Online Education Firms Gain More than 100,000 Students in a Month

Zuoyebang, China’s Leading K12 Online Tutoring Platform?

On April 17, 2020, the Beijing-headquartered online education firm Zuoyebang’s CEO Hou Jianbin announced (in Chinese) a strategic cooperation with the Chinese national women's volleyball team. His company became the exclusive global endorsement partner of the team, attaching their identity to education and vice versa. This helped the K12 online education company once again attract the attention of the people across the country post-outbreak. Two months later it raised USD 750 million in a new financing round as investors demonstrated their continued trust in — and focus on — Asia’s booming edtech market. This Series E round of investment came from renowned investors such as Tiger Global, Hong Kong-based private equity firm FountainVest Partners and existing investors, SoftBank’s Vision Fund, Sequoia Capital China, Xiang He Capital and Qatar Investment Authority – after which the total amount raised reached above USD 1 billion. Since being founded just over six years ago, how has Zuoyebang（作业帮）managed to grow so rapidly? What is the development status of the entire industry? This article will take you from the perspective of analyzing Zuoyebang, together with an in-depth understanding of the operating logic of this company, to a snapshot of the K12 online education industry. Industry Education is a topic that is discussed in every household, but it has its own particularities that prevent it from being fully industrialized. It requires strong policy intervention. This also makes the education industry one of many industries that is affected more by macro factors. Online education products were first introduced in the late 1990s, and have been in development for more than 20 years. The current online education products can be roughly divided into early childhood training, K12 and adult training –, and among them, the K12 track has always been the eye-catching choice.  What makes the K12 circuit so popular? • Policies From 2018 to 2019, various national policy documents for online education provided many dividends for the development of online education in China.  The government came up with various preferential policies to encourage offline schools to go online during the peak of the COVID-19 outbreak in China.  • Economy As of 2019, the central government's fiscal expenditure on education has increased by each year, and the proportion of fiscal education expenditure in GDP has exceeded 4% for seven consecutive years. In 2019, the scale of China's online education market exceeded CNY 320 billion, of which 21.3% was in K12 education, that is, the scale of K12 online education market in 2019 has exceeded CNY 68 billion. With the rapid development of the domestic economy in recent years, people's living standards have gradually improved, and household savings have also increased. Among them, in the K12 education sector, family education expenditures accounted for 20.6% of household expenditures, 52.3% of households let their children participate in off-campus business education counseling, and the proportion in first- and second-tier cities was as high as 67%. It can be seen that, regardless of the overall economy, market size or household expenditure, online education has a very good economic foundation and development prospects. • Technology Online education relies on the development of Internet technology. The continuous development of the Internet has made the online education industry develop rapidly. The improvement of hardware performance has brought great improvements to the online learning experience, and higher-performance devices can provide a better-quality experience. The development of big data, artificial intelligence and other such technologies has helped in providing more teaching and learning services for students. Because it relies on the Internet, compared with offline education, online education has a faster development speed and more innovative business models; in the subsequent technological development and iteration, such as VR/AR, the online education industry will branch into yet more development paths. The above factors have promoted the rapid development of the online K12 field. For various reasons – such as policy, capital, and market –, the track will continue to develop continuously. In 2018, the K12 market scale was CNY 400 billion, and the online K12 market scale reached CNY 30.2 billion, with a penetration rate of about 10%. It is expected that, by the end of this year, the online K12 penetration rate will reach 23%, and the market size will exceed CNY 100 billion. According to iiMedia the growth rate of China's online education market will remain between 19-24% in the next three years. This also represents a bright market prospect for online education. • Society At present, the level of domestic education and its layout is constantly improving, but high-quality educational resources are still short in supply. Under such circumstances, extracurricular tutoring has become a good tool for improving scores in exams. Under pressure from transportation, teacher qualifications, and teaching supervision, more families tend to consider online tutoring. Online education gives students in areas with relatively weak educational resources more opportunities to access a wider range of knowledge. It can alleviate the geographical imbalance of educational resources objectively, hence having a broader development space. In addition, the K12 education stage is longer and has a relatively longer consumption cycle, which also makes the track so popular.  A track full of Competitors Many firms have emerged in online education over recent years. There are both online and offline players, as well as companies that focus on Internet gameplay. For example, New Oriental Online, Xueersi School, Yuanfudao Series, GSX Techedu (跟谁学), Zuoyebang, etc. The participants can be divided into three major subdivisions: 1. Those that are committed to optimizing traditional offline education and emphasize the irreplaceable nature of offline education, 2. Those that rely on the Internet platform and emphasize teacher training for students as capturing the essence of education 3. Those that develop new tools/content/platforms, create new open methods and advocate the use of smart applications to replace or assist real teachers. Zuoyebang Being founded in 2014, Zuouyebang didn’t take long for its iOS version to be ranked on top in the Appstore education category. On January 16, 2015, the new 4.0 version was launched, focusing on the ‘photo search’ function. On August 18, 2015, the newest version of the app added a synchronous practice function, symbolizing the major transformation of Zuoyebang from a simple topic retrieval tool to a comprehensive and efficient learning platform. In July, 2016, the Zuoyebang live broadcast function was launched, providing online teachers and course services. A month later the firm raised USD 350 million in a Series D financing. The firm is dedicated to providing a full-discipline learning and guidance service for elementary and middle school students across the country. Its users have exceeded 800 million, with a 170 million MAU.  