In the education stocks listed in the United States, perhaps they did not expect their stock prices to be plunged by a few unconfirmed rumors.
On Friday, March 26, three regulatory rumors about the education and training industry aroused widespread discussion on major social media platforms. The content of these rumors can be briefly summarized as “Beijing will temporarily suspend training for subjects under 6 years of age” and ” In principle, it will no longer approve new elementary and secondary school courses training institutions” and “online education products for 0-6 years old will be banned.” Among them, the first two rumors have recordings or documents as proof, and the second one comes from the revelations of Xueqiu and users of a social platform in the workplace.
Although no regulatory authorities have come forward to confirm the authenticity of these rumors, the market has obviously been affected by panic – this sentiment is particularly serious in overseas markets. As of the close of U.S. stocks on March 26, head education stocks such as New Oriental, Good Future, GSX, NetEase Youdao, and Yiyi Education have all fallen sharply. Among them, New Oriental has fallen 11.18%, Good Future has fallen 7.43%, and GSX has fallen by 11.18%. It fell 41.57%, NetEase Youdao fell 13.72%, and One Education fell 12.36%.
Although the decline was not as high as that of the U.S. stocks, education brands listed on A-shares and Hong Kong stocks were also affected by this news to some extent. One example is that as of the close of trading on March 26, New Oriental Online and Zhong Gong Education fell 5.98% and 0.21% respectively.
So, after nearly a year of brutal growth, is the education industry really going to change?
What happened to the educational track?
“Beijing education and training institutions are prohibited from training professors for subjects under the age of 6 to consume the existing stock, that is, to be responsible for the users who have completed the delivery…”
These content comes from a recording that has been widely circulated by netizens. In this 5-minute recording, the speaker known as the “rectification supervisor” talked about a lot of restrictions on pre-school education. “Other disciplines are not allowed to participate in under 6 years oldChildren’s subject training is also not allowed. This includes but is not limited to English picture books, mathematical thinking, etc. Once discovered, it will be banned immediately. “
The “Reorganization Supervisor” also stated that those (users) who have already signed up and paid can continue to finish the paid courses, but they can’t renew courses later, nor can the institution continue to enroll students or issue enrollment advertisements. “For the existing children’s English training institutions, they are actively formulating policies. These institutions can be transformed after the notice from the Board of Education.”
This audio content sounds a bit tough and doesn’t explain the reasoning behind the policy. In contrast, netizens from Xueqiu and a workplace social platform broke the news more clearly.
The breaking news mentioned that online education products before the age of 6 will be banned “mainly for the sake of protecting eyesight.” In addition, netizens also mentioned several points, including tuition pricing needs to be reported for approval, tuition fees collected in advance will be placed in the designated depository bank, all textbooks must be provided with multiple document combinations for filing, a supervisory review committee should be established to strengthen content review, and education companies should be controlled. Scale prevents monopoly, etc.
Currently, relevant news on Xueqiu and other media platforms has been deleted.
The “Opinions on Further Reducing the Burden of Compulsory Education Students’ Homework and Off-campus Training”, which has been circulated wildly, also mentions these elements, but the details seem to be different. The report mentioned that a one-year pilot project will be carried out simultaneously in 9 provinces and cities and 7 local cities, namely Beijing, Shanghai, Liaoning Province (Shenyang City), Guangdong Province (Guangzhou City), and Sichuan Province ( Chengdu), Henan Province (Zhengzhou City), Shanxi Province (Changzhi City), Shandong Province (Weihai City), Jiangsu Province (Nantong City). In addition, the standards for setting up off-campus training institutions will be further improved, and in principle, new offline subject-based off-campus training institutions for primary and secondary school students will not be approved. Scenarios including central and local mainstream media, public places, various billboards in residential areas, and online platforms are also not allowed to publish or broadcast online and offline training advertisements.
Pre-school education is no longer a good business because of supervision?
It can be seen that these rumors, without exception, are aimed at the preschool education track-this also means that some listed companies are indeed “injured” by rumors. New Oriental and the future of the two main offline traditions Education giants fall into this category.
Jefferies analyst John Chou wrote that the impact of these potential new regulations on Good Future and New Oriental may be negligible, because their online education products rarely target preschool students. Credit Suisse analyst Alex Xie also claimed in a report that some “leading offline tuition companies will be able to comply with potential policies and continue market integration in the long term.”
“Although short-term sentiment may lead to further corrections in their stock prices, we believe that the actual results should be better than expected and similar to the situation in 2018-19.” Alex Xie wrote in the report.
In 2018 and 2019, China did experience a round of remediation of K12 extracurricular training institutions, mainly for test-oriented training. These trainings not only increased the burden on students’ schoolwork, but also caused anxiety among parents. At that time, a large number of unlicensed and unlicensed training institutions were investigated and dealt with, and many small and medium-sized institutions closed down. The entire K12 track ushered in a major reshuffle. In the end, the large-scale listed training institutions such as New Oriental and Good Future completed compliance and successfully highlighted their encirclement.
