Chegg (CHGG) Q1 2025 earnings summary

Executive summary

• Q1 2025 revenue and adjusted EBITDA exceeded guidance, generating $16 million in free cash flow, with revenue diversification through institutional pilots and content licensing deals; subscriber base declined 31% year-over-year to 3.2 million and total revenue fell 30% to $121.4 million.

• Strategic review process is ongoing, exploring options including acquisition, go-private, or remaining public, with positive early interest from potential acquirers including tech, education, and private equity firms.

• Significant restructuring announced, impacting 22% of workforce, focused on aligning costs with revenue decline in Chegg Study, with $34–$38 million in related charges and expected $45–$55 million in 2025 savings and $100–$110 million in 2026.

• Chegg faces significant headwinds from generative AI adoption and Google's AI Overviews, which have reduced site traffic and subscriber growth.

• Net loss for Q1 2025 was $17.5 million, compared to a net loss of $1.4 million in Q1 2024, reflecting lower revenues and higher depreciation.

Financial highlights

• Q1 2025 total revenue was $121.4 million, down 30% year-over-year; Subscription Services revenue was $107.6 million; Skills and Other revenue was $14 million, including $4 million from new content licensing deals.

• Gross margin was 56%, impacted by a one-time $16.2 million accelerated depreciation charge; adjusted EBITDA was $19.3 million (16% margin); free cash flow was $15.8 million, despite $8 million in severance outlays.

• Capital expenditures were $9 million, down 69% year-over-year due to realized AI investment benefits.

• Cash and investments at quarter-end totaled $126 million; net cash balance was $64 million after repaying $358.9 million in 2025 convertible notes and repurchasing $65.2 million of 2026 notes at a $7.8 million discount.

• Net loss margin was (14)% in Q1 2025.

Outlook and guidance

• Q2 2025 revenue expected between $100–$102 million; Subscription Services revenue $85–$87 million; gross margin guidance is 64–65%; adjusted EBITDA expected between $16–$17 million.

• Busuu projected to reach $48 million in 2025 revenue and be adjusted EBITDA positive by Q1 2026; Skills expected to achieve profitability and positive revenue growth in 2026.

• Cost-saving initiatives and restructuring are expected to deliver $45–$55 million in 2025 and $100–$110 million in 2026.

• Management expects continued negative impacts from generative AI and Google's AI Overviews, with further declines in new subscribers and traffic.

• The company believes existing liquidity and cash flows will be sufficient for at least the next 12 months.