Recently, Gaotu released its third quarter financial report for 2023. Financial report data shows that Gaotu achieved net income of 789 million yuan, a year-on-year increase of 30.2%.
At the same time, Gaotu also revealed its layout for "AI + education". The development of AI will undoubtedly give Gaotu greater opportunities and more expectations. With the implementation of artificial intelligence technology in all aspects of the company's products and services, the work and service efficiency of Gaotu's front-end teaching, back-end teaching and research, customer service, design and other teams will be improved. The road ahead for Gaotu is smooth.
Revenues continue to rise, and the road is over the hills?
As the regulatory environment in the education industry gradually stabilizes, the new business of education and training companies gradually matures, and the demand for traditional business picks up, Gaotu's revenue and gross profit will show a recovery trend this year.
Comparing the first three quarters of 2023, Gaotu achieved revenue of approximately 2.20 billion yuan, a year-on-year increase of 17.7%. In the third quarter, Gaotu's net income increased by 30.2% year-on-year, and the growth rate gradually accelerated.
In terms of revenue structure, Gaotu’s learning services contributed more than 95% of its net income. Specifically, non-disciplinary training and other traditional learning service businesses contributed about 70% of revenue, and business revenue increased by more than 40% year-on-year, which is the main driver of Gaotu's business growth.
In this regard, Gaotu officials also stated that non-disciplinary training and other traditional learning service businesses are expected to achieve double-digit growth throughout the year.
In terms of profitability, Gaotu's gross profit was 571 million yuan, a year-on-year increase of 30.6%; the gross profit margin also increased from 72.2% in the same period in 2022 to 72.4%.
However, in the third quarter, Gaotu incurred a net loss of 571.3 million yuan, while in the second quarter of this year, its net profit reached 63.16 million yuan, turning from profit to loss quarter-on-quarter. Compared with the third quarter of last year, Gaotu's net loss was 614 million yuan, and it turned a profit year-on-year. It can be seen that in the short term, Gaotu is under considerable pressure in terms of net profit, but in the long term, it is still on a recovery trend.
The loss in the third quarter was due to the increase in labor and marketing activity expenses, which resulted in Gaotu's operating net cash outflow of 209.9 million yuan in the third quarter. The corresponding general and administrative expenses increased from 63.6 million yuan to 106 million yuan, a year-on-year increase of 66.33%.
On the other hand, it is because other expenditures have also increased to a certain extent. Sales expenses increased from 336.8 million yuan to 434 million yuan, a year-on-year increase of 28.99%; research and development expenses increased from 107 million yuan to 131 million yuan, a year-on-year increase of 22.6%.
The increase in sales expenses is due to the obvious seasonality of education and training services for K12 student groups. The third quarter coincides with the summer vacation, which is the peak period for acquiring customers. And because operations need to align with school schedules to make the most of limited time windows to acquire new customers.
As a result, selling expenses reached their full-year peak in the third quarter. At this time, the increase in various expenses dragged down Gaotu's net profit performance. In the third quarter, Gaotu's net loss was 57.7 million yuan, which was a decrease from the net loss of 61.4 million yuan in the third quarter of 2022. However, in the second quarter, Gaotu's net loss was 57.7 million yuan. The profit was 56.16 million yuan, turning from profit to loss month-on-month.
Looking back, this summer, the market demand was strong, but Gaotu did not reserve enough teacher supply, resulting in the inability to fully meet the demand. Therefore, Gaotu needs to prepare in advance to promote continued revenue growth next summer.
In this regard, Gaotu CFO Shen Nan revealed that Gaotu has reached cooperation with some top schools and ordinary institutions, and has communicated with next year’s new graduates to improve recruitment efficiency and better meet the supply of teachers for next year’s summer.
However, external cooperation alone may not be able to completely solve the short-term loss problem encountered by Gaotu. In order to stabilize the long-term stability of performance, Gaotu needs to come up with more practical solutions.
Currently, as the education and training industry clears up, the competitive landscape has improved significantly. Existing education and training institutions have directly benefited from the market recovery. In the third quarter, many education and training institutions achieved performance that exceeded expectations.
In the third quarter, New Oriental, which is also in the education and training industry, achieved net revenue of US$1.1 billion, a year-on-year increase of 47.7%; of which net profit attributable to the parent company increased by 150.6% year-on-year, and the overall performance exceeded Bloomberg expectations. TAL has also achieved excellent results. In the third quarter, its net revenue reached US$412 million, a year-on-year increase of 40.1%; net profit attributable to the parent company increased by 4916% year-on-year.
