New Oriental's performance is to the right and the stock price is to the left

On the evening of April 24, New Oriental disclosed its latest quarterly financial report. In the third quarter of fiscal 2024, New Oriental's net revenue was US$1.207 billion, up 60.1% year-on-year, and net profit attributable to shareholders was US$87.2 million, up 6.8% year-on-year. Despite the performance of revenue and net profit, the capital market did not buy it. As of the close of the U.S. stock market on April 25, Beijing time, New Oriental's share price fell nearly 14%. After the opening of Hong Kong stocks on the same day, New Oriental's intraday share price fell by more than 16%. In this regard, some experts believe that New Oriental's performance has not met market expectations. At present, New Oriental does not disclose the specific revenue of each business in the quarterly report, but whether it is non-discipline training, new business of intelligent hardware or traditional study abroad training programs, they have all achieved growth in this quarter. Industry experts also pointed out that related businesses such as study abroad consulting and training contributed significantly to New Oriental's performance.

Single-quarter revenue and net profit both rose

According to the latest quarterly financial report, New Oriental achieved net revenue of US$1.207 billion, a year-on-year increase of 60.1%, an operating profit of US$113 million, a year-on-year increase of 70.6%, and a net profit attributable to shareholders of New Oriental of US$87.2 million, a year-on-year increase of 6.8%.

In response to the outstanding performance of the net revenue growth of more than 60%, New Oriental attributed it to the increase in revenue driven by the company's new business of education attributes, Oriental selection of self-operated products and live broadcast e-commerce business in the financial report. Yu Minhong, founder and executive chairman of the board of directors of New Oriental, said in the financial report: I am glad to see that the company's growth momentum continued to maintain growth in the third quarter and exceeded expectations.

Although Yu Minhong stated that his performance exceeded expectations, New Oriental's stock price on the day of the earnings release did not seem to buy it. On April 24, Beijing time, the U.S. stock market opened, and New Oriental's share price fell by more than 19%. As of the close of the U.S. stock market on April 25, Beijing time, New Oriental's share price fell 13.96% to $77.08 per share. In the Hong Kong stock market, as of the close of trading at noon on April 25, New Oriental's share price fell more than 16% to HK$59.55 per share.

Ge Wenwei, a partner of Multiwhale Capital, said in an interview with a reporter from Beijing Business Daily that the stock price fluctuations of U.S. stocks are related to the company's financial report in the current quarter, but there is no positive correlation. Stock price fluctuations come from investors' expectations for the company's growth over a longer period. Judging from New Oriental's latest financial report and stock price performance, investors obviously have higher psychological expectations for New Oriental.

Back to the financial report of New Oriental itself, the revenue growth in a single quarter exceeded 60%, but the net profit growth was only 6%. In this regard, Ge Wenwei said that to a certain extent, it has been a performance performance of increasing income but not increasing profits. In response to such performance, it is normal for the stock price to fall.

Fourth-quarter performance growth is expected to slow

It is worth noting that, judging from the performance of the financial report, New Oriental's revenue and net profit have gradually recovered. Compared with the previous performance, taking the third quarter of fiscal year 2021 as an example, New Oriental achieved a net income of US$1.19 billion and a net profit of US$151 million in the quarter. In terms of revenue, New Oriental in 2024 has equaled or even exceeded this data in a single quarter.

In this regard, Ge Wenwei analyzed that after business adjustment, New Oriental's revenue and profit growth in the education business have tended to be stable, and the overall performance has also returned to the growth track. According to the financial report, New Oriental achieved a total net revenue of US$3.177 billion in the first three quarters of fiscal 2024, an increase of 48.6% year-on-year, and an operating profit of US$340 million, an increase of 139.4% year-on-year. Non-GAAP operating profit was $437 million, an increase of 116.9% year-on-year.

In addition, New Oriental expects that the company's total net revenue for the fourth quarter of fiscal year 2024 (March 1 to May 31, 2024) will be between 1.102 billion and 1.127 billion US dollars, a year-on-year increase of 28% to 31%. In this regard, New Oriental said on the earnings call that due to the seasonal impact of the company's main education business, in terms of revenue growth and profitability, it is generally expected that the fourth quarter will slow down compared with the third quarter.

Based on the above two financial report data, New Oriental's total net revenue for the full year of fiscal 2024 is expected to be between 4.279 billion and 4.304 billion US dollars. Compared with the net revenue of $4.277 billion in fiscal 2021, it is basically flat. As of February 29, 2024, the total number of schools and learning centers under New Oriental was 911, an increase of 68 month-on-month and 199 year-on-year.

The overseas business contributes to the main revenue

A reporter from Beijing Business Daily combed through the financial report and found that at present, the education business is still the absolute main force of New Oriental's revenue. According to Yu Minhong's disclosure in the financial report, New Oriental's new education business revenue increased by 72.7% year-on-year in the quarter.

It is understood that New Oriental's new education business includes non-academic tutoring business and intelligent learning systems and equipment. According to the financial report data, during the quarter, New Oriental's non-academic tutoring business was carried out in nearly 60 cities, with 355,000 applicants, compared with 786,000 in the previous quarter, a decrease of 54.8% from the previous quarter, and 188,000 active paying users of intelligent learning systems and equipment, compared with 181,000 paying users in the previous quarter, an increase of 3.9% from the previous quarter.

In addition to the performance growth brought by the new education business, New Oriental's traditional education business also showed strong growth momentum. According to the financial report, during the quarter, New Oriental's overseas exam preparation and overseas consulting business increased by about 52.6% and 25.7% year-on-year respectively. At the same time, the domestic test preparation business for adults and college students increased by approximately 53.2% year-on-year.

Yu Miao, an Internet education expert and founder of Susu Consulting, believes that the brand potential energy accumulated by New Oriental in the field of academic training still exists, so when it enters the field of non-academic training and intelligent hardware, New Oriental's brand can be recognized by parents. In terms of traditional education business, the study abroad market will usher in recovery and growth from 2023, and as the "old bank" of New Oriental, the study abroad business will also bring it revenue growth.

In Ge Wenwei's view, in the next few financial reporting cycles, New Oriental's business for college students and study abroad groups will contribute to its higher profits. In terms of new education business, there is still a trend of large-scale management and growth. Yu Miao said in the analysis of business growth that New Oriental's study abroad business will maintain rapid business growth in a relatively long-term period, while the new education business will maintain growth while gradually slowing down.

Beijing Business Daily reporter Zhao Boyu