New Oriental has gradually stepped out of the "smile curve".
Source: New Oriental’s 2023 fiscal year Q3 financial report
On April 19, 2023, New Oriental disclosed its Q3 financial report for fiscal year 2023 (as of February 28, 2023), with revenue of US$750 million, a year-on-year increase of 22.8%; net profit attributable to the parent was US$81.65 million, a year-on-year increase of 166.7% . For Q4 of fiscal year 2023, New Oriental expects the company's revenue to reach US$802-823 million, a year-on-year increase of 53%-57%.
Such impressive performance will naturally strengthen investors' confidence. From April 19th to April 21st, the stock price of New Oriental Hong Kong stock rose from 30.35 Hong Kong dollars per share to 35.9 Hong Kong dollars per share, an increase of 18.29%.
It is worth noting that Q3 of the 2022 fiscal year is the first quarter after New Oriental has completely closed its K9 business and basically closed its K12 business. "Double reduction" pressure. Considering that the relevant market dividends are still being released, what surprises will the successful transformation of New Oriental bring in the future?
Education and live broadcasting walk on two legs, New Oriental is reborn from nirvana
In the past few years, domestic K12-related education companies have faced greater pressure for development. For example, the performance forecast shows that in 2022, Dou Shen Education will have a net loss of 610-730 million yuan, an increase of 3%-23% year-on-year; Kaiwen Education will have a net loss of 87-97 million yuan, a year-on-year decrease of 19.58%-27.87%.
In this context, many education companies did not resign themselves to fate, but actively combined with the trend of the times to carry out transformation. For example, in 2022, the net profit of Only Education is expected to be 139-200 million yuan, which is expected to increase by 168.40%-198.42% year-on-year. In the announcement, Only Education stated that the company's "business layout has been adjusted to the four major sectors of vocational education, youth quality education, international and basic education, and college student education, and various strategic transformation businesses are advancing steadily and orderly."
On the whole, in 2022, the original K12-related education companies have begun to differentiate. Some companies are still stuck in the quagmire, looking for opportunities to break the situation, while other companies have combined their own advantages and consumer needs to build multiple education channels. line, and gradually stabilized its position, of which New Oriental is an important member.
New Oriental's business sector can be divided into two major parts: traditional business and new business. Among the traditional business, the business of studying abroad (examination preparation and consulting business abroad) has maintained a good growth momentum. According to the disclosure of the Q3 financial report for fiscal year 2023, New Oriental’s overseas exam preparation business and overseas consulting business increased by about 13% and 5% year-on-year respectively.
However, based on historical data, due to the low proportion of revenue, the recovery of overseas study consulting and overseas study tour business may not be able to help New Oriental successfully transform. Taking the 2021 fiscal year as an example, New Oriental’s other business revenue represented by overseas study consulting and overseas study tours was US$399 million, accounting for only 9.33% of the total revenue.
Therefore, New Oriental can achieve substantial growth in performance in the first quarter of 2023, largely due to the help of new education services and e-commerce live broadcast services.
Source: New Oriental’s 2023 fiscal year Q3 financial report
In terms of new education business, Yu Minhong revealed: "As of February 28, 2023, non-subject tutoring courses have been launched in more than 60 cities, and the number of student registrations in this quarter has reached 218,000; intelligent learning systems and equipment are also available in about 60 cities. The number of active paying users in this fiscal quarter reached 108,000." The fact that the new business started to increase in just one year is also related to the brand strength accumulated by New Oriental over the years and the expansion of national channels.
At the same time, New Oriental's e-commerce live broadcast business is also developing rapidly. Zhou Chenggang, CEO of New Oriental, said: "Dongfang Selection has made significant progress in its self-operated products and live broadcast e-commerce business, and its business operations and financial performance have achieved breakthrough performance."
Although New Oriental did not disclose the detailed revenue data of each business line in Q3 of fiscal year 2023, but combined with the financial report of Dongfang Selection, compared with the new education business, the contribution of the e-commerce live broadcast business may be more.
