Caixin
Jul 30, 2020 07:59 PM
BUSINESS & TECH

Education Giant New Oriental Reports Plunging Profits

New Oriental was allowed to resume training classes on June 7 in Nanjing, East China's Jiangsu province.
New Oriental was allowed to resume training classes on June 7 in Nanjing, East China's Jiangsu province.

Private education provider New Oriental Education & Technology Group Inc. reported plunging second quarter profits as the Covid-19 pandemic hit its overseas study preparation business and an uptick in online education failed to translate into higher earnings.

The company announced a 69.5% year-on-year drop in profit in the three months ending on May 31 to $13.2 million, while revenue decreased 5.3% to $798.5 million.

The number of students enrolled into its tutoring programs and test preparation courses — many of which prepare students to enroll in universities overseas — shrunk by 6.2%, according to the financial report released Tuesday.

This comes as many students are reconsidering plans to study overseas due to uncertainty generated by the pandemic. A March report from QS World University Ranking said 57% of global students surveyed said they had changed their study plans.

New Oriental founder Yu Minhong said delayed summer and autumn enrollments had hit the company’s balance sheet, and that it has been difficult to find new customers. The pandemic was exerting “continuing pressure on our key business lines,” he said.

“Our overseas-related businesses, including test preparation and consulting business, faced the most difficult challenges, due to cancellation of overseas exams, suspension of overseas schools and restrictions on travel,” said Yu.

Though the pandemic has been a boost for the online education sector, plenty of players are yet to profit amid fierce competition. New Oriental’s online education subsidiary Koolearn Technology Holding Ltd. issued a profit warning Wednesday, announcing an expected net loss for the year of up to 800 million yuan ($144 million) compared to a loss of 64 million yuan during last fiscal year.

Koolearn said the expanded loss was due to investment in developing its K-12 education business and adding to its free learning resources. It also pointed to the free manpower it provided to help students in regions hard-hit by Covid-19.

China’s online education market is estimated to grow some 12% to $61.5 billion this year with a major boost from the Covid-19 pandemic. But despite this, companies are struggling to make a profit as they are spending big in an attempt to grab a greater share of the growing market. Analysts have pointed out that this spending-driven competition has forced down gross margins across the board.

Founded in 2005, Koolearn debuted on the Hong Kong stock market last year, making it the first online education company to do so. Its businesses span from online tutoring to test preparation guiding and online K-12 classes.

New Oriental hopes to step up its K-12 after-school online tutoring to expand its student pool and leverage the growing market in China’s smaller cities.

Its revenue for the fiscal year ending May 31 grew 15.6% to $3.57 billion.

Ding Jie, Su Huixian, Hannah Zhang and Gavin Cross contributed to this report

Contact editor Joshua Dummer (joshuadummer@caixin.com)

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