New Oriental Tries Live Streaming E-Commerce Being Transformed (EDU)

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China’s crackdown on after-school tutoring services first announced last July, known locally as the “double reduction” policy, could ease students’ homework burdens. But it has left a trail of carnage in the once-thriving industry that once offered after-school tutoring to elementary school students in their core areas of study.

Industry leader New Oriental Education & Technology Group Inc. (9901.HK; EDU) was among the victims, forced to stop offering themed training courses, causing its share price to plummet 90%. Today, founder and chairman Yu Minhong revealed that the company’s massive downsizing has led it to lay off 60,000 employees and incur nearly 20 billion yuan ($3.14 billion) in costs related to layoffs and lease cancellations.

Seeking to keep his business afloat, Yu took a completely different turn in an independent industry, appearing on computer and smartphone screens across the country pumping out farm produce as the latest celebrity livestream host. on the Internet in China.

Since the launch of the “double reduction” policy, the volume of subject-based extracurricular education has dropped significantly in China, according to the country’s Ministry of Education. announcement end December.

The data he provided showed that the number of online curriculum-based tutoring establishments had been reduced by 84.1%, while offline ones had been reduced by 83.8%. Companies lucky enough to stay in business partially transformed into non-profit organizations providing services to the public at government-set prices, with no hope of making a profit.

In the case of New Oriental, the business still exists but in a radically different form than it did before. All of its learning centers nationwide stopped offering K-9 subject-based training services by the end of last year. This led to a sharp decline in its business and an equally large drop in its Hong Kong and US-listed shares, which fell 91% and 90% respectively on Tuesday from their highs at the start of the year. last.

89 new companies

Yu revealed on his personal blog that New Oriental’s head office and subsidiaries held meetings recently to discuss their plans for this year amidst all the adversity. Weighed down by the repression, as well as pandemic-related disruptions and international conflicts, the company’s revenues fell 80% in 2020 compared to the previous year.

Yu revealed that some friends even suggested he shut down the entire business, although he said it would be impossible to do so both from a practical and emotional standpoint. on the contrary, he said his mission was now to take responsibility for the livelihoods of the remaining 50,000 employees in the company. Regarding its core business of education, the company plans to become a provider of “quality education, training and research”, and to invest more in products targeting university students or those planning to study at the stranger.

At the same time, New Oriental is hedging its bets by intervening in other businesses to diversify. It has created 89 new businesses since last July, with businesses ranging from selling stationery, daily necessities and agricultural products to developing artificial intelligence software and producing art and movies. Live e-commerce over the Internet is just one of the latest additions to its business portfolio.

Yu held his first live-streaming event on a video-sharing platform on December 28, selling agricultural products ranging from flour to apples and cherries online. Banking on his celebrity status, he was able to reach an audience of 1.87 million and grossed 4.9 million yuan ($770,000) in total merchandise transactions.

Slumped stock

In response to the strong reception, Yu announced the launch of his own live e-commerce platform on the same day, and said that New Oriental would become a live-streaming platform selling agricultural products. He also revealed that many agricultural companies and municipal governments are lining up to work with him. But he admitted that the average sales after the live broadcast program were relatively meager at less than 1 million yuan per day.

New Oriental shares have continued to sag in 2022, with its Hong Kong shares having already fallen from HK$16.16 ($2.10) on the first trading day of the year to HK$14.26 on Friday. last, a drop of about 11.7%. Yu’s comments failed to halt the trend, with the stock rising a modest 1% on Monday before trailing US stocks down 4% to HK$13.84 the next day, possibly signaling investors are still skeptical of the company’s latest transformation story.

It should be noted that New Oriental announcement on January 10 that recent media reports about the company, including quotes from Yu’s personal blog since January 8, were not authorized by the company and did not represent the views of the company, even s they contained information on the commercial and financial performance of the company.

But the blog posts and announcement were made in Yu Minhong’s name, which may have caused some to wonder if he was afraid of “saying the wrong thing” and trying to draw a line. clear between his personal blog and the company’s position.

In the probable absence of profit last year, we can use 20% of New Oriental’s revenue of its previous fiscal year to estimate the probable revenue of this fiscal year to calculate comparative valuations. This would produce a projected price-to-sales (P/S) ratio of 3.74 times.

By comparison, Youdao (NYSE: DAO) has a P/S of 2 times, Gaotu Techedu (NYSE:GOTU) and 17 Education (NASDAQ:YQ) have ratios of 0.34 times and 0.47 times, respectively, while RISE Education (NASDAQ: REDU) is the lowest with a P/S ratio of only 0.18 times. This shows that New Oriental’s valuation remains above that of its peers, possibly reflecting its previous position as a leader in the sector.

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