Zuoyebang independently develops a number of learning tools, including photo search for questions, live lessons, ancient text assistant, and composition search. Students can get the steps needed to resolve each problem and the answers to the test sites by taking pictures and voices notes, interact with the teachers through the live class, find their knowledge weaknesses and supplement them with accurate practice, watch the live broadcast of the course, connect with teachers online for one- on- one sessions, communicate with students of the same age across the country. The firms’ own learning tool matrix basically meets the independent learning needs of K12 students. In the early days, it used the advantage of Baidu system traffic to quickly accumulate a large number of users. At present, it still has an absolute advantage in similar tools. Zuoyebangs’ direct competitor is the USD 7.8 billion- valued Yuanfudao. They both use tool products and online education courses to transform users. Yuanfudao has a slight advantage in model attempts and market operations, while the Zuoyebang is built around the community and user traffic.  These pure online education companies and players such as New Oriental are potential competitors. These opponents have a better user base offline with less focus on online.  It is not just about moving offline classrooms to online, nor is it more about providing better auxiliary tool optimization – rather, how to explore better education models and business models, and play a differentiated competition with offline education and training, are the problems online education players need to consider and solve. User value  In the K12 online education market, there are three main parties: parents, students, and the platform. If the platform wants to gain recognition from more users and increase the number of users, it must meet the needs of parents and children. Let's explore the needs of the participants and how Zuoyebang meets the needs of its users. • Parents In the context of the current relative shortage of high-quality educational resources, and as the majority of K12- stage parents don’t have the educational ability to help their children with their homework, it has almost become a rigid requirement for students to participate in extracurricular tutoring. Parents’ appeals for students’ participation in extracurricular tutoring is mainly because of its high -quality and efficiency. High -quality mainly refers to high-quality teaching methods, high-quality classroom experience, visible achievement improvement, etc. High -efficiency mainly refers to the improvement of student quality and achievement within a time period. At present, parents adopt more learning methods – mainly including on-site tutoring, nearby trusteeship or education institutions, and online school platforms. • Students For students, interest and deliverable stage results are the things they care about most. Starting to like learning, good course experience, and the teacher's style are all factors that attract students to participate in tutoring and learning. Whether it is online education or offline education, students' academic performance and growth experience are the most critical factors and the best feedback to parents. The traditional online school platform is more convenient and can solve the problems of time and regional transportation teaching resources. The courses are mostly recording and broadcasting, and more are providing universal learning skills, which cannot be well solved and improved for specific student problems. The existing K12 students are basically those born after 2000 or even after 2010, and the Internet has a high penetration rate in their lives. They are also more able to accept online education to receive information and learn knowledge. Personalized learning, gamified learning, and how to use the advantages of the Internet to compete with the offline education industry in differentiated competition are issues that the current education platform has been working to solve. • Platform From the above analysis, we can know that parents and children in the K12 stage have their own needs and the current solutions have not met their needs well. As a platform operator, how can one meet their needs and attract them to this platform? As mentioned, Zuoyebang provides a photo search function and a package of student learning tools (Chinese composition, word query, ancient text assistant, English composition, correction book, etc.), which can solve the problems of students' self-study improvement after class and homework for most of the parents.  Classes are graded according to students’ own levels, which can provide students with better personalized learning rhythm. Teachers’ personal tags, audition courses, college evaluations and other information also provide more personalized options for parents of students. Business value  Zuoyebang’s core business is live classes. The important indicator for judging whether a business can be healthy is revenue. Here we use the GMV model to analyze whether the core business of the operation is healthy. GMV = number of users * conversion rate * customer unit price. The improvement of any one of the indicators – such as the number of users, the conversion rate, and the unit price of customers – will have a positive impact on the growth of the overall revenue, so next, we focus on analyzing the means by which the Zuoyebang improves these three key indicators. • Increasing number of platform users The continuous registration of new users is the most basic guarantee for the continued increase in revenue. How does Zuoyebang attract new users to register? Payment channels include advertising, public welfare, offline agency and other methods. Precise user promotion on Internet platforms (such as Douyin, Weibo, WeChat public account, etc.). Free channels include tool matrix and word-of-mouth drainage. The tool matrix of Zuoyebang is relatively good, which can attract and accumulate new users to join. After users like their experience on the platform, they share and recommend it to users around them. • Improve user conversion rate After users enter the platform in various ways, the platform needs to guide users to convert their consumption into paid users. Improve the user experience of the experience class. Zuoyebang provides high-quality free experience classes and low-cost regular class experience packages. Dispel consumer concerns and promote consumption. Provide a refund method and customer service hotline in the App. • Raising the unit price of customers For online education platforms, the main way to increase customer unit prices is to repurchase. In addition, Zuoyebang has also developed VIP services and other modules. Operations In the Internet industry, the working relationship between products and operations is extremely close. The following is a list of the main operating activities of Zuoyebang: • Star endorsement activities • Cooperation with and sponsoring TV and Film Programs  • Cross-border cooperation and advertising  • Public welfare assistance On the whole, the advantages of Zuoyebang user scale, user experience, technology development, etc. are obvious with weak marketing and other aspects comparatively. Policy support and market development have given opportunities to the platform to develop continuously, but high traffic and competitors are is a very strong threat. 

Zouyebangs's Entrance Examination Users Hit 8.05 Million

Ten of the Most Anticipated Upcoming New Retail IPOs in China 2020

Even though COVID-19 has impacted business activities globally, the Chinese stock market has recovered rather quickly, and the IPO deals have been pushed through at almost the same levels as at the same time last year. Investors are quite optimistic about Chinese stocks – the stocks added about $1 trillion in value last week after the government encouraged investors to buy the country’s shares. EqualOcean has long been keeping a close eye on China’s retail companies. In this article, we will introduce ten companies that are most anticipated for their potential IPOs, given investors’ increasing optimism in Chinese IPOs and the transformation of new retail companies. Yuanfudao is a unicorn company, founded in 2012 and focused on Chinese K12 online education. It is competing with GSX and Zuoyebang as one of the Chinese top edTech companies during the Covid-19 epidemic. In eight years, Yuanfudao’s cumulative service users have already exceeded 400 million. It owns products such as Xiaoyuan Souti, Xiaoyuan Kousuan, Yuantiku and Banma AI that cover a broad spectrum of studying scenes. On March 31, Yuanfudao officially announced the completion of its latest G round financing, led by Hillhouse Capital, Tencent Investment, Boyu Capital and IDG capital. After the round was completed, the valuation of Yuanfudao reached $7.8 billion. Zuoyebang was internally incubated by Baidu in 2014, and it started to operate independently in 2015. It began with tool-based education applications like photo search. After accumulating a certain number of users, Zuoyebang cut into the online live class market. Currently, it has various educational products, including Zuoyebang, Zuoyebang Zhiboke, Zuoyebang Kousuan. With more than 800 million cumulative service users, Zuoyebang is presently the largest K12 online education platform in China. Its latest E round fund happened on June 29 and helped the company raise $ 750 million. Xingsheng Selected was founded in 2014. It seized the opportunity of community group purchases and fresh e-commerce platforms, forming an e-commerce platform focused on community groups. Already deployed in 12 provinces, it has tens of millions of active users, with over 7 million daily orders. On June 1, Xingsheng Selected got a B round financing of $200 million from KKR. It was also revealed as one of a number of Changsha companies under listing in 2020, and it is possible it will be the first community group fresh retail company to go IPO. The firm competes with Qdama, Miss Fresh, Tongchengshenghuo in China. Read more about Qdama Miss Fresh is a fresh retail unicorn founded in 2015. At the beginning of 2020, the monthly active users of Miss Fresh were in first place in the market, with more than 2.7 million users, followed by Yonghui Life and Hema Xiansheng, with 1.9 million and 1.5 million MAU respectively. In May, Miss Fresh also completed its latest round of financing with multiple investors, including CICC, according to 36Kr. This round of funding will add pressure on its peers, at least on the pre-warehouse track. Kidswant specializes in mother and child products, aiming to provide an all-inclusive business model to meet the demand of expectant mothers and children aged 0 to 14. On April 23, 2018, Kidswant was delisted from NEEQ,  despite increasing positive revenue and more than 16.7 billion CNY in market value at the time. In recent years, its online platform has gradually gained customers through its offline store reputation and premium membership population. On July 13th, the official website of Shenzhen Stock Exchange announced the prospectus of Kidswant, which mentioned Kidswant’s plan of raising 2.45 billion CNY through IPO on GEM. Miniso was founded by Guofu Ye and Japanese designer Miyake Junya in 2013. It initially positioned itself as fast-fashion retail stores, with most product pricing around 10 CNY. It sells very similar products to big brands like MUJI, but at a much lower price, also includes successful joint name products like the ones with Marvel. In 2018, Miniso received 1 billion CNY strategic investment from Hillhouse Capital and Tencent Investment and launched its project of preparation for an IPO. Perfect Diary is a Chinese cosmetics brand founded in 2017. It has recently discussed IPO matters with several investment banks and is expected to be listed at the end of this year or the first half