Consumer Discretionary Author: Qasim Khan Jul 28, 2021 04:34 PM (GMT+8)

Since the beginning of 2021, the once red-hot K-12 segment investment has cooled down, with fewer financing events taking place. In contrast, the amount of financing available for the education informatization track has been on the rise. With the favorable policy orientation and the ever-expanding market scale, can the educational informatization track become an investor favorite?

Education: reading, big Chinese

Educational informatization is the utilization of information technology to facilitate the diversification and improvement of education. 

Lack of financing events in K12, excellent performance by education informatization

Since the beginning of this year, various state policies have caused turbulence in the education market. Compared with the beginning of the year, the overall market value of education concept stocks has evaporated by nearly USD 100 billion.

On May 24, the news came out that the Education Commission of Beijing's Haidian District was about to introduce a 'double reduction' policy resulting in the decline of online education by 16.53%. TAL fell 17.14%, New Oriental fell 18.29% and Gaotu by 12.05%.

A month later the Beijing Municipal Education Commission stated that all district education commissions in Beijing will organize trusteeship services for primary school students from grades one to five, emphasizing that no subject training or group teaching will be organized which also resulted in the decline of online education stocks.

This has affected the K12 education track in the financing market. According to data compiled by ITJuzi, there were 37 investment and financing events in the K12 track in 2020, with an overall amount of about CNY 50 billion. Compared with last year, the K12 track capital has collectively cooled in 2021, and many capitals have already begun to withdraw. 

As of the end of June 2021, there were only 7 domestic K12 education financings, with total funding of CNY 1.51 billion. Vocational training, quality education and education informatization track show great potential, among which the amount of financing for education informatization track ranks first.

微信图片_20210728142945.png.png

With the continuous strengthening of supervision, the development of subject education is struggling, and many companies have shifted their attention to educational informatization. 

In 2020, driven by the policy of 'suspending classes and not stopping schools,' the online demand for educational enterprises' transformation has soared, and the educational informatization track saw a huge growth curve. A total of 63 financings were completed, and the cumulative financing amount reached CNY 5.2 billion with the amount of financing increasing by 174% in 2019.

For more than half of this year, the figure of financing for education informatization has ranked among the top three every month. A total of 33 financing incidents occurred, accounting for 29% of the total financing of the education track with the financing amount reaching CNY 2.07 billion.

Although the track has frequent financing events, there is still a big gap between the amount of money that has been invested in K12 and vocational education. A large amount of money on the track has flowed to a few leading companies. For example, XiaoETong has previously received hundreds of millions of yuan in its Series C and CNY 100 million in Series B. The remaining companies not only have a small amount of financing, but most of them are still in the early stages of financing – it is also worth mentioning that the seed round and angel round companies account for a large proportion. 

China's education informatization basically follows policy plans. From the emergence of Cloud platforms in 2012, smart education in 2014, future education and future schools in 2017, to the integration and application of 5G, AI, VR and other technologies later on.

During the 1.0 period of educational informatization, the state focused on building new infrastructure, promoting the popularization of hardware equipment and pursuing coverage and sinking rates. As of the end of 2019, the national primary and secondary Internet access rates increased from 25% to 98.4%, the proportion of multimedia classrooms increased from less than 40% to 90.2%, and 13.39 million teacher spaces, 6.3 million student spaces, and 5.89 million parent spaces were opened. 

After entering the education informatization 2.0, the country put forward the construction goal of gradually shifting from 'technology-based' to 'people-oriented' policies and meeting the individual needs of different groups of people has become an urgent need to solve pain points.

Under the strict control of this year's policy, many companies are aiming at the education informatization track because of the wide coverage of their products, which reduces the obstacles in the transformation of education companies. Smart education products cover all age groups of preschool education, K12, vocational education, and higher education. From home-school interoperability to teaching links to educational activities, technology-based products penetrate all aspects of the education process. Most of the company's products include hardware in which software and solutions are integrated, which realizes the extension and high integration of the product line and provides services to the four major groups of students, parents, teachers, and school administrators.

According to iResearch, the scale of the pan-AI product market in the education informatization track will exceed CNY 50 billion in 2021 and its penetration rate will increase to 11.3%. In response to the country's 'burden reduction' policy, the AI+ education business, which aims to reduce the pressure and increase the efficiency of students and teachers through technologies such as AI and big data, may usher in new growth. For education companies that have technological advantages, they can focus on increasing their investment in AI+ education, or they can tap into smart teaching, smart educational administration, basic cloud services and data services.

Whether the education informatization track can continue to maintain its growth momentum in the second half of the year and capital continues to favor it we will have to wait and see – a key factor being if official policies further support it.