Last week, two giants in the education and training industry, New Oriental and TAL, released new quarterly financial reports one after another.
Both companies have shown good growth trends. TAL turned losses into profits in the second fiscal quarter, with a year-on-year increase of 40% in revenue; New Oriental's net profit increased by 150.6% year-on-year and revenue increased by 47.7%. Moreover, the two companies have significantly increased their expenses
The education and training industry seems to have come out of its toughest times.
Double increase in revenue and profit, increase in expenses
After more than a year of low points, the various data of the two companies finally showed signs of climbing.
Firstly, both companies have maintained a growth trend. As of August 31, 2023, New Oriental had a revenue of $1.1 billion, a year-on-year increase of 47.7%. This is also its first quarterly revenue to exceed $1 billion after the "double reduction", almost returning to the revenue level before the "double reduction".
In contrast, TAL has been more affected by the large proportion of K12 business. In this fiscal quarter, TAL achieved a net income of 412 million US dollars, a year-on-year increase of 40.1%. This is a new high for the past six fiscal quarters since March 2022.
Profit performance is equally impressive. In this fiscal quarter, TAL's operating profit was 31.79 million US dollars, a year-on-year increase of 113.5%; Gross profit increased by 37.1% year-on-year from $177 million in the second quarter of fiscal year 2023 to $243 million. The attributable net profit was $37.902 million, compared to a net loss of $787 million in the same period of the previous fiscal year, turning the loss into a profit year-on-year. This is also the first time that TAL has achieved positive profits after the "double reduction", and the profit level for this fiscal quarter has even reached the level before the epidemic.
New Oriental's profit performance is equally impressive. In this fiscal quarter, New Oriental's net profit was $165 million, a year-on-year increase of 150.6%. This has been New Oriental's fifth consecutive fiscal quarter of profitability, and its net profit level of over $100 million this fiscal quarter has also reached a new high since December 2019.
In addition to revenue and net profit, changes in expenses may provide a clearer picture of the situation of the two institutions. During the reporting period, New Oriental's sales and marketing expenses amounted to 136 million US dollars, a year-on-year increase of 37.9%. In the past three fiscal quarters, New Oriental's marketing expenses have exceeded 100 million US dollars. During the period, general and administrative expenses were $318 million, a year-on-year increase of 24%, and it was the first time in the past seven fiscal quarters that they exceeded $300 million.
These two expenses of TAL are also increasing. Among them, sales and marketing expenses increased by 48.9% year-on-year to $116 million, also exceeding $100 million for three consecutive quarters; The general and administrative expenses were $97.1 million, which was basically the same as the same period last year.
Daring to spend money "is an important signal, and the increase in sales and marketing expenses also means that the two institutions have begun to consider expanding investment to increase revenue, indicating that the two institutions generally have confidence in their future business prospects.
As of the end of the reporting period, the cash of the two institutions remained sufficient. As of August 31, 2023, the total balance of cash, cash equivalents, and short-term investments of TAL was $2.963 billion. The cash, cash equivalents, and restricted cash balance of New Oriental is $1.89 billion. In addition, New Oriental also has $1.397 billion in fixed deposits and $1.424 billion in short-term investments.
In summary, from the latest financial quarter report, both institutions have shown a relatively positive development trend, with education business playing an important role.
The education business stabilizes and the downward trend stops
From the financial reports, both New Oriental and TAL have achieved significant development in their education businesses.
In terms of New Oriental, the revenue from new education businesses increased by 103.3% year-on-year, becoming one of the key drivers of revenue growth and profit margin improvement. It is reported that New Oriental's new education business includes non disciplinary tutoring courses, such as story performance, eloquence, writing and other literacy courses, as well as quality courses such as programming, art, robotics, and science.
Yu Minhong revealed that in the new education business, New Oriental's non disciplinary tutoring courses have been provided in about 60 cities and attracted 438000 students in the first fiscal quarter, an increase of 47% from 297000 in the same period last year. Intelligent learning systems and devices have also been adopted in 60 cities, with 181000 active paying users in this fiscal quarter, a year-on-year increase of 38%.
