Chegg sues Google over AI overviews and weighs business sales as traffic plummets

Chegg Inc. has filed a lawsuit against Google and its parent company, Alphabet Inc., accusing the tech giant of unfair competition. The online education platform claims that Google’s AI Overviews tool is diverting traffic away from its website by using Chegg’s content while keeping users on Google’s platform.

The lawsuit, filed in Washington, D.C., follows a federal judge’s ruling last year that Google illegally dominates the online search marketplace.

According to Chief Executive Officer Nathan Schultz, the decision to explore strategic alternatives stems directly from Google’s launch of AI Overviews. He emphasized that Google’s AI-driven feature is blocking traffic to Chegg by using the company’s content to hold on to users on its site.

Chegg shares dropped 18% in after-hours trading immediately after the announcement, placing it among the biggest losers in the Russell 3000 Index. The stock has fallen around 95% since OpenAI released its ChatGPT tool in 2022.

Chegg and publishers challenge Google’s AI summaries for undermining web traffic

In its lawsuit, Chegg argued that Google’s actions fundamentally change the online experience, suggesting that users soon could be caught within an all-encompassing Google bubble. 

The company claims that Google’s AI-generated summaries keep users from visiting other sites and instead provide artificial and frequently inaccurate responses to their questions. This change, Chegg said, was “killing the digital information ecosystem,” stripping it of its vibrancy and usefulness and making it less and less trustworthy.

Website publishers have also sounded the alarm over Google’s control of search, arguing that its grip gives the tech company an unfair upper hand in the fast-moving AI race. Google’s dominance of the search market (which a federal court deemed illegal last year) also endangers many of the recent AI-powered tools.

Google has long been accused of giving 10-15% of revenue to these other platforms while dictating the rest to traditional content torpedoes (like blogs) at the company’s profit, again and again, on data across the internet. Google has been criticized numerous times for breaching monopoly terms.

Dozens of publishers have barred AI companies’ bots from “crawling” millions of their websites, hindering those companies’ ability to collect information used to train commercial AI models.

However, few can afford to restrict Googlebot, the search giant’s primary site crawler. Googlebot seeks out sites to index them so they will display in search returns. Google uses this to generate AI summaries, which are now at the very top of its search results page.

Content creators say the summaries keep users from visiting their sites, costing them web traffic and engagement.

Chegg Sues Google as non-subscriber traffic plummets 49%

Chegg’s non-subscriber traffic was already -49% as of January 2025, a substantial drop-off compared to -8% in Q2 2024.

Chegg filed its suit in Washington, D.C., where a federal judge found last year that Google illegally dominated the online search marketplace. The Justice Department is asking the court to require Google to end its illegal behavior by restricting its purchases of artificial intelligence companies and broadening how websites can opt out of its AI products.

A multi-week hearing on the proposed remedies, overseen by Judge Amit Mehta, will begin in April.

Chegg’s lawsuit follows a wave of legal actions from smaller tech companies since a landmark antitrust decision against Google last year. Yelp Inc., an online review site that has criticized Google for years, also filed suit against the search giant in 2024, saying it violated antitrust laws.

Chegg struggles as Q4 revenue drops 23.7% 

Chegg shares declined after Q4 revenue of $143.48 million fell 23.7% YoY. Its earnings per share (EPS) were $0.17, compared to $0.36 last year.

Although the top line marginally beat analysts’ expectations, with the Zacks Consensus Estimate of $142.03 million having been surpassed (by 1.02%) in revenue, the EPS matched the consensus estimate without any earnings surprise.

The revenue drop was primarily attributed to Chegg Services subscribers, which slumped to 3.6 million, down from the 3.92 million expected by analysts. Skills and Other revenue also fell 22% year-over-year to $14.94 million, missing analysts’ expectations of $15.08 million.

Sales from Subscription Services, which make up the vast majority of the company’s bottom line, came to $128.54 million—matching estimates, though down 23.7% from a year earlier.

Chegg’s stock has come under pressure, having fallen 2.7% over the last month, considerably more than the drop for the broader S&P 500, which fell 0.5%. The stock currently carries a Zacks Rank #3 (Hold), which implies it is expected to perform in line with the market over the next few months.