Chegg (CHGG) Q3 2025: Skilling Revenue Up 14% as B2B Pivot Accelerates Restructuring
Chegg’s radical restructuring and B2B skilling pivot mark a decisive response to AI-driven disruption in academic services. The company is splitting into cash-generating legacy academics and a growth-focused Chegg Skilling division, betting on workforce reskilling and language learning to restore sustainable growth. Investors now face a transformed business model, a leaner cost base, and a new path to double-digit expansion, but must weigh execution risk as Chegg seeks to rebuild relevance in a rapidly shifting education technology landscape.
Summary
- B2B Skilling Momentum: Chegg Skilling’s 14% growth signals traction in workforce reskilling and language learning.
- Cost Structure Overhaul: Massive expense cuts and workforce reductions reposition Chegg for future investment and cash flow.
- AI Disruption Response: The legacy academic unit shifts to cash generation as Chegg pivots away from direct-to-consumer education.
Performance Analysis
Chegg’s third quarter results underscore a business in transition. Total revenue fell sharply, down 42% year over year, reflecting ongoing erosion in the legacy academic services segment due to AI’s impact on student traffic and Google search visibility. The company’s cost base shrank substantially, with non-GAAP operating expenses down 46% as restructuring efforts took hold. Adjusted EBITDA margin reached 17% as Chegg focused on efficiency and capital preservation.
Chegg Skilling, the company’s new growth engine, posted strong momentum, with revenue expected to reach $70 million in 2025 and 14% annual growth. This unit, which merges Busuu (language learning) and Chegg Skills (job-related upskilling), is now the focal point for investment and expansion. Meanwhile, the legacy academic business is being managed for cash, capitalizing on a deep content archive but deprioritized for growth. Free cash flow was negative, impacted by one-time restructuring and legal settlement costs, yet management projects a return to meaningful cash generation by 2026 as transition costs subside.
- Traffic Collapse Hits Legacy: Academic services revenue and ad sessions dropped with a 50% decline in Google-driven traffic.
- Expense Discipline: Non-GAAP operating expenses are targeted to fall below $250 million by 2026, less than half of 2024 levels.
- CapEx Rationalization: Technology investments, aided by AI, are expected to shrink CapEx by 60% in 2026 while maintaining service quality.
The company’s financial reset is both a necessity and a strategic bet, with future performance hinging on the ability of Chegg Skilling to scale B2B partnerships and product innovation in a crowded market.
Executive Commentary
"We split the company into two units. Our growth business, Chegg Skilling, which we expect to have sustainable double-digit growth, and our legacy academic services, which will focus on generating cash. This new structure gives us the cash and the assets we need to rebuild, and I firmly believe we will create significant long-term value for our shareholders."
Dan Rosenzweig, President, CEO & Executive Chairman
"We delivered a good third quarter, surpassing our revenue expectations and outperforming our adjusted EBITDA guidance by $5 million as a direct result of our cost cutting and restructuring. With our strategic shift toward the large and growing skilling market, we are now well positioned to enter the next phase of our growth."
David Longo, Chief Financial Officer
Strategic Positioning
1. B2B Skilling as Core Growth Engine
Chegg Skilling, a unified business combining Busuu and Chegg Skills, is now the company’s centerpiece. By pivoting to B2B (business-to-business, selling to organizations rather than individuals), Chegg is targeting workforce reskilling and language learning for enterprise clients. Busuu’s focus on conversational proficiency and Chegg Skills’ catalog of in-demand topics (notably AI-related) are positioned to meet corporate demand for employee upskilling, with initial traction through partnerships like Guild and expansion plans into new channels and geographies.
2. Legacy Academic Services in Cash Harvest Mode
The legacy academic business, historically Chegg’s core, has been structurally impaired by AI and search engine shifts, leading to a 50% drop in Google-driven traffic. Management is running this unit for cash, leveraging a vast question-and-answer database and a reduced support footprint. While growth is no longer viable, the business is expected to generate positive cash flow for several years, funding the skilling pivot.
3. Cost Base Reset and Capital Allocation
Chegg’s expense base is undergoing a radical reset, with headcount reductions of nearly 400 and non-GAAP operating expenses projected to fall by more than half by 2026. CapEx is also being slashed, with AI investments enabling lower infrastructure costs. The freed-up capital is being redirected to Chegg Skilling, supporting product innovation, sales capacity, and channel expansion.
