experienced declining traffic due to AI-driven disruption and reduced Google visibility, the company stressed that this business remains highly valuable. With more than 130 million questions already in its database as of 2025 and most student queries being repeatable, the company can operate this segment efficiently with fewer incremental resources. Chegg expects this operation to continue generating solid cash flow for several years, even as traffic trends remain pressured.This legacy business effectively provides funding for future investment in skilling. Despite reduced ad sessions and fewer subscribers in the third quarter of 2025, the academic unit benefits from strong underlying product quality and a large historical content base, giving it endurance while the company completes the strategic transition.Improving Free Cash Flow Outlook and Better Capital EfficiencyChegg’s financial reset includes a sharper focus on cash generation and capital discipline. Although free cash flow in the third quarter of 2025 was temporarily weighed down by one-time items, including a $7.5 million FTC settlement and $5.5 million in severance payments during the same period, the company reiterated that it expects meaningful free cash flow improvement in full-year 2026. This outlook is supported by lower operating expenses, reduced capital expenditure and a more efficient business model.Importantly, the company has significantly lowered its capital expenditure requirements through internal AI development. Capex in the third quarter of 2025 fell 63% year over year, and Chegg expects an additional 60% reduction in full-year 2026, allowing it to preserve cash while maintaining product quality. With $112 million in cash and investments at the end of the third quarter of 2025 and a net cash position of $49 million, Chegg enters its next phase with a strengthened financial foundation.Chegg Stock’s Valuation TrendEven with the sharp pullback, Chegg’s valuation now sits at a level that invites a closer look. The stock trades at a steep discount to the broader Internet-Software industry with a forward 12-month price-to-sales (P/S) ratio of 0.34X, as evidenced by the chart below.Image Source: Zacks Investment ResearchFurthermore, CHGG stock is also trading at a discount compared with some of its industry peers, such as Coursera COUR, Udemy UDMY and Duolingo DUOL, which trade at substantially higher valuations due to stronger user growth and engagement metrics. Coursera, Udemy and Duolingo trade at 1.73X, 0.96X and 7.77X, respectively.Earnings Estimate Revision Trend Positive for CHGGChegg’s earnings estimates for 2026 have trended upward over the past 30 days to 18 cents per share. The estimated figures for 2026 imply year-over-year growth of 228.6%.Image Source: Zacks Investment ResearchConversely, Coursera and Udemy’s earnings in 2026 are likely to witness year-over-year increases of 16.1% and 0.8%, respectively, while Duolingo’s earnings are likely to decline 50.4%.How to Play CHGG Stock?Chegg’s strategic restructuring, skilling business momentum and disciplined cost management provide a solid foundation for potential recovery. While near-term uncertainties in student behavior and legacy academic traffic persist, the company’s discounted valuation and improving earnings outlook make it an attractive opportunity. Given the recent pullback, this Zacks Rank #1 (Strong Buy) stock presents a compelling entry point, with potential upside as Chegg executes its transition and captures growth in the skilling market. You can see the complete list of today’s Zacks #1 Rank stocks here.Radical New Technology Could Hand Investors Huge GainsQuantum Computing is the next technological revolution, and it could be even more advanced than AI.While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power.Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.See Top Quantum Stocks Now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Chegg, Inc. (CHGG): Free Stock Analysis Report Coursera, Inc. (COUR): Free Stock Analysis Report Duolingo, Inc. (DUOL): Free Stock Analysis Report Udemy, Inc. (UDMY): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks