The Threat of Generative AI to Online Courseware Providers

Goldman Sachs analyst Eric Sheridan believes that the rise of generative artificial intelligence software tools poses a significant risk to online courseware providers such as Chegg, Coursera, and Duolingo. As part of a comprehensive analysis of small- and mid-cap internet stocks, Sheridan has downgraded his ratings on all three companies from Neutral to Sell. Unsurprisingly, the stock prices of these three companies plummeted in response.

In the late morning, Coursera saw a 12% decrease, Chegg was down by 7%, and Duolingo experienced a 6% fall. However, it's worth noting that the Nasdaq Composite saw a slight increase of 0.6% during this time.

While Chegg has been aware of the looming concern of AI competition, especially from free AI chatbots catering to secondary school students, it experienced a significant decline of 55% in its stock price last year. To counter this threat, Chegg had announced plans to incorporate AI features into its own tools.

On the other hand, Duolingo, which offers app-based language-learning software, received recognition from Wall Street after introducing new AI features to its software last year. As a result, its stock price more than tripled in 2023.

Coursera, a provider of online professional training courses, also had a successful year with a remarkable 64% increase in its stock price.

It is clear that generative artificial intelligence software tools are shaking up the landscape of online courseware providers. The question remains: how will these companies respond to this evolving challenge?

Potential Impact of AI on Stocks

According to a research note by Sheridan, AI is expected to pose a potential challenge for three stocks in the coming years. However, there may be opportunities to offset this through operational efficiencies if AI content creation can drive productivity gains.

Balancing Investments and Savings

One of the key considerations for these companies in the long term is how they will strike a balance between investments in computing and content licensing, and the cost savings associated with content creation. The optimal allocation of resources between these areas remains to be seen.

Upgraded Rating for Fiverr Shares

Sheridan has revised his rating on Fiverr shares, upgrading it from Neutral to Buy. This upgrade comes as he anticipates a brighter future for freelance workers in the marketplace. Fiverr is actively working on enhancing personalization and matching capabilities, as well as handling more complex projects, with the help of AI. As a result, Fiverr shares have seen a 5.6% increase, reaching $26.08.

Neutral Rating for ZipRecruiter

In contrast, Sheridan has downgraded his rating on ZipRecruiter from Buy to Neutral. He believes that the risks and potential rewards for this stock are now more evenly balanced, especially considering the stock's increase of more than 20% since the last earnings report. Sheridan expects short-term challenges, primarily driven by the macroeconomic environment, to linger into 2024. As a result, ZipRecruiter shares have decreased by 4.8%, reaching $13.82.

• Eric J. Savitz