The slogan of Gaotu, an online education institution, is' Famous teachers lead the way. '. From being the first domestically listed online education company to achieve large-scale profitability, to now facing the challenge of continuous losses, Gaotu's journey has been full of ups and downs.
Recently, GOTU (GOTU. US) disclosed its unaudited performance report for the third quarter ending on September 30, 2024. During the reporting period, Gaotu achieved a revenue of 1.208 billion yuan, a year-on-year increase of 53.1%; The net loss further expanded to 471.3 million yuan, compared to 57.66 million yuan in the same period last year.
Since the third quarter of last year, Gaotu has incurred losses for five consecutive quarters, with a cumulative loss of over 1 billion yuan. Among them, the first three quarters of this year have incurred losses of about 913 million yuan.
Faced with this rather awkward report card, investors have chosen to vote with their "feet", causing a heavy blow to Gaotu's stock price, which has fallen nearly 15% in the past two trading days. As of the close on December 5th Eastern Time, Gaotu's stock price fell 3.77% to $2.55, and its market value correspondingly shrank to $649 million. Currently, pessimism towards Gaotu is spreading among various parties. On social media platforms, several netizens claiming to be internal employees have revealed that they have experienced layoffs or salary cuts this year. Some investors have even bluntly stated on investor forums, "Where did all the money go
If we go back more than three years, Gaotu's situation is completely different from now. In January 2021, the stock price of Gaotu soared to $149, and its market value also increased to over $37 billion. However, to this day, the market value of Gaotu has significantly shrunk, leaving almost only a fraction of what it used to be.
Income growth rate falls short of burning money
Looking through Gaotu's financial report, it can be seen that as a leading online education platform, Gaotu's revenue increased by 53.1% to 1.208 billion yuan in the third quarter of this year, marking the largest increase in revenue since the "double reduction" in the second quarter of 2021. It is also the first time since the first quarter of 2022 that the revenue scale of a single quarter has exceeded 1.2 billion yuan. However, compared to its peers, Gaotu's revenue of 1.208 billion yuan is still far behind the net revenue of New Oriental (EDU. US), the education and training "big brother", of 1.435 billion US dollars in the latest fiscal quarter (June 1 to August 31, 2024), and lags behind TAL Education (619.4 million US dollars), which is also a well-established education enterprise.
At present, Gaotu's business is divided into two parts: learning services (including non disciplinary training services, traditional learning services, and university and adult services), and intelligent learning content and products. Among them, learning services are the main source of revenue for Gaotu, accounting for over 95% of the total revenue. Shen Nan, Chief Financial Officer of Gaotu Group, stated during the financial report conference that in this quarter, over 75% of Gaotu's learning services revenue came from non disciplinary training and traditional learning services. The revenue from education services for college students and adults accounted for less than 20%. However, the revenue from college education services and study abroad related services both achieved double-digit year-on-year growth.
However, behind the sustained growth of revenue indicators, Gaotu's net profit not only did not increase, but also turned from profit to loss. The management of Gaotu explained at the meeting that this is mainly due to, on the one hand, Gaotu's increased investment in offline and study abroad services, which, although causing short-term pressure, is actually a strategic decision for long-term growth. On the other hand, Gaotu's handling of explosive business opportunities in the first half of the year has also resulted in current losses in resource allocation during the high-speed growth period.
In other words, Gaotu is currently in a mode of "burning money for growth". The high cost of acquiring customers, high traffic, and fierce competition have long been the basic labels of the online education industry, and Gaotu's losses are not unrelated to the sharp increase in marketing expenses. In the third quarter of this year, Gaotu's sales expenses were 885.8 million yuan, an increase of 104% from 434.4 million yuan in the same period last year, accounting for 73.3% of its revenue. If the timeline is extended to the first three quarters of this year, Gaotu's sales expenses reached 2.2852 billion yuan, which is double the 1.0355 billion yuan in the same period last year.
This is obviously more radical than New Oriental and TAL Education. Previously, New Oriental's latest fiscal quarter (June 1 to August 31, 2024) showed that its marketing expenses were $193.7 million, accounting for only 13.2% of its revenue. Looking ahead to the future, from June 1 to August 31, 2024, its sales and marketing expenses amounted to $181.9 million, accounting for 29.4% of its revenue.
Burning money for growth itself is not the problem, the key lies in the profit challenge faced after high investment. At present, Gaotu is still burning money. In the third quarter of this year, Gaotu's net cash outflow from operating activities was 714.4 million yuan, compared to 209.9 million yuan in the same period last year.
