Online Education Firm's IPO Gets Low Marks

Shares in online adult-learning platform Sunlands Online Education Group dropped 3.5% in their trading debut in New York, as fears grow of a trade war between China and the U.S.

Sunlands’ American Depository Shares closed at $11.10 in their first day of trade on the New York Stock Exchange on Friday, after pricing at the bottom of their earlier estimated range of between $11.50 and $13.50.

The company’s shares sank as New York-listed Chinese competitors TAL Education Group and New Oriental Education & Technology Group Inc., also fell 2.26% and 1.31%, respectively.

Sunlands’ debut came just a day after the administration of U.S. President Donald Trump said it would slap punitive tariffs on Chinese imports worth almost $60 billion, sparking a sell-off in Asian and U.S. shares. China retaliated by saying it might target nearly 130 U.S. goods for import duties as high as 25%.

Despite the broader trade war concerns, Sunlands should still enjoy strong prospects due to rising demand in China’s online education market, Chief Financial Officer Li Yipeng told Caixin in an interview.

“In China, there are over 600 million adults aged 18 and above who do not have a bachelor’s degree,” he said.

The company aims to beef up efforts to show consumers that online learning is “cost-effective and affordable,” and that it can help people progress in their career.

Sunlands aims to use the $150 million it raised in the initial public offering to improve its content, brand awareness as well as technology infrastructure, he said. Its final fundraising was only half the $300 million it had originally targeted, in another indicator of weak demand for the offering.

As it has ramped up its online model over the last four years, Sunlands has posted strong revenue growth, though losses have also grown. The company’s revenue in the first six months of last year reached 361 million yuan ($57.2 million), roughly double the amount from a year earlier. Its net loss over the period also roughly doubled to about 232 million yuan.

Li explained that the losses are persisting because it sometimes takes up to two years to collect tuition fees. He added the company plans to roll out two to three new majors every year to prepare self-taught learners taking the Higher Education Exam — a qualification for self-taught adults equivalent to a bachelor's degree — up from the current 18.

The company also wants to shore up brand awareness in lower-tier cities across the country to complement its stronger foothold in larger cities.

A big chunk of the proceeds will be used to improve the learning experience, Li said, adding the long-term plan is to offer master's and doctoral degrees from U.S. and European institutions.

According to Chinese market intelligence firm iResearch, the online post-secondary and professional education market in China is expected to grow from around 33.6 billion yuan in 2017 to 130.1 billion yuan in 2022, representing a compound annual growth rate of 31.1%.

IResearch said in a report that online educators should continue to look for ways to enhance learner experiences and get rid of the industry practice of drawing in students with price wars in order to improve profitability.

Contact reporter Jason Tan (jasontan@caixin.com)