Back on the track of pre-school education, New Oriental and Good Future do not account for much of this track. Take Good Future as an example. Its business scope is concentrated offline. Judging from the financial report for the fourth quarter of 2020, Xueersi Online School only accounts for 28% of Good Future’s total revenue. Although Good Future also launched the “Learning and Thinking Monkey AI” for people aged 3-8 in 2019, its online business focus is still on small classes, one-to-one and online schools, all of which belong to the broader K12 field. The same goes for New Oriental.
From the perspective of the industry structure, mainstream online preschool education products on the marketThe brand is mostly a branch of an education giant or a major Internet company. In addition to the good future of the little monkey AI, the early enlightenment from GSX, the zebra AI class under Yuanjiao, the Duck English for homework help, the little raccoon AI at the head of education, the ByteDance Guagualong, and Tencent’s Happy Mouse English, etc. fall into this category.
According to the “2017 China Family Education Consumption White Paper”, 90% of children in families with children aged 0-6 have participated in quality education training courses. In addition, pre-school education expenditures accounted for 26.4% of the annual income of children aged 0-6. Over half of the families spend 5,000 yuan or more each year, and 30% of parents expressed their willingness to pay tuition fees that exceed their spending power. This shows the potential of the pre-school education track. Big. For some start-ups, pre-school education has even become a new growth point for them. Taking Ape Coaching as an example, Zebra AI classes will bring about 5 billion yuan in revenue for them in 2020.
However, there are also certain problems in the preschool education industry. For example, excessive emphasis on AI and intelligent teaching concepts leads to serious homogeneity of the curriculum, and too many animation and entertainment elements make the enlightenment effect poor. Banyu CEO Huang He said in an interview with the media that most of the AI courses on the market mainly carry out simple enlightenment education, and the content is mostly based on interest cultivation, and the user groups and course formats they serve are not very different. There are also parents who choose to throw their doubts about online enlightenment courses in the App comment area.
At present, the pre-school education track, which is mixed with dragons and fish and in the early stage of development, does need further regulation from the regulatory authorities. After all, this education is related to the growth of young children. But on the other hand, there are also practitioners who worry that the regulatory policy will become a simple and crude one-size-fits-all, “How to identify the teaching content that is advanced and beyond the outline? How to carry out management? Will many content that could exist in the first place be affected? These are all It’s a problem.”
Advertising has ushered in strong supervision. Is it a blessing or a curse for online education companies?
Compared to preschool education, these rumorsThe supervision of investment may be even more concerning-as we all know, a large amount of online and offline marketing investment has been the focus of competition among education companies in recent years.
In 2020, advertisements for online education brands are almost everywhere. Whether it is Douyin Kuaishou or the bus or subway, you can easily find the shadows of Ape Guidance and Xueersi. Taking several top online education players as examples, NetEase Youdao’s annual revenue in 2020 is 3.168 billion yuan, and marketing expenses are as high as 2.697 billion yuan, accounting for 85.13% of total revenue. Together Education will achieve a net income of 1.294 billion yuan in 2020, an operating loss of 1.334 billion yuan, and an annual marketing expense of 1.098 billion yuan, accounting for 84.85% of the net income. GSX’s total revenue in 2020 will be 7.125 billion yuan, and operating expenses will grow to 7.117.2 billion yuan, almost the same as revenue.
Actually, huge advertising investment has not brought many customers to education companies, but has kept the cost of customer acquisition increasing, which is of no help to the healthy development of the industry. Yu Minhong, the founder of New Oriental, once revealed that the customer acquisition cost of the large class model in the industry is generally around 3-4k yuan, and the total fee that each student can receive in a year is only 3-4K yuan. Coupled with the difficulty of solving the problem of continuation rate, online education operating at a loss has become the norm. “When the capital ebbs, it is very likely that some top online education brands will encounter a thunderstorm.”
In addition, the recent advertising disorder of online education institutions has also attracted widespread attention. On January 26 this year, it was revealed that the four institutions, namely Homework Help, Yuanjiao, Gaotu Classroom under GSX, and Qingbei Online School under ByteDance, were all the same person in their short video advertisements. In response to this matter, the Central Commission for Discipline Inspection named and criticized the two institutions, Ape Guidance and Homework Help, and the People’s Daily also wrote an article that online education institutions must not deviate from the original intention of education, and should focus on research and development to maintain the bottom line of service quality.
All signs indicate that it is only a matter of time before the regulatory hammer falls. By then, how many educational institutions will be able to retreat?
In terms of nature, the two established education companies, New Oriental and Good Future, may be less affected. After all, they have been working offline for many years and generally have a good consumerWord of mouth. Even if they do not rely on advertising, they can still live very well. New Oriental is an example-the financial report data shows that the sales expenses of New Oriental in fiscal year 2020 are only 872 million yuan.
Education companies that have risen late and rely heavily on online channels may not be so lucky. A typical example is GSX. In February this year, GSX CFO Shen Nan once won the channel. The problem has been specifically explained. He said that compared with other organizations, GSX has almost never done paid offline advertising, and the online customer acquisition channels are similar to those of other organizations. This means that if the supervision of online channels is coming, GSX’s ability to acquire customers will be greatly affected.