Chegg has reported its first quarterly net profit in two years for the first quarter of 2026. The learning platform announced a net income of $200,000, marking a significant turnaround. This achievement is attributed to a strict "AI-first" strategy and substantial cost-cutting measures, which reduced expenses by approximately 40% over the past six months.
Total net revenue for Q1 2026 was $63.3 million, a decrease of 48% year-over-year. Despite the overall revenue decline, the Chegg Skilling business unit showed growth, with revenue reaching $17.6 million, a 9% increase compared to the same period last year. This segment is now central to the company's transformation towards a B2B model.
The company's CEO outlined three key priorities for 2026: accelerating the growth of the Skilling business by expanding its product portfolio and partner network, increasing free cash flow to fund future growth, and strengthening the balance sheet by aiming for zero debt by the end of the year. Chegg plans to fully repay its convertible debt by September 2026, supported by the significant cost reductions, an 88% drop in capital expenditures, and continued positive cash flow from its academic services.
Even after accounting for $12.9 million in severance payments, Chegg generated $3.1 million in free cash flow during the quarter. The company ended the quarter with $67.9 million in cash and a net cash position.
However, despite the return to profitability and better-than-expected Q1 sales, Chegg's stock price fell 11.6% in after-hours trading following the earnings release. This decline occurred even after a 30.2% surge in the stock price over the preceding month. The company's overall revenue outlook remains challenging as it transitions away from its traditional learning services. Total revenue is expected to continue declining significantly, as the growing Skilling business still accounts for less than 30% of total revenue.
The AI-first strategy focuses on three areas: leveraging AI to reduce costs and improve content production and user experience, shifting products from structured courses to real-time, in-workflow tutoring, and using its AI platform to provide unique, actionable data on skill performance for corporate clients.
The Chegg Skilling business, which resulted from the consolidation of language learning and skills training units, is projected to achieve double-digit revenue growth for the full year 2026. The company is expanding its partner network through agreements with platforms like Cornerstone and collaborations such as an AI master's program with Woolf.
A key trend identified is learning within the workflow. Chegg's new AI tool, Pulse, offers real-time, contextualized prompts during activities like live negotiations. This capability to provide immediate intervention is being extended to other areas, including traditional academic services, helping to slow the decline of that business.
The CEO highlighted three core elements for learning in the AI era: rapid content updates demanded by partners, simplification of the user experience by removing unnecessary steps, and the delivery of consistent, high-quality content at scale.
For the second quarter of 2026, Chegg provided guidance that fell slightly below analyst expectations. The company forecasts total net revenue between $49 million and $50 million, compared to an analyst consensus of $59.8 million.