Dongfang Selection’s financial report for the first half of fiscal year 2023 (ending November 30, 2022) shows that the company’s total revenue was 2.08 billion yuan, a year-on-year increase of 262.7%; its net profit was 585 million yuan, a loss of 544 million yuan in the same period last year. Among them, self-operated products and live broadcast e-commerce revenue were 1.766 billion yuan, accounting for 84.9% of the total revenue.
In the earlier 2022 financial report, New Oriental once stated, "Our strategic focus will be shifted to the live broadcast e-commerce business, which will gradually become the main growth driver." Business expectations and reliance. However, how far can Dongfang Selection support New Oriental?
Behind Dongfang’s selection of glory, New Oriental is still under pressure
It is not accidental that New Oriental chose to vigorously develop the e-commerce live broadcast business, but an inevitable choice under the insight of platform advantages and industry development trends.
According to data from NetEconomics, from 2017 to 2021, the transaction scale of China's e-commerce live broadcast market was 19.64 billion yuan, 135.41 billion yuan, 443.75 billion yuan, 1.285 billion yuan, and 2,361.51 billion yuan. It is estimated that in 2022, China's e-commerce live broadcast market transactions The scale is 3487.9 billion yuan, a year-on-year increase of 47.69%. Although the growth rate of the e-commerce live broadcast market has declined in recent years, the scale is already considerable. Therefore, many companies have entered into e-commerce live broadcasting in an attempt to get a piece of the action. New Oriental also launched Dongfang Selection to follow this trend.
Behind Dongfang’s selection, in addition to being attracted by the huge market cake, New Oriental also considered that platform teachers have mature teaching experience, which overlaps with the professional characteristics of e-commerce live broadcast anchors. Therefore, after putting down the K12 business, New Oriental decisively entered the e-commerce live broadcast track. .
Facts have proved that New Oriental's choice is extremely correct. On the one hand, consumer demand has always existed. On the other hand, during the selection period of Dongfang, the "Four Kings" in the e-commerce live broadcasting industry were absent one after another. For example, Luo Yonghao announced that he would devote himself to AR entrepreneurship, and the focus of his work was no longer on e-commerce live broadcasting. In this context, with its "bilingual" live broadcast and philosophical sales language, Dongfangxuan's live broadcast platform quickly became popular. According to research data from Zheshang Securities, after June 14, 2022, the number of fans of Dongfang Selection will skyrocket, and the number of fans on the Douyin platform is currently approaching 30 million.
Regarding the core competitiveness of Dongfang Selection, in an interview with CCTV in October 2022, Yu Minhong said that the reason why Dongfang Selection became popular "is because it played the role of 'noise reduction'." The previous e-commerce live broadcasts were mostly "buy, buy, buy, the cheapest", but Dong Yuhui's "bilingual live broadcast" is not like live broadcast, but more like teaching. It can not only make users feel novel, but also maintain user stickiness.
This may also explain why other education companies have failed to increase their e-commerce live broadcast business. After seeing the business myth that New Oriental has achieved, education companies such as Gaotu and TAL also hope to make achievements in the e-commerce live broadcast industry. However, the bonus window period for e-commerce live broadcasting has been closed. In addition, these education companies have also chosen the "bilingual" method for live broadcasting, which is no different from Dongfang Selection. It is difficult for the market to give positive feedback.
Haitong International Research Report shows that since the middle of 2022, Dongfang Selection has surpassed the major Douyin head live broadcast rooms, and as of March 2023, GMV ranks first in all major live broadcast rooms.
Source: Haitong International
Dongfang Selection, which has huge influence, has also brought huge commercial returns to New Oriental. The financial report shows that as of June to November 2022, the total merchandise transaction volume of Dongfangxuan’s live broadcast e-commerce business reached 4.8 billion yuan, the total revenue of self-operated products and live broadcast e-commerce was nearly 1.766 billion yuan, and the gross profit margin was 42.5%.
It is precisely because of this that New Oriental's e-commerce live broadcast business is more attractive to the capital market than the traditional education business. This can be seen from the name change of New Oriental Online.
On January 5, 2023, New Oriental Online announced that the company will change its name to "Oriental Selection Holdings Co., Ltd.", and the stock abbreviation will also be changed to "Oriental Selection" simultaneously.
Affected by this news, the stock prices of New Oriental and Dongfangxuan rose by 32.3% and 47.52% respectively within half a month, becoming the rare education companies whose stock prices reached new highs under the "double reduction" policy.