of 2021. Its investor lineup has been quite strong, including prestigious institutions like Zhenge Fund, Boyu Capital, Tiger Global Management and Hillhouse Capital. Naixue Tea (known as Nayuki) is a well-known domestic tea brand founded in 2015. All stores are directly operated, and not allowing any form of franchise. The main products include Xunhaocha, hand-made soft French bread and cold bubble tea. It emphasizes the quality and freshness of ingredients and aims to develop healthier drinks than traditional milk tea. Recently, the market rumors reveal a potential US IPO plan of Naixue Tea, aiming at raising as much as 400 million dollars. Jiang Xiaobai is a Chinese light-aroma baijiu brand with a focus on the market of young adults. It was founded in 2012 by Shiyuan Tao, who founded the new trend of a younger population in online alcohol consumption. Jiang Xiaobai’s investors include Hillhouse Capital, Sequoia Capital, IDG Capital and other domestic first-tier funds. Reuters reported that Jiang Xiaobai planned to IPO to raise $500 million to $1 billion in 2020, but the firm has denied this news. Genki Forest was founded in 2016 and is well known to consumers for its representative product – sparkling water. In 4 years, Genki Forest has completed four rounds of financing with a valuation of 4 billion CNY. Its product category has evolved from the initial sugar-free sparkling water to the current sugar-free tea, milk tea, fruit tea and other beverage subdivisions. On July 4, Genki Forest’s first self-built factory in Chuzhou was opened to the public for the first time. It has three high-speed production lines with an annual output of 450 million bottles. Market Analysis Although spreading through the spectrum of the retailing industry, all ten companies have emphasis on digital transformation. For the online education market that includes Yuanfudao and Zuoyebang, the market has crushed out more and more small-to-middle-size players in recent years because of its high cost of winning new customers and building a stickier customer base. The increasing advertisement fee and low conversion rate add pressure on giant players, but at the same time promotes creative products with higher efficiency like AI classes and double teacher live broadcasts. Future differentiators in the industry are very likely to be the ability to independently generate followers and to develop high-quality educational products. For the cosmetics market and soft drinks market that, includes companies like Perfect Diary, Naixue Tea, Jiang Xiaobai and Genki Forest, the main players all aim to attract the younger generation. Their advertisement through different online platforms like Xiaohongshu and Tiktok, their fashionable designs and PR strategies all boost their short-term popularity. However, behind the high revenue growth among these companies, ongoing challenges are still building up around consumers’ confidence in domestic products. With unsustainable sales strategies oriented around Japanese-like brand names and cheaper substitute concepts, we see further limits to the possible future margin growth. For fresh e-commerce companies like Xingsheng Selected and Miss Fresh, EqualOcean expects the differentiator to be the ability to break into third and fourth-tier cities, where local lower-priced farm goods create higher barriers to entry. With a long supply chain built into the market, every adjustment and renovation could significantly increase the cost. This kind of challenge also caused a high amount of bankruptcy in the industry at the end of 2018. Besides, more prominent companies like Meituan and DiDi have also entered this community group fresh e-commerce business, posing challenges to smaller ones.

GSX Techedu Touches USD 20 Billion Valuation

GSX Techedu stock closed trading at USD 78.22 as of Wednesday, July 8, an increase of USD 9.16, or 13.17% from the previous closing price of USD 69.06. The stock traded between USD 69.84 and USD 83.13, pushing the total market value to a staggering USD 18.672 billion.  The market value is increasing by each day, even after being shorted 11 times by research firms such as Muddy Waters, Citron Research, Grizzly Research and Scorpio VC. The latest report was published by EducationEquity – research based on Grizzly Research’s’ open-source data, saying GSX gave their explanations about some of the short-seller questions, but always evading the important subject under discussion, and giving many false and misleading responses.

