Interface News Reporter | Cha Qinjun
On the evening of October 23rd, New Oriental (NYSE: EDU) failed to meet market expectations after releasing its first quarter results for the fiscal year 2025, closing down more than 8% after hours.
From June 1 to August 31, 2024, New Oriental's revenue for the period was $1.4354 billion, a year-on-year increase of 30.5%, previously expected to rise by 31% to 34% year-on-year; Excluding the revenue from Dongfang Zhenxuan's self operated products and live streaming e-commerce business, it was 1.2782 billion US dollars, an increase of 33.5% year-on-year. The net profit attributable to New Oriental shareholders was 245.4 million US dollars, an increase of 48.4% year-on-year.
The performance growth is mainly driven by new education businesses.
Yu Minhong, Executive Chairman of the Board of Directors of New Oriental, said, "The education new business maintained a strong growth momentum in this quarter, recording a year-on-year increase of 49.8% in revenue
The new education business includes non disciplinary tutoring courses, such as storytelling, eloquence, handwriting and other literacy courses, as well as programming, art, robotics, science and other literacy courses. At present, this business is operating in nearly 60 cities, with 484000 registrations in this fiscal quarter, a decrease of 44.7% compared to the previous quarter.
Other new educational businesses include intelligent learning systems and devices such as learning machines, smart education, and smart learning solutions. Intelligent learning systems and devices are being adopted in approximately 60 cities, with 323000 active paying users in this quarter, a month on month increase of 71.8%.
New Oriental's traditional education business continues to grow. Yu Minhong stated in the financial report that the preparation for overseas exams and overseas consulting services for this quarter increased by approximately 18.8% and 20.7% year-on-year, respectively. Meanwhile, domestic exam preparation services for adults and college students recorded a year-on-year increase of approximately 30.4%.
It is worth noting that this financial report will separate the live streaming e-commerce business and separately account for the education and training business. The results show that it has better performance in revenue and operating profit.
New Oriental CEO Zhou Chenggang stated in the financial report that Oriental Selection adopts a strategy of "high cost-effectiveness" and "multi-channel", and currently has 488 self operated product SKUs. Yu Minhong once proposed that he hopes to have around 400 self operated product SKUs by the end of 2024. Currently, the internal task has been completed ahead of schedule.
In terms of live streaming channels, Dongfang Zhenxuan has expanded to Tmall, JD.com, Pinduoduo, and Xiaohongshu, and is still exploring the combination of online and offline models. It will rely on more than 800 teaching points of New Oriental to open ground stores, such as membership stores.
In early September of this year, Dongfang Zhenxuan's intelligent vending cabinets officially entered the lobby of the south and north floors of New Oriental headquarters, as well as Dongfang Zhenxuan's office, mainly focusing on Dongfang Zhenxuan's self operated products.
Unlike the common offline container purchase and retrieval mode on the market, this smart vending cabinet focuses on product display. Consumers can purchase corresponding items through the Oriental Selection mini program displayed on the container and then ship them through logistics. At present, the gameplay of laying offline physical cabinets still needs to be verified.
The cultural and tourism business that has been explored since last year is also reflected in the financial report. New Oriental believes that starting from this fiscal year, "new cultural and tourism businesses will bring meaningful revenue contributions
The newly integrated cultural and tourism business recorded significant growth in this fiscal quarter, "said Zhou Chenggang, CEO of New Oriental, highlighting cultural and tourism for the first time in the financial report. During the financial reporting period, the company launched overseas study tours and domestic study camps for K12 and college students. In addition, multiple cultural and tourism projects targeting all age groups (including middle-aged and elderly people) are being organized in 30 characteristic provinces in China and internationally.
New Oriental CFO Yang Zhihui revealed at the financial report conference that the first quarter of the 2025 fiscal year is in the peak period of summer tourism, with a cultural and tourism business revenue of about 90 million US dollars, approximately 640 million yuan.
In the previous quarter conference call, he stated that the cultural and tourism business revenue for the 2024 fiscal year was 380 million yuan. It is expected to be around 1.2 billion yuan for the entire fiscal year 2025, with a loss of around 100 million yuan. After all, the cultural and tourism business is still in the investment period, but it may be profitable in the fiscal year 2026.
New Oriental's offline expansion is still ongoing.
As of August 31, 2024, the total number of New Oriental schools and learning centers was 1089, an increase of 64 compared to 1025 as of May 31; Compared to 793 as of August 31, 2023, there has been an increase of 296 rooms. As of August 31, 2024, the total number of schools is 80.
Yang Zhihui stated that in order to maintain a healthy balance between revenue and profit, we will carefully manage capacity expansion and plan to increase offline campus capacity by approximately 20% to 25% in the fiscal year 2025.
Due to the accelerated expansion of teaching space and the increase in related cost expenses brought about by the newly integrated cultural and tourism business, New Oriental's operating costs and expenses for this quarter were $1.1423 billion, a year-on-year increase of 27.6%. Non GAAP (non GAAP) operating costs and expenses (excluding equity based compensation expenses) were $1.1354 billion, a year-on-year increase of 32.8%.
Among them, the revenue cost was 583.5 million US dollars, an increase of 32.3% year-on-year. Sales and marketing expenses amounted to 193.7 million US dollars, a year-on-year increase of 42.3%. General and administrative expenses amounted to 365.1 million US dollars, an increase of 15% year-on-year.
As of August 31st, New Oriental's cash and cash equivalents amounted to $1.147 billion. Fixed deposits of 1.5138 billion US dollars and short-term investments of 2.2486 billion US dollars. The deferred revenue balance (i.e. cash received from customers and recognized as revenue upon delivery of related services or goods) was $1.7331 billion at the end of the first quarter of fiscal year 2025, an increase of 23.7% year-on-year.
As of October 22, New Oriental has repurchased approximately 9.8 million American Depositary Shares in the public market under its share repurchase plan, with a total value of approximately $457.9 million.
New Oriental expects its revenue for the second quarter of fiscal year 2025 (September 1, 2024 to November 30, 2024) to be between $851.4 million and $871.8 million, a year-on-year increase of 25% -28%, excluding Dongfang Zhenxuan's self operated products and live streaming e-commerce business.
Yang Zhihui explained at the financial report meeting the revenue growth guidelines for various businesses in the new fiscal quarter: the overseas study business is expected to grow by more than 20%, and the adult business is expected to grow by 30% to 35%; High school business accounts for about 20%, while education new business accounts for 50%.
Due to the seasonality of education, each second quarter tends to be slower. However, he emphasized his confidence in the annual revenue growth of about 30%.