However, it is worth noting that it is difficult for New Oriental to sit back and relax. With the peak of mobile Internet traffic, Oriental Selection will inevitably encounter a "bottleneck".
According to the research report of Tianfeng Securities, from January to March 2023, the GMV of Dongfang Selection fell by 16%, 5% and 9% month-on-month, respectively, excluding the "Watching the World" account, and fell by 22%, 10% and 2% month-on-month respectively. Shenwan Hongyuan estimates that in Q3 of fiscal year 2023, the profit of Dongfang Selection is about 28.5 million US dollars, and the profit margin is about 15.2%. In comparison, in the first half of fiscal year 2023, this figure is 28.1%.
It is precisely because of this that New Oriental needs to explore more growth businesses beyond the selection of the East.
New Oriental Makes a New Choice: Recreating a "Cultural Tourism Selection"
After experiencing the rise of Dongfang Selection, Yu Minhong seems to be more convinced that the core competitiveness of New Oriental is not "education" but "teaching". Therefore, New Oriental's next layout tends to be industries that can be radiated by teachers' teaching ability.
For example, on April 17, 2023, at the press conference of New Oriental's 2024 White Paper for Chinese College Students' Postgraduate Entrance Examinations, Yu Minhong revealed that New Oriental has begun to enter the cultural and tourism industry.
Regarding why he got involved in the cultural and tourism industry, Yu Minhong believes that the core competitiveness of New Oriental is "lecturing". The lectures by New Oriental’s teachers have won the favor of students and parents; the lectures by the anchors selected by Dongfang have attracted more users’ attention. And by cultivating a group of tour guides who can "teach lectures", New Oriental may achieve results in cultural tourism.
In fact, similar to e-commerce live broadcasting, with the return of consumer confidence, the cultural tourism market will usher in a strong recovery. According to data from the Qianzhan Industry Research Institute, it is estimated that in 2025, the market size of China's cultural tourism industry will reach 2.86 trillion yuan, an increase of nearly 66.5% over 2019. This may also be a major reason why New Oriental focuses on cultural tourism.
In addition, although Ctrip, Fliggy, and Meituan have launched travel live broadcasts before, they have not yet created a lot of commercial myths in related markets. In this context, New Oriental's entry into the cultural and tourism industry seems to have a window period similar to that of its entry into the e-commerce live broadcast industry back then.
Although the detailed layout of New Oriental in the cultural and tourism industry is still unclear, relying on the influence of Dong Yuhui, Qi Qi, Yu Minhong and others, New Oriental has actually achieved certain results in the cultural and tourism market. At the end of 2022, Dongfang Selection launched the "Watching the World" live broadcast account. This live broadcast account mainly sets up live broadcast rooms in various scenic spots across the country, and the above-mentioned anchors carry out cultural and tourism-related goods. Up to now, the number of followers of the "Oriental Selection to Watch the World" account has reached 1.1 million.
Source: Douyin
Take the "Watch the World" trip to Yunnan in February 2023 as an example. Dong Yuhui and Qiqi visited all parts of Yunnan. In just a few days, the number of fans of "Watch the World" soared, and the cumulative sales of local tourism products in Yunnan totaled 105 million yuan. The number exceeds 8.8 million.
Although at present, compared with e-commerce live broadcasting, the performance of "Watching the World" selected by Dongfang is not very impressive, but considering that the integration of culture and tourism is a major direction for the development of the tourism industry in the future, "cultural tourism + live broadcast" fits well. The content trend of short videos and consumers' demand for low-cost and high-efficiency access to travel products are revealed. With the gradual recovery of the tourism industry in 2023, New Oriental's cultural tourism business may also achieve outstanding performance.
All in all, under the influence of multiple unfavorable factors, while stabilizing the fundamentals of education, New Oriental explored the incremental dividends of e-commerce live broadcast and grasped the development opportunities of the industry. In addition, it did not stop at e-commerce live broadcasts, but further combined the core competitiveness of "lectures" to explore the cultural and tourism industry. This means that New Oriental's future performance may be further explored.
Author: Tianyu
Article source: Hong Kong Stock Research Institute