Will Investors Who Throw Their Money Into Cheating Get Chegg On Their Faces?

Updated: Oct 22, 2021

Summary

  • Chegg is an online "learning platform" that students use to "learn more in less time."

  • Educators universally decry Chegg as a platform for cheating.

  • While the service has added a lot of subscribers in the last year, its reputation -- and pending litigation -- make it a risky investment.

Steinmetz High School shocked the city of Chicago when members of the school’s otherwise underperforming student body won the Illinois state Academic Decathlon in 1995. They shocked the whole country when it was revealed they’d cheated, having secretly obtained the test ahead of time. HBO even made a movie about the story a few years later. The lengths the students went to in order to cheat were impressive, albeit quaint by today’s standards: they scribbled the correct answers on their shoes and even pieces of gum they smuggled into the testing room. Today’s cheaters are nowhere near as creative: they just sign up for a website. This is the business model of Chegg (CHGG), a self-described “learning platform,” which – for a modest annual subscription fee – allows students to receive near-immediate answers to tests, homework and essays questions. Though it advertises its services as “study support,” the company not so slyly promises to help students “learn more in less time.” Educators hate the site.

Boston University launched an investigation into students using the platform to cut corners in their physics and chemistry classes. Georgia Tech University took action against students who’d used it to cheat in a physics class. Texas A&M found hundreds of examples of students answering questions with Chegg in less time than it would take to read the question! Chegg President Nathan Schultz has demurred that just a small number of students have “misused our platform in ways it wasn’t designed for,” but one North Carolina State University lecturer said, “Chegg absolutely knows what students are doing.” The company’s founders are so flagrant about their corrupt practices they came up with a name that’s just “cheat” with a couple different letters! Apparently, cheating in today’s academic environment is an arms race. Universities and colleges use websites like Turnitin to scan for cheating, and but Chegg has created forums to give students the ability to find ways to circumvent the software, with one user saying “Turnitin won’t be able to detect it. You should be able to use answers from Chegg.” Imagine if all this effort went into just learning. The situation has gotten worse under COVID, with Chegg taking advantage of a worldwide pandemic to pad its revenue. With so much learning online in the last year and a half, subscriptions to Chegg have skyrocketed: they grew 69 percent over the previous year in the third quarter to 3.7 million subscribers, while YTD revenue surged 54 percent to $440 million through September, according to Forbes. Instance of students caught cheating have risen accordingly: up 20 percent at Texas A&M and the University of North Texas, up by one-third at Texas State University, and double at the University of Houston, according to the Texas Tribune. While Chegg has ballooned to a $9 billion company, it’s come under fire recently, not just from institutions of higher education, but from legitimate online testing services that are suing Chegg for copyright infringement. Lawsuits usually aren’t honey for the smart investor. Given that Chegg’s academic dishonesty is so flagrant, it seems like they could really get cleaned out. Their stock is worth about half what it was in February, and litigation that destroys its entire business model could send CHGG into a death spiral. This certainly isn’t the only problem in higher education; the biggest one is saddling generations of young Americans with staggering debt to support a wasteful administrative state and pay university presidents like CEOs. Students who have to work while in school experience a horrible time crunch, and a service like Chegg is no doubt alluring. But while universities need to rein in their outrageous tuitions, something like Chegg reinforces the long-standing entitlement of elite education: a $180 subscription to Chegg is nothing to many in the Greek system, but unaffordable for those struggling to get by. Indeed, the justification that Steinmetz High School’s Academic Decathlon team used to cheat way back in 1995 was that two wrongs don’t make a right, but they “make it even.” But high-tech cheating doesn’t level the playing field, it throws it off even more. Now that schools, and the courts, are watching this isn’t just a bad integrity move, it’s a bad investing move as well.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours.


The full article originally appeared on seekingalpha.com.