After ten years, 51Talk has struggled to make a profit, but if investors linearly extrapolate in this way, they hurriedly chase high, I am afraid to face uncertain risks.
Editor’s note: This article comes from WeChat public account “Alpha Works” (ID: alpworks) , author Guo Zhanhu.
At the end of 2011, Huang Jiajia, who was born in the post-85s, had just walked into Xu Xiaoping’s office, the founder of Zhenge Fund, and was startled.
Xu Xiaoping enthusiastically told Huang Jiajia, “I almost missed a great company, and you have a great chance to surpass New Oriental.”
Xu Xiaoping also has the identity of co-founder of New Oriental. Later, he invested $ 200,000 in Huang Jiajia’s online education project, 51Talk.
Even if 51Talk went public in the United States in 2016, surpassing New Oriental ’s expectations is more like a distant dream.
Ten years later, 51Talk (NYSE: COE) announced its first overall profit on March 9 this year, with an amount of only 5 million yuan.
After the release of this financial report, 51Talk’s stock price has risen by more than 20%, with three quarterly reports of “one to one” profit from a single business, and the positive effect of the pneumonia epidemic on the online education industry. Since mid-December 2019, 51Talk’s stock price has Cumulative rose nearly 400%.
This looks very beautiful. The epidemic causes the online education industry to become a hot air again. 51Talk also welcomes the peak from the listing. However, if investors linearly extrapolate the development trend of the company in this way and chase up high, I am afraid to face the risk of retreat.
01 Transformation after burning money
In 2011, Huang Jiajia just founded 51Talk. The business is relatively complex. It involves multiple areas of business English and youth English training, mainly adult English training. In order to upend the elite education model of traditional adult English training, Huang Jiajia moved to a more cost-effective Filipino foreign teacher. “Adult English” + “Philippine foreign teachers” became its early labels.
Like all Internet companies, the core game of 51Talk is “burn money”. According to the prospectus, before the listing in 2016, it had received a total of 5 rounds of financing exceeding 50 million US dollars.
Burning moneyRadical expansion has brought in ever-increasing losses. On the eve of listing in 2016, 51Talk’s total assets were 279 million yuan and total debt was 464 million yuan. After successfully landing on the New York Stock Exchange, it raised another $ 45.6 million in financing.
With sufficient ammunition, 51Talk decided to continue to burn money, and began to transform the high-end English training market for young children with higher unit prices, and launched one-on-one lessons from Harvard American Elementary School.
But at that time, the field of high-end youth English training was already sturdy, and competition had already become fierce. The established institutions VIPKID and Tutor ABC not only formed strong brand recognition, but also carried out large-scale brand promotion at high frequencies.
In order to win a seat in the high-end youth English training market, 51Talk is also an investment at no cost, inviting Li Na to speak for a high price, and sponsoring CCTV “Come on!” “To the future” and other variety shows. In 2017, 51Talk’s total operating expenses were 1.104 billion yuan, and sales expenses were 657 million yuan. The sales expense ratio was as high as 77%. This makes the loss situation worse.
Financial report data shows that from 2016 to 2017, 51Talk lost more than 1 billion yuan.
This is completely different from Huang Jiajia ’s publicity “to be close to breakeven” when 51Talk went public. Therefore, in the capital market, investors were collectively “voted with their feet.” As of the end of 2017, 51Talk’s stock price fell near $ 10, which is almost a cut from the issue price of $ 19 in June 2016.
The failure of the high-end market forced 51Talk to try to transform again. This time it did it right?
02 Opportunity to sink the market
After losing in the high-end market, 51Talk decided to “sink.”
In February 2018, 51Talk launched a new brand strategy and officially transformed online children’s English. Announced “Worry Free English” brand dedicated to adult English business, online youth
After losing in the high-end market, 51Talk decided to “sink.”
In February 2018, 51Talk launched a new brand strategy and officially transformed online children’s English. Announced “Worry Free English” brand dedicated to adult English business, online youth