A Wall Street Journal article entitled “China to Issue Licenses for Education Companies to Resume After-School Tutoring” yesterday excited the markets. After months of crackdown, are things turning around?
Share prices of Gaotu (NYSE: GOTU), one of China’s largest edutech companies which lost more than 90% of market cap this year, briefly rose sharply at the opening yesterday:
However, the reality might not be as exciting as it sounds. Here are some of our thoughts:
- The companies’ tutoring businesses will still need to be run as non-profits, as previously indicated at the start of the crackdown;
- The licensing requirement just puts the tutoring part into a more predictable framework, not a more profitable or growth centric one;
- Many of the edu-tech companies under the crackdown have already started other business units in order to survive:
for example, New Oriental (HKG: 9901) has pivoted to vocational education, while Yuanfudao is starting a down jacket brand (literally and figuratively for Winter);
- Xi’s government has a track record of delivering very-carefully prepared and well studied policy changes, and sticking with them;
- President Xi wrote about his intentions to reform this industry as early as in 2014;
On the other hand, Biyu’s, the leading ed-tech player in the (also very competitive) Indian market, raised $1.2 billion debt to fund its acquisitions, much more than initial target of US$500 million.
This is the world we are living in.