The four giants of education and training in the past, New Oriental (NYSE: EDU), TAL (NYSE: TAL), Gaotu (NYSE: GOTU), and NetEase Youdao (NYSE: DAO), have recently submitted their quarterly performance reports.
From December 1, 2023 to February 29, 2024, New Oriental and TAL Education respectively recorded revenue of $1.2073 billion and $430 million, equivalent to RMB 8.74 billion and RMB 3.113 billion, with a year-on-year increase of 60.1% and 59.7%;
From January 1 to March 31, 2024, NetEase Youdao and Gaotu recorded revenue of 1.39 billion yuan and 947 million yuan respectively, a year-on-year increase of 19.7% and 33.9%.
In terms of revenue scale, New Oriental is still the undisputed big brother. Although TAL Education's revenue scale is only 35% of New Oriental's, its growth rate is almost the same and far higher than that of NetEase Youdao and Gaotu. These two companies, which started with online education, are still striving to catch up.
From the perspective of profitability, the net profits of New Oriental and TAL during the period were 87.167 million US dollars and 27.508 million US dollars respectively, equivalent to 6310.2 million yuan and 1.991 million yuan, with a year-on-year increase of 6.8% and 170%.
NetEase Youdao's net profit in the first quarter was 14.485 million yuan, compared to a net loss of 206 million yuan in the same period last year, turning losses into profits year-on-year; However, Gaotu has not yet emerged from the quagmire of losses, with a net loss of 12.3 million yuan in the first quarter and a net profit of 113.9 million yuan in the same period last year, turning from profit to loss year-on-year.
Data source: Company financial report mapping: Cha Qinjun
Before the "double reduction", New Oriental's K12 business had been lagging behind for a long time. However, due to this, it was less affected than Good Future, which accounted for 90% of its K12 business. Moreover, New Oriental also has a foundation in overseas exams, university exams, and study abroad businesses. Coupled with the rapid breakthrough of live streaming e-commerce business and the rapid development of cultural and tourism business, it has become the three driving forces for New Oriental's revenue.
Compared to New Oriental's cross-border transformation, TAL Education and Gaotu are relatively more focused on their old industries in education.
After divesting from disciplinary training, TAL Education's current business is divided into three major areas: first, learning services, which remains its main source of income, covering quality education, international education, overseas business, etc. The second is content solutions, and Xueersi Learning Machine is a key contributor. The third is to provide technical solutions to third-party organizations.
For Gaotu, 75% of its revenue in the first quarter came from quality education and traditional learning services mainly focused on high school subject training, with a year-on-year increase of about 35%. College students and adult education account for about 20%.
Gaotu, which started online, is accelerating its expansion to offline. At present, multiple business lines such as Gaotu's postgraduate entrance examination and study abroad have been established in various parts of China, including Beijing, Zhengzhou, and Wuhan.
But currently, the impact of offline business on financial performance is very limited. Gao Tu CFO Shen Nan stated at the Q4 2023 financial report that the development of offline operations is a long cycle, requiring continuous investment from user training to word-of-mouth recommendations.
NetEase Youdao's performance is gradually improving. From the perspective of revenue composition, about 52% of its revenue in the first quarter came from learning services, which is basically the same as the same period last year. Among them, digital content services accounted for 36% of the total revenue, a year-on-year increase of 11%, including high school intelligent learning systems such as Youdao Lingshi and humanities and aesthetic education courses for junior high school students such as Youdao Bowen.
"Each major product in digital content services achieved profitability in the first quarter." On the evening of May 24th, Su Peng, Vice President of Strategy and Capital Markets at NetEase Youdao, stated at the first quarter financial report meeting, "Especially Youdao Lingshi, it is the part with the strongest user demand and the highest business health."
After launching the first education model in China, "Confucius", NetEase Youdao accelerated the commercial implementation of the big model in education and advertising scenarios. As of now, the company has launched over 10 native applications for large models and implemented them in software and hardware products.
Among them, The sales revenue of AI subscription services in the first quarter was close to 50 million yuan, with a year-on-year growth of over 140%. This business includes Youdao Dictionary, Youdao Translation Hi Echo and an international app that provides translation, language learning, and other services.
In the view of Zhou Feng, CEO of NetEase Youdao, directly targeting users is currently the biggest growth opportunity for AI.
Unlike the other three, online marketing services have been a highlight of NetEase Youdao's financial reports in recent years, gradually surpassing its intelligent hardware business in proportion and growing rapidly. The revenue reached a new high in the first quarter, reaching 490 million yuan, a year-on-year increase of 125.9%. This is the sixth consecutive quarter in which the net revenue of the business has increased by over 50% year-on-year.
