Shangde Institution (NYSE: STG), an adult vocational online education company, recently released its unaudited financial report for the third quarter of 2024.
This quarter, Shangde's institutional revenue was 490 million yuan (RMB, the same below), a year-on-year decrease of 6.4%; The net profit was 89.29 million yuan, an increase of 8.6% from the previous quarter, compared to 130 million yuan in the same period last year.
Shangde Institution is still racing against time. From the perspective of product structure, it has completed transformation, with traditional higher education businesses such as self-study exams accounting for less than 10% of revenue, while vocational skills, qualification certification, and interest training businesses account for about 74% of revenue; From the perspective of development momentum, it is still on the old path of marketing driven growth, with marketing expenses increasing year-on-year for five consecutive months, but without driving revenue growth. The high gross profit margin cannot stop the continuous contraction of net profit. Adult vocational education needs to increase investment in curriculum and service quality in order to continuously improve user satisfaction.
Performance Trend of Shangde Institution Unit: RMB, Data Source: Financial Report
In the third quarter of 2024, Shangde's institutional revenue was 490 million yuan, a year-on-year decrease of 6.4%. The main reason is the decrease in cash income from higher education business, resulting in a year-on-year decrease of 66.7 million yuan in higher education business revenue. However, the sales revenue of books and learning materials and other goods increased by 36 million yuan year-on-year, partially offsetting this growth.
Shangde's higher education business mainly includes self-study exams and graduate exam training. In 2019, the revenue accounted for as high as 91.8%, but due to the continuous increase in the gross enrollment rate and college entrance examination admission rate of higher education, the coverage of self-study exams has shrunk, and this business has also continued to shrink.
As of the end of 2023, the revenue from higher education degree courses accounted for only 24.7% of the total revenue, and this quarter, the business only contributed 9.2% of the total revenue.
Of course, this business will still maintain a certain scale after hitting bottom. The "2023 National Education Development Statistical Bulletin" recently released by the Ministry of Education shows that in 2023, 5.8214 million people applied for higher education self-study exams and obtained 420000 graduation certificates.
For this sunset industry, Shangde Institution continues to serve millions of self-taught learners every year, while also providing B2B services to small and medium-sized training institutions in the form of SaaS products.
Shangde Institution's main business has shifted to vocational skills, qualification certification, and interest training services, with a wide range of business lines and fast updates. This quarter, Shangde Institution added 158400 new students, a year-on-year increase of 2.7%.
The management of Shangde Institution stated, "Despite the industry being in a period of structural transformation, the company has maintained close alignment with the constantly changing needs of adult learning users through proactive response strategies, continuously optimized its product portfolio, and ensured future growth
During the transition period of the main business change, Shangde Institution not only achieved continuous profitability by reducing costs and increasing efficiency, but also maintained rapid growth in new businesses, achieving sustained positive cash flow for the company.
But we need to be wary of the phenomenon of weak growth. Shangde's marketing expenses have been increasing for five consecutive quarters, with marketing expenses accounting for 61.7% of revenue this quarter. However, in these five quarters, revenue and net profit have continued to decline year-on-year. Among them, the revenue of interest training business increased by 54.9% year-on-year in the fourth quarter of 2023, and the growth rate has already dropped to 22.2% in the first quarter of 2024.
The characteristics of vocational skills, qualification certification, and interest training services are low threshold, low cost, diverse categories, and fast updates. This quarter, Shangde Institution's gross profit was 410 million yuan, with a gross profit margin of 83.3%, but the net profit margin was only 18.2%. That is to say, although the cost of course delivery is low, the company has incurred high traffic costs in order to attract customers.
For a long time, the vocational skills, qualification certification, and interest training industries have formed a model of "big investment to win customers - rapid iteration of products - big investment to win customers for new products", but it has also led to the disadvantage of products being "popular but not well received". Training institutions need to balance between "improving service quality but increasing costs" and "reducing operating costs but reducing service reputation".
This quarter, Shangde's administrative and research and development expenses continued to decline, with resources more clearly focused on marketing. However, at the same time, due to an increase in sales revenue from books and learning materials, the main business costs increased year-on-year.