4. Channel Diversification and Go-to-Market Evolution
Chegg is actively building new B2B sales channels, seeking to reduce reliance on single partners like Guild and to establish direct relationships with enterprises and, eventually, academic institutions. Early signals include strong retention and completion rates in existing partnerships, but the company acknowledges that direct institutional channels will take time to scale.
5. AI Integration as Competitive Differentiator
AI is both a disruptor and an enabler for Chegg, with legacy business traffic decimated by generative AI, but skilling products leveraging AI for better personalization, conversational language learning, and scalable content delivery. The company’s ability to harness AI for product differentiation will be central to its future positioning.
Key Considerations
Chegg’s Q3 marks a structural transformation, with the company betting its future on B2B skilling and a drastically leaner cost structure. Investors must weigh the durability of the legacy cash engine against the scalability and competitive positioning of Chegg Skilling in a crowded market.
Key Considerations:
- Execution on Skilling Roadmap: Sustained double-digit growth will depend on new channel launches, enterprise adoption, and product innovation, especially in AI-enabled learning.
- Legacy Cash Flow Longevity: The academic services unit’s ability to generate cash is critical for funding the skilling pivot and absorbing transition costs.
- Channel and Customer Concentration: Heavy reliance on Guild and a few B2B partners poses concentration risk until new channels mature.
- Competitive Landscape: Chegg faces entrenched competitors in both language learning (e.g., Duolingo) and workforce upskilling, requiring clear differentiation and value proposition for enterprises.
- AI’s Double-Edged Impact: While AI eroded legacy traffic, it is also being harnessed to enhance skilling products—success will depend on outpacing rivals in AI-driven learning outcomes.
Risks
Chegg’s transformation is fraught with execution risk, including the challenge of scaling B2B sales, maintaining legacy cash flow amid ongoing traffic declines, and differentiating in a competitive skilling market. The company remains exposed to further disruption from AI, search engine algorithm changes, and customer concentration in early B2B channels. Additionally, transition costs and workforce reductions could create operational strain and cultural challenges as Chegg seeks to reinvent itself.
Forward Outlook
For Q4, Chegg guided to:
- Chegg Skilling revenue of $18 million, up 14% year-over-year
- Total revenue between $70 and $72 million
- Gross margin between 57% and 58%
- Adjusted EBITDA of $10 to $11 million
For full-year 2025, management expects:
- Chegg Skilling revenue of $70 million, with continued double-digit growth into 2026
Management emphasized the focus on lean operations, investment in growth businesses, and a return to meaningful free cash flow in 2026 as restructuring costs wind down. Key drivers for the outlook include the pace of B2B channel expansion, ongoing cost discipline, and the stabilization of legacy academic cash flows.
- Channel expansion and new partnerships are expected to drive incremental growth.
- Expense and CapEx discipline remain central to margin improvement and reinvestment capacity.
Takeaways
Chegg’s Q3 2025 is a watershed moment, with the company decisively shifting from a legacy academic services model to a B2B skilling platform focused on enterprise reskilling and language learning.
- Structural Realignment: The split between cash-generating legacy academics and growth-oriented Chegg Skilling is intended to stabilize finances and restore growth, but execution risk remains high.
- AI as Both Threat and Opportunity: Chegg’s ability to leverage AI for product innovation in skilling will be critical to differentiating from competitors and driving sustainable expansion.
- Investor Watchpoint: Monitor B2B channel scaling, customer diversification, and the pace of legacy cash flow erosion as leading indicators of Chegg’s recovery trajectory.
Conclusion
Chegg’s Q3 marks a bold transformation, with the company betting its future on B2B skilling and a radically leaner operating model. While early growth in Chegg Skilling is promising, the path to sustainable profitability and relevance hinges on successful execution and differentiation in an evolving education technology market.
Industry Read-Through
Chegg’s pivot is a clear signal to the broader education technology sector: AI-driven disruption is forcing legacy D2C platforms to reinvent themselves or risk irrelevance. The rapid shift to B2B skilling and workforce development highlights growing enterprise demand for reskilling, especially in AI and language proficiency. For other edtech players, the collapse of traditional traffic sources and the need for channel diversification are now existential priorities. The sector is entering a phase where operational agility, AI integration, and B2B go-to-market capabilities will separate winners from those left behind.