Facing the gradual improvement of the external environment, how will Gaotu stabilize its short-term performance and pave the way for medium- and long-term development?
Gaotu is taking a two-pronged approach, "the best is yet to come"?
In the third quarter, Gaotu has recorded year-on-year growth. Facing the future, Gaotu is also full of confidence. According to official disclosures, Gaotu expects revenue in the fourth quarter of 2023 to be between 668 million yuan and 688 million yuan, with a year-on-year growth rate between 6.1% and 9.3%.
Behind this confidence is Gaotu's transformation and adjustment of its original business. On the one hand, Gaotu meets the needs of customers at different levels through the layout of "education + AI".
The "tentacles" of artificial intelligence, which has exploded this year, have now also spread to the education and training industry. Based on the dimension of "teaching", AI can do many things.
Moreover, the education industry has low per capita income and is a labor-intensive industry. Therefore, if AI can complete the upgrade of adaptive learning in the education industry, then this technology will drive the marginal cost of services to zero, which will be a big step forward for education and training companies.
In this regard, Gaotu is already "on the ropes." On November 22, at the 2023 MEET Education Technology Innovation Summit, Tencent Cloud and Gaotu Education announced a strategic cooperation. The two parties will jointly explore and implement the multi-dimensional application of AI large models in the education field.
At present, Gaotu has closely integrated Tencent Cloud's industry large model capabilities with educational scenarios, and has taken the lead in implementing learning information extraction scenarios based on conversational content. This move will effectively improve the work efficiency of consultants and broaden the service scenarios for teachers and students.
At the same time, Gaotu also plans to launch an intelligent teaching assistant system, which provides personalized answers to problems encountered by students during their learning, and then gradually realizes personalized teaching that is closer to students' needs.
On the other hand, based on the current market environment, Gaotu cannot continue to focus its business on subject training business and needs to diversify its layout to optimize its business structure and thereby improve its ability to resist risks. Therefore, Gaotu has shifted its focus to non-disciplinary training and other traditional learning service businesses.
Gaotu CFO Shen Nan said: “For the education industry, non-subject tutoring services represent an emerging vertical market with strong market demand and huge growth potential. We expect this market segment to become one of our core growth drivers. .”
Today's parents of students and the students themselves hope that the time, energy, and financial resources released after the reduction of subject burdens can be used on their children's quality education to promote students' all-round development and growth.
As a result, the non-disciplinary training market is poised for long-term growth. According to the research report "China Education Market Outlook 2030" released by Morgan Stanley, the two major market segments of non-subject tutoring and related learning equipment will grow at a compound annual growth rate of 3% and 14% in the future. By 2030, The market size will reach 685 billion yuan and 106 billion yuan respectively.
Faced with this market environment, Gaotu made timely adjustments. Its literacy-type non-disciplinary training business training focuses on improving students' overall learning, logic and thinking abilities, and serving students' comprehensive and healthy growth.
Among non-disciplinary training businesses, Gaotu’s revenue from educational services for college students and adults accounts for approximately 25% of its total revenue. In addition, the postgraduate examination training business also recorded substantial growth, with its net income increasing by more than 25% year-on-year. At the same time, some overseas test preparation and overseas study consulting business revenue achieved triple-digit growth year-on-year.
From the current point of view, whether it is business type transformation or update combined with AI, it is the only way for Gaotu to "seek change". But more importantly, no matter which path you choose, you need to have strong financial support.
In the third quarter of this year, Gaotu achieved cash income of approximately 640 million, a year-on-year increase of 5.3%. At the same time, as of September 30, 2023, the total cash, cash equivalents, restricted cash and long-term and short-term investments were approximately 3.52 billion, an increase of approximately 180 million compared with the same point last year. Sufficient and stable cash reserves provide Gaotu with its "demand" "Change" provides sufficient support and guarantee.
With the improvement of the overall market environment and the support of abundant funds, Gaotu still has a chance to make a stable and sound future.
Conclusion
Gaotu continues to adjust its own business, from disciplinary training to non-disciplinary training, and from scale-oriented to profit-oriented. Gaotu uses innovation and change. This year's strong recovery is as expected by the market.
Today, Gaotu has gradually overcome the constraints caused by double reductions. In the future, with the implementation of the application of "AI + education", Gao Tu's path of "famous teachers giving rise to high apprentices" may become increasingly smooth.
Author: Sang Yu
Source: US Stock Research Institute