NetEase Youdao President Jin Lei mentioned three key points when explaining the growth of the business at the financial report meeting: first, AI technology; Secondly, leveraging NetEase Group; The third is to expand overseas.
Jin Lei stated that currently, the proportion of advertising traffic and revenue from NetEase Group is still very small, and in the future, the group's traffic resources will be fully utilized, especially in the gaming industry. Because compared to pure external traffic, group traffic is relatively more predictable and controllable.
However, the Youdao intelligent hardware, which was once the hope of the entire village, failed to withstand cycles. The revenue in the first quarter was 180 million yuan, a year-on-year decrease of 14.8%. NetEase Youdao CEO Zhou Feng explained that "due to the adjustment of low ROI channels, revenue has briefly declined.". But he believes that with the establishment of new sales channels and the release of new products, the hardware business will recover.
In a media group interview in January this year, Zhou Feng mentioned to Interface Education the issue of declining hardware sales. Due to the overall pessimistic consumer electronics market last year, consumer purchasing power was relatively low. The entire industry is a chain, and the downturn will spread from consumers to manufacturers, and then to the backend supply chain.
In terms of cost expenditure, we can also see different strategies from different companies - New Oriental, TAL, and Gaotu - are still increasing their investment, especially willing to spend money on external marketing and sales. Only NetEase Youdao has chosen to tighten its belt and take the path of cost reduction and efficiency improvement.
From December 1, 2023 to February 29, 2024, the operating costs and expenses of New Oriental and TAL during the period were $1.0939 billion and $445.4 billion, respectively, an increase of 59.1% and 41.7% year-on-year. Among them, New Oriental mainly experienced an increase in cost expenses for its self operated products and live streaming e-commerce business.
In the first quarter of 2024, the main business cost of Gaotu reached 271.4 million yuan, a year-on-year increase of nearly 70%, mainly due to the increase in labor costs for the main and second lecturers, as well as textbook costs. The operating expenses in the first quarter were 753.2 million yuan, a year-on-year increase of 66.6%, mainly due to the increase in labor costs and marketing activity expenses.
These three companies have all increased their sales efforts, with sales and marketing expenses increasing by 57%, 69%, and 83% for New Oriental, TAL, and Gaotu, respectively. Gaotu's R&D expenses also increased by 56% year-on-year, and the number of teaching and research staff increased by 50% year-on-year.
NetEase Youdao's total operating expenses for the first quarter of 2024 were 651.6 million yuan (90.2 million US dollars), a year-on-year decrease of 18%. Among them, sales and marketing expenses amounted to 455.4 million yuan (63.1 million US dollars), a year-on-year decrease of 19.4%, due to a decrease in marketing expenses for learning services and smart devices. R&D expenses amounted to 146.7 million yuan (20.3 million US dollars), a year-on-year decrease of 19.7%, due to a decrease in the number of R&D employees, resulting in corresponding salary savings.
At the financial report meeting on May 23rd, Li Yongwei, Vice President of Finance at NetEase Youdao, explained that cost reductions and diverse customer acquisition channels are important AI technology is related to improving market efficiency and content innovation.
In his view, online learning companies have a natural advantage in channel innovation compared to offline educational institutions, as they can reach customers across geographical boundaries and accurately obtain traffic from platforms with concentrated traffic. The customer acquisition of offline educational institutions is often influenced by geographical locations such as opening stores, and the source of customer acquisition is relatively limited.
In recent years, more and more educational institutions have chosen more diverse customer acquisition channels, such as KOL online live streaming, combined online and offline enrollment, etc.
As of February 29, 2024, New Oriental's cash and cash equivalents were $2.0136 billion, time deposits were $1.5708 billion, and short-term investments were $1.1753 billion. The total balance of cash, cash equivalents, and short-term investments of TAL is 3.303 billion US dollars.
As of March 31, 2024, Gaotu held a total of RMB 3.7976 billion in cash and cash equivalents, restricted funds, short-term investments, and long-term investments. Youdao's cash, cash equivalents, restricted cash, term deposits, and short-term investments amounted to 326 million yuan (45.2 million US dollars).
Although holding the least net cash in hand, backed by NetEase Group, NetEase Youdao can still receive continuous blood transfusion from its parent company. As of March 31, 2024, Youdao has received various financing support from NetEase Group, including a short-term loan of 878 million yuan and a long-term loan of 123.7 million US dollars drawn based on a revolving loan limit of 300 million US dollars, with a term of March 31, 2027.
As of the close on May 23 Eastern Time, New Oriental, TAL, NetEase Youdao, and Gaotu were trading at $79.21 per share, $11.83 per share, $3.55 per share, and $6.34 per share, respectively, with a market value of $13.015 billion, $7.554 billion, $424 million, and $1.645 billion.