The 2020 China Edtech Industry: What Happened And What To Expect

The 2020 China Edtech Industry: What Happened And What To Expect

Stock Market Performance of Chinese Online Education Companies

We tracked the performance of some well-known education companies and highlighted their big moves in 2020.

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Industry Leaders

TAL Education (NYSE: TAL)

TAL has changed from traditional offline classes (Small-Class & One-On-One Tutoring Model) to offline and online classes. It's online tutoring brand, Xue'ersi Online School, accounted for less than 1.5% of its total revenue in FY2016. In Q2 of FY2021, the percentage climbs to 40%. TAL’s revenue is expected to exceed 10 billion USD in FY2021, which consolidates its top position in offline and online K12 business.

After COVID-19, TAL launched free online courses and changed the original user structure. At present, the number of users in the third, fourth and fifth-tier cities is bigger than that in the first and second-tier cities. Due to the high cost of online advertising, TAL also released new products to attract its own traffic. For example, mobile app Tipaipai (题拍拍) enables students in high school to post homework problems and get instant solutions from straight-A students at top universities in China.

In the secondary market, TAL’s market value rose to more than $40 billion, and it announced an agreement of $3.3 billion private placement with Silver Lake Capital and other investment institutions.

New Oriental (NYSE: EDU; HK: 09901)

In 2020, New Oriental switched to Online-Merges-Offline (OMO) courses and dual-teacher classes. It has launched OMO courses in nearly 20 cities and introduced OMO system to its key businesses like overseas examination courses.

New Oriental's revenue in Q1 of FY2021 was 986.4 million USD, decreasing by about 8% year-on-year. The overseas examination business dropped significantly due to COVID-19, though other businesses were relatively stable.

In the secondary market, New Oriental was listed on the main board of SEHK in November 2020, becoming the first Chinese education company returning to Hong Kong for a secondary list, with a market value of HK$236.7 billion.

K12 Education

Genshuixue (NYSE: GSX)

One of the most controversial online education companies, Genshuixue, brought to the market the online K12 dual-teacher classes model. This high-profit business model, combined with GSX's extreme effort to exploit traffic on WeChat, allowed it to become the few online education companies that ran a profit in 2019. The revenue of FY2021 is expected to increase by three times to about 1 billion USD.

In the secondary market, GSX raised 870 million USD and once surpassed the market value of New Oriental. On the other hand, the company continued to attract scepticism in its financial integrity. As a result of a series of short-selling and first net-loss performance in Q2 of FY2021, GSX’s stock price fluctuated significantly and had dropped 70% from its peak in the year-end.

Youdao (NYSE: DAO)

An affiliated company of China's Internet giant Netease, Youdao joined the education market in 2007, focusing on content and technology. Its business covers online courses, online learning tools, intelligent hardware, and interactive learning applications. Youdao Premium Course is the core business, accounting for 36% of its total revenue. In the first half of 2020, the number of paid users was nearly 500,000, which is expected to grow further in the future.

In the secondary market, Youdao's stock price increased steadily and valued at over 3 billion USD in the year-end.

17 Education (NASDAQ: YQ)

17 Education is a Chinese edtech company that makes people easily relate to the edtech companies of Europe and the United States. More specifically, 17 Education's smart in-school classroom solution delivers data-driven teaching, learning, and assessment products to teachers, students, and parents across over 70,000 K-12 schools, covering one-third of public primary and secondary schools China. The company generates 90% of its income through after-school online classes, which are expected to have more synergy with its in-school products in the years to come. The number of paid users has exceeded one million by September 2020.

17 Education was listed on NASDAQ in December 2020, with a market value of more than 2 billion USD, making it the largest Chinese education company on NASDAQ.

Koolearn (HK: 01797)

Koolearn (New Oriental Online), formerly New Oriental's online education business line, provides online courses of higher education test-prep, K12 tutoring and pre-school training. Its fast-growing brand, DFUB(东方优播), adopts an OMO model in which students are recruited offline while small-class tutoring is delivered online. In the past four years, DFUB expanded into 127 lower-tier cities, with an average annual growth rate of more than 80%.

In the secondary market, Koolearn had a strong performance in the first half but slowed down after its Q1 financial report. It still ranked at the forefront of education companies listed in Hong Kong stock.

Professional Education

Zhonggong Education (SZ: 002607)

As a leading multi-category vocational education institution in China, Zhonggong Education includes exam preparation of most vocations in China, especially the civil-service exam, aka the "exam of the nation." Due to widespread demand in the country, Zhonggong's learning centres can be found in more than 300 cities nationwide. With strong growth, the company's net profit in the first three quarters of 2020 is about 200 million USD.

In the secondary market, Zhonggong Education’s market value has exceeded 200 billion RMB (~ 30 billion USD) and once surpassed TAL Education to become the most valuable education company in the world. In November 2020, Zhonggong issued a private placement of 6 billion RMB to promote a learning centre construction in Beijing.

Chuanzhi Education (SZ: 003032)

Chuanzhi Education focuses on offline IT training under the brand "Dark Horse Coding Camp," which accounts for 85% of its revenue in FY2020.

On January 12th, 2021, Chuanzhi Education became the first education company in China that independently issued IPO on the A-stock market. Its market value now exceeds 10 billion RMB (around 160 million USD).

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