A noteworthy detail is that during the earnings conference, Shen Nan stated in his performance outlook for 2025 that the company will adopt a more dynamic approach to balance scale, investment, and profitability, with a focus on expanding the profit base and improving the operating profit margin of existing businesses. In addition, it mentioned optimizing the fixed cost structure, such as research and development expenses and general administrative expenses, but did not explicitly mention the planning of marketing expenses.
The second growth curve is difficult to find
This year marks the 10th anniversary of Gaotu's establishment. For Gaotu, the past decade has been full of ups and downs.
In 2014, with the rise of online education, Chen Xiangdong, former CEO of New Oriental, founded the O2O teaching platform "Learn from Who", positioning itself as a learning service platform for finding good teachers. In 2017, who to learn from focuses on the K12 (from kindergarten to high school, 5-18 years old) online education track; In 2019, who learned how to successfully land on the New York Stock Exchange. What sets it apart from other online education companies is learning from someone who has already achieved profitability before going public.
After going public, the company achieved rapid performance growth, especially in the fourth quarter of 2019, with operating revenue reaching 935 million yuan, a year-on-year increase of more than four times, and net profit climbing to 174 million yuan, a year-on-year increase of more than six times. Correspondingly, the stock price of those who learned from it also showed a soaring trend, jumping from the initial issue price of $10.5 per share at the time of listing to the highest point of $140.05 per share, surpassing New Oriental's market value at one point.
However, who to learn from for sustained growth in performance and rising stock prices has also become a focus of attention for short selling institutions. Since 2020, who to learn from has been frequently targeted by short selling institutions. Many well-known short selling institutions, such as Citroen Capital, Scorpio Capital, Muddy Waters, and Grizzly Research, have taken turns to short it, conducting up to 16 times, making it the Chinese company with the most short selling times among Chinese concept stocks at that time.
2021 is an important milestone worth noting in the development process of learning from whom. In April, it was officially announced that the company name would be changed to "Gaotu Group". Just three months later, the "double reduction" policy was introduced, and the online education industry ushered in an unprecedented turning point. Faced with this change, turning to college students and adult vocational education has become a common choice for online education companies, and Gaotu Group is no exception. Starting from the third quarter of 2021, Gaotu Group has shifted its strategic focus to areas such as university and adult education, non disciplinary tutoring, and intelligent learning content and products. According to the official website of Gaotu, its products cover postgraduate entrance examination, youth literacy, language training, vocational qualification training, study abroad application, etc.
In fact, looking back at the development trajectory of Gaotu since its transformation in 2021, in addition to deeply cultivating the education field, it has also actively sought new growth points, such as e-commerce live streaming. At the end of 2021, New Oriental will build its e-commerce live streaming business into the second growth curve, providing a new transformation path for the entire education and training industry. Inspired by this, multiple educational institutions have followed suit, such as Doushen Education launching Doushen Selection and TAL Education launching Xueersi Youpin (later renamed Xueersi Youpin). In this wave, Gaotu Group is not willing to fall behind and launched a live streaming sales platform called Gaotu Jiapin in 2022.
However, the successful model of Oriental Selection is not easy to replicate. According to the financial report data, Gaotu Group recorded a attributable loss of 9.165 million yuan on the Gaotu Jiapin project in 2023, while the net loss of Gaotu Group for the entire year of 2023 was 7.3 million yuan. This means that Gaotu Jiapin has to some extent become a drag on the profitability of Gaotu Group.
In September of this year, Gaotu Jiapin announced the suspension of broadcasting. Chen Xiangdong explained that the reason for the suspension was that the revenue did not meet expectations. "We did not do so well, and (Gaotu Jiapin) was unable to truly bear its own profits and losses commercially for several months.
At that time, he mentioned that the positioning of Gaotu Jiapin would be readjusted in the future.
Under the difficult situation of live streaming sales, in early 2023, big models represented by ChatGPT became a hot concept. During this year, AI technology became an important topic for Chen Xiangdong to speak in public. In June 2023, in an internal speech on the ninth anniversary of Gaotu, Chen Xiangdong clearly explained to all employees the company's three major business development directions, namely, online+offline+OMO business, short video live broadcast business (including Tiktok and video number), and ChatGPT+education business.
Just three months later, at the analyst meeting for the second quarter of the 2023 fiscal year, Chen Xiangdong further elaborated on the company's specific layout for AI technology: "With the implementation of artificial intelligence technology in various aspects of the company's products and services, we are constantly improving the work and service efficiency of our front-end teaching, back-end teaching and research, customer service, design and other teams, and enhancing the user learning experience
However, after more than a year, whether in this financial report disclosure or financial conference, the management of Gaotu has rarely mentioned the company's investment and latest progress in the AI field.
