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By Ding Yi / Sep 03, 2020 12:53 PM / Business & Tech

Beijing-based GSX Techedu reported strong results for the second quarter of 2020, but a U.S. investigation into alleged financial fraud has cast a shadow over the online education company’s business prospects.

In the quarter through June, GSX more than tripled its net revenues to 1.65 billion yuan ($242 million), compared with the same period last year, largely driven by strong sales of its online K-12 courses, which jumped 412.4% year-on-year to 1.39 billion yuan, according to the company’s earnings report released Wednesday.

Its net profits for the quarter also increased 13.4% year-on-year to 18.6 million yuan, although the second quarter growth rate represents a sharp drop from the 336.6% rise in the first quarter, when the coronavirus-induced school shutdowns forced many students to use online learning platforms.

The number of paid students enrolled in GSX’s courses grew 331.7% year-on-year in the second quarter to 1.57 million, approximately 95% of whom were customers buying its online K-12 courses, the financial report showed.

As the Covid-19 crisis has led to a surge in demand for online courses, GSX plans to carry out a growth strategy focusing on developing large online live classes and exploring traffic acquisition channels enabling a high return on investment, the company’s founder, chairman and CEO Chen Xiangdong said in a statement.

Despite the healthy-looking quarterly results, GSX still has a thorny issue to worry about that could dampen investors’ confidence in its future.

On Wednesday, the New York Stock Exchange-listed company revealed that it is being probed by the U.S. Securities and Exchange Commission over allegations from short sellers that it cooked its books. GSX said that it was required by the U.S. securities regulator’s enforcement division to provide “certain financial and operating records dating from January 2017.”

In April, short seller Citron Research accused GSX of inflating its 2019 revenue by up to 70% and suggested U.S. watchdogs should suspend its stock immediately. Citron Research was later joined by its peer Muddy Waters Research which claimed that at least 70% of GSX’s users were bots. GSX has denied the allegations as false and ungrounded.

GSX’s shares closed down 12.05% on Wednesday.

Contact reporter Ding Yi (yiding@caixin.com)

Related: GSX Techedu Falls 5% in N.Y. on Short Seller’s Fraud Allegation


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