New Oriental highlights focus on hybrid, offline products

“As the pandemic situation in China has been stabilised and effectively controlled during the quarter, our businesses in most of the cities resumed and managed to deliver encouraging results,” said Michael Yu, New Oriental’s executive chairman.

“Our key growth driver, K-12 all-subjects after-school tutoring business, achieved year-over-year revenue growth of approximately 26%. [New Oriental] U-Can middle and high school all-subjects after-school tutoring business grew by approximately 27%, while our POP Kids program recorded a growth of approximately 24%,” he continued.

“Overseas related businesses are still under pressure due to the uncertainty of the pandemic situation and travel restrictions around the globe. The overseas test preparation business declined by approximately 29%, yet the overseas consulting and study tour business increased by 6%, respectively.”

New Oriental’s executive president and chief financial officer Zhihui Yang emphasised an effort on the part of the company to control costs and reduce expenditures, as well as advising caution “in making investment in our OMO [online-merge-offline] initiatives and pure online education platform to keep balancing the growth and profitability”.

“While online education is a growing trend in China, pure online platforms tend to require substantial spending on marketing and promotion,” said Yang.

“Pure online platforms tend to require substantial spending on marketing and promotion”

“Hence, with the OMO system, we have been able to achieve constantly high number of enrolments with cost-effective promotions. Because of our strong on-ground presence and online channels supplements each other, which enable us to more effectively recruit new customers and deliver better service to our students.”

Operating cost expenses and cost of revenue for the quarter increased by 21% and 26.4% year-over-year respectively.

“[This is] primarily due to the increases in teachers’ compensation for more teaching hours and higher rental costs for the increased number of schools and learning centers in operation,” said investor relations director Sisi Zhao.

“Selling and marketing expenses increased by 23.9% year-over-year to $133.6 million primarily due to the addition of a number of customer service representatives and marketing staff with the aim of capturing the new market opportunity during Covid-19 period.”

Yang said that the “strategic focus and the investment approach this year aim at improving product quality, increasing teacher salaries and enhancing our industry leading system, which fully reflects our ethos on focusing on the essence of education”, including expanding offline business “to add around 20% to 25% capacity including new learning centers”.

“I have to highlight all of these OMO products are supported by our offline classes. They supplement each other in a hybrid format,” he added.

“All the teaching content, coursework materials, as well the teachers are developed and originated from our existing offline center of resources.”

For next quarter the company said it expected total revenue to be in the range of $1,098.6 million to $1,144.8 million representing a year-over-year increase in the range of 19% to 24%.

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