In addition to new businesses, New Oriental's traditional education business has also shown strong signs of recovery, with year-on-year growth of approximately 51.7% in overseas exam preparation and 26.6% in overseas study consulting business in the first fiscal quarter. The domestic exam preparation business for adults and college students increased by approximately 25.5% year-on-year. As of August 31, 2023, the total number of schools and learning centers at New Oriental was 793, an increase of 87 compared to the same period last year.
New Oriental CEO Zhou Chenggang mentioned that, In this fiscal year, we have started to expand moderately in some cities with high growth potential, equipment utilization, and profitability. Additionally, we have continued to invest in maintaining the OMO teaching system to support the recovery of remaining key businesses and the rapid development of new education businesses. We have also invested certain resources in researching and applying new technologies to education and products to enhance our strength, pursue higher quality services, and operational efficiency
Due to its continued focus on education, the changes in revenue and profits of TAL directly indicate that its education business is progressing smoothly. At the financial report communication meeting, TAL revealed that as of the end of this fiscal quarter, the company had approximately 220 learning centers, compared to approximately 200 at the end of the previous fiscal quarter. We believe that there is a feasible business model and clear future development path for offline small classes. In addition, our online large class reinforcement learning business continues to make progress this fiscal quarter. Business efficiency indicators, such as retention rates, have been maintained at feasible levels, "stated TAL.
From the current perspective, with the deepening implementation of the "double reduction" policy, educational and training institutions seem to have gradually emerged from the pain period, and the overall business has shown a climbing trend on the basis of compliance. However, the two institutions have presented completely different directions in the overall development direction of their business.
TAL is moving towards "education", while New Oriental is moving towards "culture"
From the overall strategic layout, the business segments of New Oriental and TAL are generally converging, involving live streaming sales, intelligent hardware, smart education, quality education, and so on. But from the perspective of focus, there are already clear differences between the two sides. New Oriental has begun to expand into the field of pan culture, while TAL focuses more on technology+education.
In its financial report, New Oriental mentioned that the growth in revenue is mainly driven by new education businesses, as well as Eastern Selection's self operated products and live streaming e-commerce business. At the subsequent financial report meeting, Yang Zhihui, CEO and CFO of New Oriental, revealed that starting from this fiscal year, New Oriental will integrate a new business line, including tourism related businesses for different age groups, covering both student research camps and the newly established middle-aged and elderly cultural and tourism business.
In fact, according to Dongfang Zhenxuan's annual report for the 2024 fiscal year, its revenue contribution of 4.5 billion yuan may not be the absolute mainstay of New Oriental, but it is the main contributor to profits. After Dongfang Zhen's "debut", New Oriental's focus has always been on related fields such as live streaming sales, and its actions have also been more inclined towards live streaming sales. Zhou Chenggang mentioned that during the reporting period, Dongfang Zhenxuan officially broadcasted on Taobao and its own apps, and continued to launch self operated new products, covering food, beverage, and daily necessities. In the same fiscal quarter, Dongfang Zhenxuan also announced the launch of a paid member service, with an annual fee of 199 yuan for paid members.
Nowadays, New Oriental has actually moved towards the pan cultural field in terms of "bilingual" live streaming sales, cultural and tourism business, and existing education business.
Although TAL has also laid out live streaming sales, its focus is still closely around the education business. On February 6th of this year, TAL's subsidiary XRS publicly launched its first tablet intelligent learning machine. According to IDC data, the shipment volume of TAL learning machines in the second fiscal quarter of 2023 was about 90000 units, ranking fourth in the domestic learning tablet market and increasing its market share to 8.6%.
The big model is also one of the important tracks for the layout of TAL. In August of this year, Tian Mi, the Chief Technology Officer of TAL Group, announced that the MathGPT, a self developed mathematical model worth hundreds of billions, was officially launched and began internal testing.
In summary, regardless of the current development trend, both New Oriental and TAL seem to have dared to invest in the market and have shown a trend of growth against the trend. This may be a wind vane, indicating that the big wave of the education industry is coming to an end.