New Oriental Education is putting long-term growth first
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New Oriental Education is putting long-term growth first

New Oriental Education released third quarter earnings this week that offered a clear picture of the company’s strategy: to prioritise long-term market share over short-term profitability. This is a reflection of the fact that New Oriental has changed its product offering since inception. Originally, it focused on tutoring Chinese college students for English language tests. Now, it is more interested in younger kids.

As a result, the company is engaging heavily in inward investment, massively expanding its capacity. This might not thrill investors in the here-and-now, but it’s a wise move: the company is putting as much distance between itself and possible rivals as possible. And anyway, the share price is still up by more than 100% this year!

New Oriental Education is on a roll as its share price increases by 101%, year to date

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SOURCE: Yahoo Finance

The company said that revenue rose by 24% year on year to $661 million, while earnings per share, over the same time frame, rose by just 13% to $1.02. This is largely down to two factors: first, a one-off summer promotion designed to get Chinese parents enrolling their kids in the company’s ecosystem; and second, a massive expansion of the company’s reach.  New Oriental CEO, Chenggang Zhou, spoke to this directly, noting that it was a successful promotion:

“We carried out a large-scale summer promotion this quarter by offering low-cost trial courses for multiple subjects in 38 cities mainly targeting students before they start the first secondary school year. Trial course enrollments during the period reached 554,000, more than doubling year-over-year, and student retention rose year-over-year as well.”

He also said that the company massively expanded the amount of space at its disposal” “the total square meters of classroom area by the end of this quarter increased approximately 31.4% year over year.”

Student enrollment rose by 16% against the previous year to 1,532,900, and revenue from K-12 after-school all-subject tutoring, U-Can middle and high school tutoring, and the POP Kids program rose substantially (35%, 37%, and 38%, respectively, all against the same period last year). Chief financial officer Stephen Zhihui Yang was straightforward in his assessment: “our expansion strategy and the recent incentives should drive additional revenue growth and market share in the long run.”

Disclosure

Dominion holds New Oriental Education in its Global Trends Luxury Fund.


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