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How will Dong Yuhui’s departure affect New Oriental’s performance?
Recently, New Oriental released its first quarter results for fiscal year 2025 ending August 31, 2024. The financial report shows that New Oriental’s net revenue in the first quarter of fiscal year 2025 increased by 30.5% year-on-year to US$1.435 billion, which was slightly lower than market expectations and earlier guidance of 31% to 34% year-on-year growth.
On July 25 this year, Dong Yuhui officially left Oriental Selection. At that time, the outside world was also worried about whether the development of New Oriental’s e-commerce business would put the company’s overall revenue into growth difficulties. In order to better reflect the impact of Oriental Selection on the company’s overall performance, this financial report excludes the revenue of Oriental Selection’s self-operated products and live broadcast e-commerce business, with a year-on-year growth rate of 33.5%, and revenue of US$1.278 billion.
In terms of profit performance, financial report data show that in the first quarter of fiscal year 2025, New Oriental’s operating profit increased by 42.9% year-on-year to US$293.2 million. Excluding Oriental Selection’s self-operated products and live broadcast e-commerce business, operating profit increased by 58.4% year-on-year to 3.031 US dollars. billion dollars.
Judging from the above, New Oriental Selection still suffered operating losses in its e-commerce business. However, thanks to the strong performance of its overseas examination preparation, consulting business, and adult English training business, New Oriental as a whole has improved in revenue and operating profit. Better performance, which to some extent alleviated previous market concerns.
It is worth noting that New Oriental has also encountered a problem similar to Pinduoduo’s previous “short-selling” problem. New Oriental’s management expects total revenue (excluding Oriental Selection) in the second quarter to increase by 25%-28% year-on-year to US$851 million-872 million. Revenue growth has slowed down, mainly due to seasonal factors and macro headwinds affecting some high-end customers. For the unit price business, it is expected that the full-year revenue growth in fiscal year 2025 will maintain a year-on-year growth of approximately 30% (excluding Oriental Selection). This reduction in expectations also led many institutions to lower the company’s target price accordingly. After the financial report was released, New Oriental’s stock price once fell by more than 10%.
But if we zoom in further, we may see a different phenomenon. Whether it is the promotion of national policies, the emergence of the supply clearing effect and the growth of corporate operating performance, the education and training industry as a whole is now transforming from recovery to strong demand. Against this background, New Oriental may have another bright future. village”.
New businesses are developing, and the fundamentals of education are sound
New Oriental’s first financial report after Dong Yuhui left has undoubtedly become a window to observe the development of its main education business.
In terms of the main business of education, New Oriental’s main business is divided into two parts: traditional business and new business. The financial report shows that in terms of traditional business, New Oriental’s overseas exam preparation and overseas consulting business revenue increased by approximately 18.8% and 20.7% year-on-year in the quarter; domestic exam preparation business revenue for adults and college students increased by approximately 30.4% year-on-year; high school business revenue increased by approximately 20% to 21%.
New Oriental’s offline teaching space is also accelerating its expansion to match revenue growth and operational efficiency. As of August 31, 2024, the total number of schools and learning centers was 1,089, an increase of 296 compared with the same period last year, and the total number of schools was 80.
New Oriental’s new business includes non-disciplinary tutoring courses, such as literacy courses such as story acting, eloquence, and writing, as well as literacy courses such as programming, art, robotics, and science. During this fiscal quarter, new businesses maintained strong growth momentum, recording a year-on-year revenue growth of 49.8%. Among them, non-subject tutoring business contributed more than half of the new business revenue. It was carried out in about 60 cities, with a total of about 484,000 students enrolled, a year-on-year increase. 11%, a year-on-year increase of 48%, and China’s top ten cities contributed more than 60% of revenue to this business.
The year-on-year growth rate of enrollment in this quarter is lower, mainly due to the opening of the summer enrollment window earlier than in previous years. If the enrollment numbers in the fourth quarter of the previous fiscal year and the first quarter of this fiscal year are combined, the growth in enrollment will be normal.
In addition, New Oriental’s intelligent learning system and equipment business accounted for approximately 1/3 of new business revenue in this quarter. This part of the business has been carried out in approximately 60 cities. There are approximately 323,000 active paying users in this quarter. The top ten cities in China account for this The business contributes approximately 55% of revenue.
