Recently, New Oriental Online (1797.HK) handed over its first annual report after listing and failed to continue its profitability. The annual report shows that total revenue was 919 million yuan, a year-on-year increase of 41.3%; net profit changed from a profit of 82.06 million yuan in the same period last year to a loss of 64.109 million yuan, a decline of 178.2%. Adjusted net loss was 289,000 yuan, with a profit of 73.548 million yuan in the same period last year, a decline of more than 100%.
New Oriental Online also announced that Beijing Xuncheng, its wholly-owned subsidiary, would acquire the remaining 49% of Orient U-Broad from Tianjin Chengcheng for 94 million yuan. Already held 51% equity, the relevant amount must be paid before December 31, 2019. After the completion of the acquisition, Orient U-Broadcast will become a wholly-owned subsidiary, and New Oriental Online's director seat will be adjusted. Its executive director and COO Pan Xin also announced his departure and was replaced by Sun Dongxu, former vice president of New Oriental China. Both personnel changes will be made in 2019 Effective August 16. Pan Xin has served New Oriental Online for a full 12 years. In addition, Chen Wanqing, the former general manager of the New Oriental Online Children ’s Products Division and head of the Cool School Donna brand, also recently announced his departure and switched to COO of Programming Cat.
Established in 2005, with three rounds of financing exceeding $ 160 million
According to public information, since its establishment, New Oriental Online has received three rounds of financing, totaling more than $ 164 million.
In the prospectus, the first round came from February 2016. New Oriental Online obtained a strategic investment of RMB 320 million from Tencent. The two parties jointly developed mobile-based English learning products. The joint venture company will use New Oriental ’s resources in content and education, and Tencent Technology accumulation and Internet resources. The other two rounds of financing are: the second round, which was invested by Dragon Cloud and ChinaCity Capital in the amount of US $ 73,435,200 and the US $ 19,264,400; and the third round, which was invested by Yumin Hong ’s personal investment company Tigerstep at US $ 20.667 million.
The prospectus shows that New Oriental is the largest shareholder of New Oriental Online, holding 66.72%; Tencent is the second largest shareholder, holding 12.06%; Auspicious is the third largest shareholder, holding 7.11%. In addition, the investment company of Jiang Jinzhi's spouse, Tang Hua, is the fourth largest shareholder, holding 6.87%.
Facing the problem of New Oriental Online's whereabouts, Yu Minhong once said: "It is actually a huge challenge for New Oriental Online to stay overseas or be listed in China, because this determines the direction of New Oriental in the next 20 years. So I have to be careful. "
As an online education subsidiary of education giant New Oriental, it was listed on the Hong Kong Stock Exchange on March 28. It is known as the first share of online education in Hong Kong stocks and raised 1.7 billion yuan in net funds through an IPO.
At present, New Oriental Online has three businesses : university education, K12 education, and preschool education. University education courses include college exam preparation (funds, securities, accounting, etc.), overseas exam preparation, English learning, and others. The client group is mainly college students and working professionals; the K12 course covers most standard school subjects from elementary to high school, as well as Oriental live broadcast, a regional live interactive platform; pre-school education is mainly designed to inspire interactive English learning experiences and courses for children aged 3-10. The hosting platform is Dona.
K12 business continues to expand, sales expense ratio rises, pressure on profits
During the financial period, the revenue of the university education segment was 651 million yuan, an increase of 36.5% year-on-year, and the number of paying students was approximately 1.3 million, an increase of 11.7% year-on-year. Mainly due to the increase in university exam preparation revenue and overseas exam preparation revenue, the university exam preparation revenue and overseas exam preparation revenue increased by 32.5% and 39.9% year-on-year, respectively. Among them, the revenue from graduate entrance examination courses accounted for more than half of the revenue under the college exam preparation program, an increase of 40.4% over the previous year, due to the steady increase in the number of courses in this segment and the average expenditure per paying student trip.
The decline in New Oriental Online's profits was mainly due to the steep increase in costs brought about by the accelerated expansion of the primary and secondary education sector in fiscal 2019.
K12 distribution revenue increased 80.8% year-on-year to 159 million yuan. K12 distribution fees and student trips increased from 185,000 in FY 2018 to 572,000 in FY 2019, an increase of 209.2% year-on-year. Specifically, the number of paid student trips for New Oriental Online's k12 course increased by 188.3% year-on-year, and the number of paid student trips for Oriental U-Broadcast course increased by 316.1% year-on-year. In the summer of 2018, New Oriental Online launched a modified version of the dual-teacher model, which is applied to all k12 courses on the New Oriental Online platform, enhancing content development and customer service, thereby improving enrollment for new students.
As one of the core businesses of the primary and secondary education sector, Orient Broadcasting, which focuses on sub-third-tier markets, accelerated in FY2019. On May 31, 2019, Orient Broadcasting entered 63 cities in 15 provinces. According to the financial report, in order to attract joint venture teachers and expand paid students, New Oriental Online invested a large amount of up-front investment, established a teaching and training center in Wuhan, and introduced new online features such as parent classrooms.
But with it came a rapid increase in cost of sales and R & D expenses. In particular, sales and marketing expenses increased by 98.2% from 224 million yuan in FY 2018 to 444 million yuan in FY 2019. Mainly due to the continued investment in the promotion of university courses and k12 distribution, resulting in marketing expenses, especially online media promotion, and related expenses increased significantly. The increase in marketing expenses of the university segment was due to the fact that the rich online marketing channels have strengthened their leading position in this market. The marketing expenses of the K12 segment were mainly due to efforts to expand market awareness and to reach target students more accurately through online marketing activities.
R & D expenditure increased by 46.9% from fiscal year 100 million in fiscal year 2019 to RMB 148 million in fiscal year 2019, which was mainly due to the need to hire additional qualified research and development personnel to support the expansion of the business strategy, resulting in increased staff costs.
The total revenue of pre-school education distribution increased by 205.8% year-on-year to 33.4 million yuan, which was mainly due to the optimization of Dona's English application and the launch of Dona's online classroom and short-term courses. Among them, the average expenditure per student increased from 43 yuan to 185 yuan.
For future development, Sun Dongxu, co-CEO of New Oriental Online, said in the earnings call that the development trend of FY 2019 is in line with the established strategy, and he will continue to promote long-term growth strategies and invest more resources in the product and technology development of the primary and secondary business segments.
Online education is a super-fast-developing industry. In the fiery field of primary and secondary school online education, New Oriental Online's continued overweight may increase competition again.
With the upgrading of supervision, offline supervision policies have been extended to online. On the one hand, it is a series of normative requirements such as teachers and course content; on the other hand, it is the limitation of the length of advance payment. Both will increase the online education supply chain end. Complexity and overall competition threshold. Although the sinking market can give full play to the advantages of cross-regional supply chain matching to meet the high-quality needs of education and training in different regions, in the process of expansion, due to the problem of acceptance of online education and the penetration of enrollment methods, it can find The channel means of rapid expansion to the local market is more important, and whether its growth strategy can turn losses into profits also needs to be tested by the future market.