New Oriental recently announced its financial results for the first quarter of the 2024 fiscal year as of August 31, 2023. The revenue for this quarter increased by 47.7% year-on-year to $1.1 billion, exceeding expectations; Shareholders' attributable net profit increased by 150.6% year-on-year to $166 million.
New Oriental has not been calm recently, experiencing the internet celebrity "Iron Head" incident and the anchor "Zhongcan" incident, but its performance still maintains rapid growth.
This quarter, the education business has grown almost entirely, indicating a strong willingness for training among universities, middle schools, and primary school students in the past summer vacation. At the same time, significant progress has been made in the self operated products and live streaming e-commerce business of Eastern Selection.
Overall growth of education business
New Oriental's net revenue increased to $1.1 billion this quarter, the first time in nearly eight quarters that it exceeded $1 billion.
Yu Minhong, Executive Chairman of the Board of Directors of New Oriental, stated that New Oriental's overseas exam preparation and overseas consulting business achieved encouraging results, with year-on-year growth of 51.7% and 26.6%, respectively. In addition, the domestic exam preparation business for adults and college students also recorded a year-on-year increase of approximately 25.5%.
These are the traditional businesses of New Oriental. In 2019, there were approximately 700000 Chinese students studying abroad. With the release of global control, it is predicted that the number of students studying abroad this year will exceed that of 2019. "Zhou Chenggang, CEO of New Oriental Education Technology Group, said on September 22 this year.
New Oriental's exam preparation business has obvious seasonality, with college students concentrated in summer training to prepare for exam programs such as TOEFL, IELTS, and postgraduate entrance exams.
Generally speaking, the first quarter's revenue was the highest throughout the fiscal year. The financial report shows that the expected revenue for the next quarter is approximately 785 million to 804 million US dollars, a decrease compared to the previous month, but still expected to increase by 23% -26% year-on-year.
Yu Minhong stated that various new businesses with educational attributes achieved positive results in this quarter, with a year-on-year revenue growth of 103.3%
Among them, non disciplinary tutoring services were carried out in nearly 60 cities, with approximately 438000 registrations in this quarter, a year-on-year increase of 47.5%.
Non disciplinary tutoring services include literacy courses such as storytelling, eloquence, and writing, as well as quality courses such as programming, art, robotics, and science. The number of registrations for the fiscal year 2023 is approximately 1.621 million.
The seasonality of this business is opposite to that of adult exam preparation business. The first and third quarters where summer and winter vacations are located have fewer registrations, as they are mainly new students. However, with the addition of student renewals in the second and fourth quarters, the number of registrations will significantly increase month on month.
Taking the 2023 fiscal year as an example, the number of registrations in the first and third quarters was 297000 and 218000, while in the second and fourth quarters it was 477000 and 629000.
The number of registrations in the first quarter of the 2024 fiscal year is close to the level of the second quarter of the 2023 fiscal year, laying the foundation for an increase in registrations throughout the year.
Another new business with educational attributes is intelligent learning systems and devices, which are also adopted in about 60 cities, with approximately 181000 active paying users in this quarter.
New Oriental's annual report for the 2023 fiscal year introduces this business as follows: "By utilizing our advanced data and technical capabilities, as well as rich teaching experience, coupled with our teachers monitoring and evaluating each student's learning curve from backend systems, we provide customized and personalized learning materials and exercises for students. This innovative educational service not only improves students' learning efficiency, but also cultivates their habit of active learning
In fiscal year 2023, the contribution of intelligent learning systems and devices to the overall business is not significant.
However, the number of active paying users in this business has reached the full year level of fiscal year 2023 in this quarter, indicating significant growth potential.
After more than a year of experimentation and development, these new businesses have begun to contribute significant revenue and become the main driving force for the group's growth and profit margin improvement, "said Yu Minhong.
The biggest single business of New Oriental is actually high school training.