During the earnings call, New Oriental’s management stated that its new business, Chinese-African academic tutoring, accounts for more than half of its new education business, and its smart learning equipment business accounts for about one-third. The growth rate of these two reached 56%. in other small categories of new businesses. “While we strive to ensure a healthy balance between revenue and profitable growth, we will also expand and recruit cautiously to support the development of our education business. We plan to expand by 20% to 25% this fiscal year, and the latest opening will Launched in cities with better top-line and bottom-line performance.”
Citigroup released its latest research report saying that the current valuation of New Oriental overdiscounts short-term adverse factors and underestimates the company’s operational resilience and proven execution capabilities, and lowered the target price from HK$83 to HK$64. According to New Oriental’s management guidance, core revenue growth in fiscal year 2025 is approximately 30%, with growth of 25 to 28% in the second quarter. Although the guidance is relatively conservative, it is in line with the bank’s expectations.
Frustrated e-commerce and surprising cultural tourism
As we all know, in the past two years, the live broadcast e-commerce business of New Oriental’s Oriental Selection has made a significant contribution to New Oriental’s overall revenue, and has even become a benchmark for the transformation of the education and training industry after the “double reduction”. New Oriental has repeatedly stated in its financial reports that Oriental Selection’s self-operated products and live broadcast e-commerce business have driven the company’s revenue growth.
However, after experiencing a series of turmoils such as “Little Composition”, Dong Yuhui, the core anchor of Oriental Selection, left Oriental Selection at the end of May this year (i.e. the last fiscal year). Together with Hui, he also became independent from Oriental Selection. Dong Yuhui personally holds 100% of its shares. Some analysts said that according to Douyin’s third-party data, the impact of the divestiture of Hehui Peer on Oriental Selection’s GMV reached about half the month-on-month level, and the main account of Oriental Selection also declined by 20%-30%.
This New Oriental financial report also disclosed the latest information about Oriental Selection. Since April 2022, Oriental Selection has launched 488 SKUs of its own brand products, and the product categories have been expanded to a diversified product portfolio. This has been completed ahead of schedule as Yu Minhong proposed that the number of self-operated product SKUs by the end of 2024 should reach about 400 goal.
In terms of live streaming channels, Oriental Selection has expanded to platforms such as Tmall, JD.com, Pinduoduo, and Xiaohongshu. It is also trying to explore a model that combines online and offline. It will rely on New Oriental’s more than 800 teaching points to open ground stores, such as membership shop.
According to media reports, in early September this year, Oriental Selection’s smart vending cabinets were officially stationed in the lobby on the first floor of the South Building and North Building of New Oriental Headquarters, as well as the offices of Oriental Selection, focusing on Oriental Selection’s self-operated products. Different from the buy-and-pick-up model common in offline vending cabinets on the market, this smart vending cabinet focuses on product display. Consumers can purchase corresponding items through the Oriental Selection applet displayed in the container, and then send them via logistics. At present, the method of laying offline physical lockers has yet to be verified.
Business News Research Institute believes that the current live broadcast e-commerce industry is fiercely competitive, and some major anchors are also at risk of landslides. These will pose potential risks to the sustainable growth of each platform’s e-commerce business. After resolving its operational dependence on Dong Yuhui, a major anchor, New Oriental may be able to explore a new e-commerce consumption model by adjusting its operating strategy, optimizing its product structure, and making full use of its offline advantages.
Although the e-commerce business has experienced significant fluctuations, New Oriental also has unexpected surprises. New Oriental CEO Zhou Chenggang said that the company’s newly integrated cultural and tourism business recorded revenue of approximately US$90 million in this fiscal quarter, showing substantial growth, especially the research travel and camp education business for K-12 and college students, with revenue increasing by 221% year-on-year. . In addition, New Oriental has also organized a number of top cultural tourism projects for all age groups (including middle-aged and elderly people) in 30 provinces in China and internationally, expanding its cultural tourism business to all age groups.
However, in the financial report conference call, New Oriental management also revealed that the first quarter of fiscal year 2025 is the peak season for the tourism business, including camp business, overseas travel business, and even domestic study tour business. The cultural tourism business revenue is approximately US$90 million, achieving profitability. “But looking at the full year, the tourism business will be loss-making.”
Conclusion
At present, New Oriental has withstood the impact of Dong Yuhui’s departure on the company’s overall operating performance, reflecting the certainty and stability of its core education business. What is reflected behind this is that the policy of the education and training industry has relatively bottomed out, and it has become one of the more certain investment directions. Especially this year, the positive effects of the non-disciplinary quality education and training policy are gradually becoming clear, which has also driven New Oriental, As TAL’s overall performance continues to improve, major education and training institutions may usher in a new round of growth opportunities.
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