In the third quarter of 2021, Hong En Education achieved revenue of 259 million yuan and a net loss of 38.2 million yuan, turning from profit to loss year-on-year.
As the "first stock of online education for children in China", the price-to-earnings ratio of Hong En Education was once as high as 3568 times. However, in a year, Hong'en Education's stock price has turned downward.
The unoptimistic financial situation, the main business full of crises, the overly vertical track, the head enterprise entering the competition...
Crises abound
Unlike the revenue structure of other educational institutions, the main source of income of Hong En Education is not education and training but subscriptions.
In the third quarter of 2021, Hong En Education achieved revenue of 259 million yuan, an increase of 65.1% year-on-year. Among them, the revenue of online subscription business was 220 million yuan, an increase of 82.7% year-on-year, accounting for 85% of total revenue.
At present, Hong'en Education's App products include Hong'en Literacy, Hong'en Pinyin, Hong'en Thinking, Hong'en ABC, Hong'en Stories, Hong'en 100,000 Questions, Hong'en Bilingual Picture Books, and Hong'en Love Movement, mainly providing educational products and services for children aged 3-8.
In the Apple App Store, Honn Literacy ranks third in the list of free apps for children, with 650,000 ratings and a score of 4.8 out of 5. Hong'en bilingual picture book was listed as "main recommendation" under the children's classification, and Hong En's 100,000 questions also entered the "Editor's Select Children's APP".
On this basis, the user base of Hong En Education is very impressive. According to the financial report, the average total monthly active users in the third quarter were 17.68 million, an increase of 58.6% year-on-year, and the number of paid users was 1.64 million, an increase of 19.7% year-on-year.
For children's users, providing literacy, pinyin, thinking and other learning, it seems to be a relatively rigid market, but in the current context, there is no small compliance pressure in the model of Hong En education.
In April this year, the Ministry of Education issued the Guiding Opinions on Vigorously Promoting the Scientific Convergence of Kindergartens and Primary Schools, emphasizing the implementation of relevant national regulations, and off-campus training institutions must not train preschool children in violation of the law. On June 1, the new version of the Law on the Protection of Minors came into effect. It stipulates that kindergartens and off-campus training institutions shall not conduct primary school curriculum education for preschool minors. In July, the "double reduction" policy was implemented, and it was clearly planned to do a good job in the governance of out-of-school training for preschool children aged 3 to 6, and online training for preschool children must not be carried out.
According to the policy provisions, the online discipline training institutions that were originally filed for the record will be changed to the approval system. Where approval is not passed, the original filing registration and Internet information service business license (ICP) shall be cancelled. Subsequently, the Ministry of Education also further clarified the scope of K9 off-campus training disciplines and non-disciplines, and languages, mathematics and foreign languages are managed according to the discipline categories.
Referring to the provisions of "subject class", "preschool age", "online training" and so on, Hong En literacy, Hong En pinyin, Hong En thinking (former Hong En mathematics), Hong En ABC (former Hong En English) have huge compliance problems.
In particular, Hunn literacy is not only the star product of Hong'en education, but also the existence of the most polarized two-level commentary. In April 2020, in the "Clean Net 2020" special operation, the National Computer Virus Emergency Treatment Center named Hong En Literacy for suspected privacy non-compliance. And on the black list of black cat complaint education and training, Hong En's literacy is also impressively listed.
Hong En Education has also incubated non-disciplinary training Apps such as Hong En 100,000 Questions and Hong En Love Sports, the risk of violation is small, but its launch time is still short, and it is not a product that parents just need, and it cannot replace the subject App in a short period of time. Compliance risks cast a layer of uncertainty over the future of Hong'en Education.
Loss quagmire
In the case of unclear prospects for the development of the main business, does Hong En Education have a strong financial position to support the transformation? Judging from the financial report data, it is not optimistic.
In the past five quarters, although revenue and gross profit have generally increased, losses have been unusually glaring. In the third quarter of 2021, Hong En Education's net loss was RMB38.2 million, turning from profit to loss year-on-year. Although there were small profits in the third quarter of 2020 and the first and second quarters of 2021, the losses in the past five quarters were far greater than the profits.
To make matters worse, In the case of unsatisfactory profits, Hong's three expenses were not well controlled. In the third quarter of 2021, its research and development expenses, sales and marketing expenses, general and administrative expenses were 131 million yuan, 67.2 million yuan and 25.8 million yuan respectively, a substantial increase of 134.7%, 195.7% and 67.1% respectively.
Among them, for sales and marketing expenses to grow the fastest, the reason given in the financial report is that "the company's strategic strengthening of brand recognition has led to an increase in advertising promotion costs and wage-related expenses", even so, the increase in expenses of nearly three times year-on-year is still somewhat abnormal. What's more, not burning money for marketing, relying on word-of-mouth communication has always been the "way to get customers" claimed by Hong En.
Its founder Chi Yufeng has repeatedly told the media that in the education industry, the role of burning money to obtain users is not large, "we are not the same, we are based on product capabilities, in the case of not burning money marketing, relying on parents to occupy the market by word of mouth" "Money burned out may encounter a crisis." However, judging from the third quarter financial report, such "word of mouth" is obviously unable to meet the needs of Hong En, and Hong En is no longer so determined about the past road.
In the earnings report, Hong En Education revealed that its board of directors authorized a share repurchase program. Under the program, the Company may repurchase the Company's shares for a total amount not exceeding $10 million over the next 12 months. Hong seems to want to boost market confidence, but before that, it is a more urgent task to lift the risk of non-compliance and escape the quagmire of losses on his app.
Where is the road ahead?
In the current situation, Hong En has probably "seen the strange". Founded in 1996, Hong En Education, transformation is a key word that cannot be bypassed.
From the launch of China's first computer learning software "Groundbreaking", to the switch to adult English in 1997, to the development of early childhood education in 2001, and in 2016 to focus on the development of enlightenment education app, Hong En Education has been exploring different business directions.
At present, even if it is no longer the glory of the listing a year ago, Hong En has returned to the "old line" of more than twenty years and continues to explore new ways out.
And in the next direction, Hunn was already eager to try. In the first quarter of this year's financial report, Dai Peng revealed that the company is cooperating with Oxford University Press to develop a comprehensive graded reading app "Hong En Graded Reading". In August, the "Hong En 100,000 Questions" was announced, focusing on the children's enlightenment encyclopedia Q&A. Recently, "Hong En Ai Sports" was launched, and Dai Peng specifically mentioned the latest product in the third quarter financial report, "This is an artificial intelligence fitness application designed for children, aiming to combine fitness knowledge and interesting interactive content to provide a scientific and effective way to exercise at home." ”
Various measures, Hong En Education's ambition to develop early childhood quality education has been highlighted. Backed by the technical support of Chi Yufeng's "Perfect Department" company, Hong En Education does not seem to need a "sharp turn".
But the company still can't get rid of its reliance on subject training apps such as Hunn Literacy, and gamified learning has long been controversial. In addition, the head education enterprises obviously have a lot of favor for the enlightenment education track, which is a popular track for transformation.
There are internal troubles and external strong enemies, and it is still unknown whether Hong En Education can run the subdivision track of enlightenment education wider and wider.