Oriental Selection requires new stories beyond selling

Produced | Tiger Sniff Commercial Consumer Group

Author| Miao Zhengqing

Caption | Visual China

After 6 months of explosive development, New Oriental Online can finally breathe a sigh of relief: they have firmly grasped the lifeline of live streaming e-commerce and successfully put one foot ashore. But the other side of the coin is that they are beginning to face the dual test of "creating more anchor IPs" and "improving self-operated gross profit".

On January 17, New Oriental Online announced its fiscal year 2023 half-year (June 1 to November 30, 2022) performance report. According to the financial report data, New Oriental Online's total revenue increased by 262.7% year-on-year to 2.08 billion yuan in six months, and net profit increased by 207.6% year-on-year to 585 million yuan.

There are two special features about this earnings report. First of all, this will be the company's last financial report under the name of "New Oriental Online", and on January 5, New Oriental Online announced that it will change the name of "New Oriental Online Technology Holdings Co., Ltd." to "Oriental Selection Holdings Co., Ltd." And, this is the first semi-annual report released by New Oriental Online after Dong Yuhui's popularity, the financial report shows that in 6 months, New Oriental Online's GMV (total merchandise transactions) reached 4.8 billion yuan, the number of followers of Douyin account was 35.2 million, and the number of orders paid by the Douyin platform was 70.2 million.

Dongfang's Douyin e-commerce business, which is mainly selected, is already the "cash cow" of New Oriental Online. In six months, New Oriental Online's "self-operated products and live streaming e-commerce segment" achieved a gross profit of 749 million yuan, while the company's total gross profit in the same period was 982 million yuan, and the gross profit of "self-operated products and live streaming e-commerce segment" accounted for more than 76.2%. According to the financial report, "GMV from Douyin accounts for the vast majority of New Oriental Online's GMV".

Hidden behind New Oriental Online's "obvious growth" earnings report, there are also hidden worries. The tilt of the company's resources and the traffic support of the platform are the keys to Oriental Selection's reversal against the trend in June 2022. In a conference call on the day of the earnings report, Yin Qiang, CFO of New Oriental Online, revealed that the company completed a lot of "one-time investment" in Q2 of fiscal year 2023 (September ~ November 2022). At the same time, the size of the team of Oriental Selection has also surged, and the overall team size has risen to 500 in January 2022, and the number of anchors has increased from 5~6 to more than 30.

A Douyin insider told Tiger Sniff earlier in January that in 2022, major live streaming e-commerce platforms have opened a new round of IP cultivation and competition, some institutions that have risen under the Douyin ecosystem have begun to try Taoji live broadcasting, and some Kuaishou anchors have jumped to Doujie. Under such circumstances, Douyin Live hopes to cultivate more head IPs that deeply cultivate their own ecology and take root in the Douyin ecology stably. The new challenge facing Oriental Selection is: will the platform continue to provide traffic support in 2023? When new head IPs appear, can they maintain a stable growth trend in the face of more fierce competition?

Oriental Selection's self-operated profit needs to be optimized

"We have transformed from focusing on online education to self-operated products and live streaming e-commerce." New Oriental Online described its initiatives in the past year.

According to the financial report, "self-operated products and live streaming e-commerce" contributed 84.6% of New Oriental Online's revenue. In six months, the total revenue of New Oriental Online's "self-operated products and live streaming e-commerce" was 1.76 billion yuan. This part of the business is actually divided into two parts, one is the self-operated products sold by New Oriental Online self-built supply chain and through Oriental Selection and other channels; The second is third-party products that are live broadcast through channels such as Oriental Selection.

Self-operated products are the majority of New Oriental Online's revenue, but not the majority of profits.

It is reported that the total revenue of New Oriental Online's self-operated products exceeds 1 billion yuan, which means that self-operated products actually play the pillar of New Oriental Online's revenue - contributing more than 48% of the revenue. At the earnings conference, Sun Dongxu, CEO of New Oriental Online, revealed that in the 6 months covered by the financial report, New Oriental Online launched a total of 65 self-operated products, most of which are mainly agricultural products and food. The internal goal of Oriental Selection is to "launch an average of 5~10 self-operated products every month, and achieve instant explosion". According to the data displayed by Douyin, the highest sales of Oriental Selection's self-operated products is a self-operated grilled sausage, with a total of 2.4 million units sold. In January, the average daily order volume of self-operated kiwifruit juice launched by Oriental Selection exceeded 10,000.

At the earnings conference on the same day, Ma Li, an analyst at Zheshang Securities, said when asked: "More than 60 proprietary products contributed more than 1 billion in revenue, and the gross profit after the split according to the statement was about 25%. According to the financial report data, the gross profit of New Oriental Online's "self-operated products and live streaming e-commerce" is about 42.5%, which means that the gross profit margin of third-party products is currently higher.

Supply chain operation capability is another test in front of New Oriental Online. According to people familiar with the matter, the Oriental selection team has been building a supply chain in 2022, and a subtle change is that some cooperation models have evolved from the original "origin signing cooperation" to "investment and equity model". At the earnings conference, New Oriental Online executives specifically talked about the investment plan for suppliers and clearly proposed to "deepen the ability to control the entire supply chain." ”

The strategy of allocating streamer time will also affect profit performance. Since the live broadcast duration of the top anchor is relatively fixed, this means that there is a game between "live broadcast self-operated products" and "live broadcast third-party products". If New Oriental Online wants to expand the exposure of its own products in 2023, it may face the challenge of declining gross profit performance.

The third-party products selected by Oriental mainly adopt the commission cooperation model. In this process, the role of Oriental Selection is more like a pure "traffic master". But unlike its peers, Oriental Selection does not provide a commission for anchors. According to the financial report, New Oriental Online mainly motivates employees in the form of "bonuses, share awards, options" and so on. During the six months covered by the financial report, New Oriental Online's total compensation expenses (including share-based remuneration) decreased by 68% year-on-year to RMB230 million.

The challenge hidden here is anchor stability. Under this model, is it possible to retain top streamers for a longer period of time? In the past half a year, the number of anchors of New Oriental Online has increased by 6 times, and the number of operating accounts has also increased to 6. But among these new anchors and new accounts, none of them have the popularity and influence of Dong Yuhui. Brands that want to log in to the Oriental Selection Live Broadcast Room often value Dong Yuhui's super IP. In 2023, how to retain Dong Yuhui and maintain Dong Yuhui's IP influence is crucial for New Oriental Online.

At present, New Oriental Online is about to complete the name change. Internally, they've been working on Costco, Sam, and others lately. The commonality of these cases is: while establishing a good channel influence, optimizing the gross profit of self-operated products through the supply chain, and achieving small profits and high sales through the membership system. New Oriental Online is evolving in this direction. According to people familiar with the matter, there are more than 6 million repurchase users in the live broadcast room of Oriental Selection, and after the completion of the name change, Oriental Selection IP will be strengthened.

Oriental Selection is also thinking about new growth issues. The latest news shows that Oriental Selection is about to go to sea. In addition to the Douyin live broadcast room, Oriental Selection is trying first-party apps, Tmall, JD.com, and WeChat mini programs. However, people familiar with the matter revealed to Tiger Sniff that Oriental Selection will not go to Taobao Live or Kuaishou Live in the short term, and they are ready to continue to cultivate Douyin Live and tap the dividends here. "We are still in the early stage of transformation, we have already built 6 accounts on Douyin, and we have invested manpower and material resources to promote the construction of the account matrix, which makes our cooperation with Douyin more harmonious. At present, we and Douyin are in a benign win-win state. Sun Dongxu said.