New Oriental's stock price plummeted, and Yu Minhong miscalculated

E-commerce newspaper Pro

2024-04-26 10:37Posted on the official account of Guangdong E-commerce News

The increase in revenue did not increase profits, and the stock price of New Oriental fell sharply

The popularity of Oriental selection does not seem to be the New Oriental in the warm winter.

On April 24, New Oriental released its results for the third quarter of fiscal year 2024, which included some eye-catching data:

According to the financial report data for the year ended February 29, 2024, the group's net revenue increased by 60.1% year-on-year to US$1.207 billion, and the operating profit increased by 70.6% year-on-year to US$113 million.

From New Oriental's financial report

It stands to reason that the double growth of revenue and profit should be good news. But what is unusual is that New Oriental's share price plummeted after the opening of the market on April 25, and as of the close of Hong Kong stocks, it has fallen by 12%, and U.S. stocks have also fallen by 14%, which is not favored by the market.

Why this contrast? The answer lies in cost. According to the financial report, the group's operating costs and expenses in the quarter were US$1.094 billion, an increase of 59.1% year-on-year. Affected by this, New Oriental's net profit in the third quarter was only US$87.17 million, an increase of only 6.8% year-on-year.

Increasing revenue without increasing profits is a taboo in the capital market, and it is no wonder that shareholders vote with their feet.

So, with such a high cost, where did New Oriental spend the money? The financial report mentioned that the main reason for the increase in costs was the increase in costs and expenses related to Dongfang's selection of self-operated products and live broadcast e-commerce business.

In other words, Dongfang Selection has largely dragged down the group's gross profit margin. You must know that Oriental Selection only contributes 20% of New Oriental's revenue and 10% of its valuation, but it accounts for nearly half of the group's costs, and this problem is difficult to solve in the short term.

Looking at Dongfang Selection alone, the situation is even more worrying. In the past year, the share price of Oriental Selection has continued to fall, and it has fallen by 80% compared to the high in February 2023. For this reason, Yu Minhong had to go down in person and invest 700 million Hong Kong dollars to increase his holdings to save the market.

Source: Baidu Stock Market

Seeing this, some people may ask, isn't live streaming very profitable? Why is the profit margin of Dongfang Selection, as the head live broadcast room of Douyin, still so low? Could it be that Yu Minhong chose the road of live broadcast e-commerce, but he actually took the wrong step?

The live broadcast dragged down New Oriental

To understand why Dongfang Selection is not favored by the market, we must first know that Dongfang Selection is not a "typical" live broadcast e-commerce company.

At present, the live broadcast e-commerce companies in the industry are roughly divided into two models, one is to build a live broadcast room around personal IP, that is, "big anchor and his team", such as Li Jiaqi's Mei ONE, Xiao Yang's three sheep;

According to Yu Minhong's vision, the model of Oriental selection is more inclined to the latter, and the composition of New Oriental is also very much in line with this "matrix" model. However, Dong Yuhui's sudden popularity disrupted the original plan, coupled with the later differentiation of "Walking with Hui", Dongfang Selection developed into a "dual-track" model with both individuals and matrices.

This raises two questions:

First, the cost is doubled. Dong Yuhui's "solo flight" is not as simple as opening a new live broadcast room, but to create a team for Dong Yuhui, recruit new staff, and rent a new office space. For example, at the end of last month, Dongfang Selection and Walking with Hui were broadcast live at the same time, and the manpower and material resources required will inevitably be doubled.

Second, the risks are heightened. Although Dong Yuhui and Yu Minhong have a good relationship, a considerable number of Dong Yuhui's fans are not fans of Dongfang Selection, and are even hostile to Dongfang Selection. The previous "small composition" incident has proved that Dong Yuhui has the possibility of cutting seats with Dongfang Selection, and if Dong Yuhui switches to other platforms in the future, it will be a huge blow to Dongfang Selection.

Source: Oriental Selection Live Room

In addition to the particularity of the Oriental selection model, the "inferiority" of live broadcast e-commerce is also a huge unstable factor.

Looking at the live broadcast e-commerce industry, "separation of production and marketing" is a common problem in almost every live broadcast room. The anchor with goods has a dual identity, both sales and spokesperson, if the product has a problem, the first consumer to find the anchor is the anchor. However, the production of the product is completed by the supplier, and it is impossible to absolutely control the quality of the product with the anchor's personal energy.

Therefore, once there is a mistake in the selection team and various problems arise in the sales process, the personal reputation of the anchor will plummet and be eaten up by traffic.

During this year's March 15, Dongfang Selection was condemned by public opinion because of the "trough meat" incident. Although Dongfang Selection apologized as soon as possible and gave a plan of triple compensation, it still failed to satisfy fans, resulting in a double decline in Dongfang Selection's stock price and number of fans.

So, is there a way to solve this industry's stubborn problem? This is the third point we want to say: to be self-employed.

In order to do a good job in quality control, Dongfang Selection has invested in the construction of factories since last year, independently produced grilled sausages and other commodities, and controlled product quality from the source. In April this year, it also made efforts in logistics, launched the "hourly delivery" business, and established cooperation with 17 front warehouses of Jingdong to further ensure product quality.

Dongfang selects the live broadcast of the self-operated barbecued sausage factory Source: Douyin

However, the proprietary model is a "heavy asset", with higher upfront costs, which will greatly reduce profitability and bring greater financial pressure to the group. For example, JD.com, which adopts its self-operated model, has a profitable time much later than Pinduoduo and Taobao, and has also encountered growth problems in recent years.

All in all, the transformation of live streaming has put New Oriental into another "pit", adding more uncertainty. Although it has raised the ceiling of New Oriental in the long run, it has doubled the pressure in the short term.

After all, it is not an easy task to do a good job in e-commerce and education at the same time.

Do what you do best

Another piece of information revealed in the financial report is that New Oriental's education business is getting better. As of February 29, 2024, the total number of New Oriental Schools and Learning Centers was 911, an increase of 68 compared to 843 as of November 30, 2023, and an increase of 199 compared to 712 as of February 28, 2023.

Yu Minhong said: "New Oriental's overseas exam preparation and overseas consulting business maintained a strong growth momentum in the third quarter, showing a year-on-year increase of about 52.6% and 25.7% respectively. At the same time, the domestic test preparation business for adults and university students recorded a year-on-year increase of approximately 53.2%. All of our new education businesses delivered strong results in the quarter, with revenue up 72.7% year-over-year. ”

At the same time, the latest research report released by BOCOM International pointed out that New Oriental's K9-related literacy and learning machine business continued to grow rapidly, and its revenue contribution rose to 22%. As of March 2024, it is estimated that the number of teaching points in the New Oriental Literacy Center will account for nearly 50% of the total teaching points, an increase of more than 100 teaching points year-on-year.

It can be seen from this that although the previous "double reduction" has dealt a big blow to New Oriental, in the final analysis, its background is still an education company, and it can still be slowly recovered after 30 years of heritage. What's more, the demand for education is more extensive, and its social impact is much more positive than that of live streaming.

In addition, the explosion of AI technology has also brought new possibilities to the education industry. Not long ago, it was announced at the Alibaba Cloud AI Intelligence Leader Summit that New Oriental has been connected to the Tongyi Qianwen model, and during the use of AI, New Oriental's student experience, teacher teaching quality, teaching and research content research and development and other scenarios have significantly improved student satisfaction.

Indeed, if Yu Minhong wants to save New Oriental, he still has to pick up his "old business" and do what he does best. Live e-commerce is like a pot of spirits, although it is enjoyable, it cannot quench your thirst after all.

Author | The wind is clear

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