Chegg sues Google for hurting traffic as it considers alternatives

Chegg on Monday filed suit in federal district court against Google, claiming that artificial intelligence summaries of search results have hurt the online education company’s traffic and revenue.

The legal move come nearly two years after former CEO Dan Rosensweig said students engaging with OpenAI’s ChatGPT assistant were cutting into Chegg’s new customer growth.

Chegg is worth less than $200 million, and in after-hours trading Monday, the stock was trading just above $1 per share. Chegg has engaged Goldman Sachs and will look at strategic options, including getting acquired and going private, President and CEO Nathan Schultz told analysts on a Monday earnings call.

Chegg reported a $6.1 million net loss on $143.5 million in fourth-quarter revenue, a 24% decline year over year, according to a statement. Analysts polled by LSEG had expected $142.1 million in revenue. Management called for first-quarter revenue between $114 million and $116 million, but analysts had been targeting $138.1 million. The stock was down 24% in extended trading.

Google forces companies like Chegg to “supply our proprietary content in order to be included in Google’s search function,” said Schultz, adding that the search company uses its monopoly power, “reaping the financial benefits of Chegg’s content without having to spend a dime.”

Despite the suit, Chegg has its own AI strategy. It has drawn on Meta’s open-source Llama, as well as models from privately held Anthropic and Mistral, Schultz said. Chegg has also partnered with OpenAI, which the education company views as a competitor, alongside Google. The company reported that 3.6 million students had subscriptions in the fourth quarter, down 21%. Subscriptions include access to AI-powered learning assistance. Chegg also rents and sells textbooks.

AI Overviews, as Google’s artificial intelligence summaries are called, are available in the company’s search engine in over 100 countries, with more than 1 billion users, the company said in October. They show up above links to other pages in search results.

A Google spokesperson told CNBC that the company will defend itself against Chegg’s suit, which asserted that the search company violated sections one and two of the Sherman Antitrust Act of 1890.

“Every day, Google sends billions of clicks to sites across the web, and AI Overviews send traffic to a greater diversity of sites,” the Google spokesperson said.

Chegg claimed that Google drew on Chegg’s collection of 135 million questions and answers on a variety of subjects in its model training data sets.

After training its models, Google can generate content that competes with information that publishers have on offer in search results, Chegg argued in its complaint. The online learning company included a screenshot of a Google AI Overview that borrows details from Chegg’s website but does not attribute the information. However, the relevant Chegg page does show up lower down in search results.

Chegg cited a federal judge’s ruling last August that Google holds a monopoly in the search market. The decision came after the Department of Justice in 2020 filed its landmark case, alleging that Google controlled the general search market by creating strong barriers to entry and a feedback loop that sustained its dominance.

WATCH: Google unrolls AI Overviews in six more countries