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New Oriental Education Beats Estimates But Stock Slides

New Oriental Education & Technology (EDU) topped analyst expectations for its fiscal first quarter, as the China-based company continues to recover from the pandemic’s effects. EDU stock fell.

EPS fell 20% to $1.15, beating estimates by 14 cents. Revenue slipped 8% to $986.4 million, topping estimates of $956.5 million.

New Oriental provides private educational services in China. In recent years the company’s  revenue has mostly come from K-12 tutoring services for elementary school, middle- and high-school students. It has also been investing heavily in online education since 2015.

Michael Yu, New Oriental’s executive chairman, said in a statement that the Covid-19 outbreak continues to impact business.

“The slight decrease (in revenue) was mainly due to the delayed enrollment for summer and autumn classes and the shortening of summer holiday in many major cities by one to two weeks this year, as well as the delayed resumption of offline operation in certain cities, such as Beijing,” he said.

But as the pandemic slowly fades in China, he said, positive signs of recovery have started to emerge. Namely yearly revenue is growing 8% at its K-12 after-school tutoring business.

Looking Ahead

Most of the schools in China have resumed face-to face classes since end of September. As a result, New Oriental has also gradually resumed offline operation in all cities, including Beijing.

“We are glad to have seen significant pick-up in the year-over-year trend of student enrollments and cash proceeds from students for the autumn semester, which is a positive sign of recovery,” Yu said. “Looking ahead, we believe that our financial performance will bottom out starting from the second fiscal quarter.”

Meanwhile, New Oriental has placed more focus on merging online and offline operations. This enables it to reach a broader pool of students online in cities it serves. It piloted the program last summer in 20 cities. The strategy aims to boost enrollments and speed up the recovery of businesses.

Deutsche Bank analyst Vitus Leung said in a research note Oct. 9 the pandemic’s effects will continue for the near future.

“We expect the company to continue to spend in its online business, with sluggish revenue from overseas language test prep business,” he said. “Hence, we anticipate near-term margin remaining under pressure.”

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EDU Stock

Shares slid 5.2% to close at 162.10 on the stock market today. EDU stock found support in a pullback to the 50-day line in late September but is extended past a flat base buy point of 153.12.

New Oriental has a Relative Strength Rating of 84 and an EPS Rating of 88. Rival GSX Techedu (GSX) has an RS Rating of 99 and and EPS Rating of 84.

But last month GSX said the SEC is investigating it after “a number of short-seller reports” accused the company of exaggerating its student counts and financials.

The SEC investigation comes after TAL Education (TAL), a rival of GSX, admitted to reporting inflated sales data.

EDU stock has also long been the target of short sellers and disclosed an SEC investigation in 2012. But it reported in 2014 that the probe concluded without any enforcement action.

Still, financials of top China stocks remain under scrutiny. Luckin Coffee, a rapidly growing coffee chain in China, earlier this year admitted that some of its sales had been fabricated.

SOURCE: Ibd Videos Staff
VIA: Investor’s Business Daily


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