Yang Zhihui, CEO and CFO of New Oriental, introduced at the last quarter's financial report that the proportion of revenue contribution from different business lines is about 11% from the overseas exam preparation business, 17% from the overseas consulting business, and about 2% to 3% from the domestic exam preparation business for adults and college students. The new business contributes about 18% of the total revenue, while the high school business and Eastern selection contribute about 52% of the remaining revenue. According to the 2023 financial year annual report, Dongfang Zhenxuan's revenue accounted for approximately 22%.
In August of this year, during the peak summer training season, New Oriental encountered the internet celebrity "Tie Tou" incident. The internet celebrity "Tie Tou" reported New Oriental's illegal holiday makeup classes live at New Oriental Hangzhou School, and subsequently, the entire New Oriental Hangzhou Campus was suspended.
Hangzhou is the most important city for New Oriental's education business. As of the end of fiscal year 2023, New Oriental has 46 learning centers in Hangzhou, making it the city with the highest number of centers, accounting for 6.9% of all learning centers in the country.
Whether the high school training business is managed according to the compulsory education stage varies in terms of regulations and practices in different regions.
New Oriental CEO Zhou Chenggang stated that this fiscal year, New Oriental has begun to moderately expand its capacity in existing cities with high growth potential, facility utilization, and profitability. As of the end of this quarter, the total number of schools and learning centers has increased to 793.
Eastern Selection Capital Market: A Troubled Autumn
Zhou Chenggang introduced that in this quarter, Dongfang Zhenxuan has made significant progress in its live streaming e-commerce business, reaching a wider customer base through a multi-platform strategy, and enhancing brand awareness and influence; During the period, live streaming activities will be officially launched on new platforms such as Taobao and self operated apps.
In terms of self owned brand products, new products are continuously launched every month, achieving breakthroughs in various product categories from catering and food to daily necessities.
Dongfang Zhenxuan is currently facing a tumultuous period. The anchor "Zhongcan" had a slip of tongue incident in September, and although she returned a few days later, she has not appeared in the live broadcast room in the past few days.
On the noon of October 26th, Sun Dongxu, CEO of Dongfang Selection, came to the live broadcast room and once again responded to the Zhongcan incident, stating that Zhongcan was currently resting and expressing apologies and gratitude for the understanding of netizens.
On October 17th, Dongfang Zhen launched a membership selection service on its self operated app. Dongfang Zhen paid a membership fee of 199 yuan per year. After applying for membership, users can save up to 12000 yuan per year, including a 88% discount on 100 self operated products, 12 membership coupons per year, and a membership gift of 66 yuan coupon package.
However, in the eyes of some users and investors, the launch of Dongfang Zhenxuan's membership service has exposed deep-seated traffic anxiety, and there have even been rumors of canceling live streaming and sales.
After the announcement of the membership selection system on October 17th, Dongfang Zhenxuan's stock price turned red, rising by over 6% during the trading session, and ultimately closing up 3.12%. However, for three consecutive trading days, they all closed with a negative line, with a cumulative decline of 16.9%. Since the beginning of this year, the market value of Dongfang Zhenxuan has dropped by 40%.
Our troubles are the complexity of the internet and the short selling in the capital market, "Sun Dongxu said during the live broadcast.
Dongfang Select started live broadcast outside Tiktok and adhered to the marketing strategy of not buying traffic. This quarter, New Oriental's marketing expenses were $136 million, a decrease of $11 million compared to the previous quarter.
However, due to the continuous increase in the number of self operated products and employees, the operating and management costs of Dongfang Zhenxuan are still increasing, which may weaken the gross profit margin level. In the fiscal year 2023, the gross profit margin of Dongfang Zhenxuan's self operated products and live streaming e-commerce has steadily declined.
Yang Zhihui, CEO and CFO of New Oriental, stated that continuing the trend of recovering profit margins in the previous fiscal year, the GAAP operating profit margin for this quarter was 18.6%, an increase of 810 basis points year-on-year. The non GAAP operating profit margin for this quarter was 22.3%, a year-on-year increase of 930 basis points.
We are committed to maintaining a healthy balance between growth momentum and cost control, and continue to strive to improve the utilization of facilities and teaching resources, "said Yang Zhihui.