H1 2020 at a Glance: China's Online Education Industry Boom

Businesses in many physical industries have been affected by the COVID-19 pandemic, but the catastrophe has also provided new opportunities for the development of many online industries, as well – one of which is the online education industry. China's online education market has maintained steady growth over the past five years. The COVID-19 epidemic in 2020 has brought new vitality as it boosted demand. It is expected that China's online education users will reach 309 million by the end of 2020. Due to traditional face to face education coming to a halt at the start of the year, online education has witnessed an explosive growth. Students from all over the country started online classes at home. Some of the leading K12 online education firms took the opportunity to announce the provision of free courses during the outbreak, allowing them to gain a maximum number of users.  Talking about K12 online education firms, Yuanfudao set a new record with a staggering USD 1 billion financings in March. Following that, Zuoyuebang, another online education firm, nabbed USD 750 million for its series E round, becoming the second-highest valued edtech unicorn in China.  From celebrity endorsements, naming various popular online variety shows to placing small video ads on Douyin, Zuoyebang, Yuanfudao, Youdao and other head K12 online institutions have been working hard to prepare ample ‘ammunition’ to meet the upcoming summer enrollment season. Other than K12, vocational and quality education tracks saw their popularity increase with Tencent and 58 other firms investing in related companies. Let's use the data to see what was happening in the domestic education venture capital market throughout the first half of the year. According to statistics collected by EqualOcean from ITJuzi, in the first half of 2020, there are 10,640 companies in the field of Education. Of these, 60% had no investment, 28% were invested in and the investment question is not clear about the remaining 12%. In the industry, the angel round stage accounted for the largest proportion of 37%, followed by the A round stage, accounting for 31%. As can be seen, a large number of companies are still in a very early stage, because it is a result-oriented industry. The product's effectiveness needs to be verified and observed over a long period of time.  As 2019 broke, we were all warned of China’s forthcoming ‘capital winter’, only to wake up in Q1 to mega-rounds from Zhangmen (USD 350 million), DaDa (USD 255 million), Andela (USD 100 million) and opening Q2 was Coursera’s USD 103 million Series E. 2H 2019 saw the surge continue with mega-rounds from Knowbox (USD 150 million), ByJu’s (USD 150 million), VIPKid (USD 150 million), Zhihu (USD 434 million), Ruangguru (USD 150 million) and Guild (USD 157 million). Little did we know what 2020 would bring. COVID-19 and way too many video calls later, 1H 2020 has marked a resurgence in mega-rounds, averaging a USD 100 million round per month. In the space of six months, EdTech has it’s very own giant (that didn’t come from China or the US), Yuanfudao has set a new high water-mark with a USD 1 billion round and ‘mainstream’ investors are venturing to learn more about the future of education, the role of technology and the opportunities to participate in that growth. In the first half of 2020, 112 investment events occurred in the Chinese education industry;, the number of transactions fell by 32% month-on-month and 45% year-on-year. The total amount involved was CNY 19.6 billion, an increase of 15% year-on-year. ; The decline in the number of financings in the field is obvious, but the total amount of financing has risen, and the average amount of single financing has also increased by 77% year-on-year to CNY 175 million. Over the past three years, the activity of CNY funds in the field of education investment and financing has been significantly higher than that of USD funds. The number of CNY transactions accounted for more than 90%, and the transaction finance accounted for about 55%~62%; but in the first half of 2020, the total amount of CNY transactions substantially declined and the total amount of USD transactions exceeded CNY transactions for the first time, accounting for 77%. Talking about the amount of funding in the first half of 2020, out of the 112 investment events, the largest number of transactions were in tens of millions of yuan. 19 firms raised more than CNY 100 million, with a total financing amount of CNY 15.7 billion, accounting for 80% of the total financing. Now we should dig deeper into the firms which actually boosted their financings in the first half of 2020. We have short-listed the top 10 education firms with the highest amount of funding raised. These firms are backed by the likes of huge investors such as Tencent, IDG, Sequoia, Temasek etc.  As far as the sub-sectors are concerned, quality education dominated the number of financings with 26, which only totaled CNY 1.3 billion. K12 education showed its dominance, with 18 investment events adding up to CNY 12.4 billion.  As the largest subdivision track in the field, K12 Education has always attracted capital. In the first half of 2020, K12 Education’s financing amount accounted for 60% of the entire industry. Yuanfudao’s new round, worth USD 1 billion, was the main reason behind it. It was followed by the highest single amount of financing in the field; in June, the Zuoyebang completed its E round of financing, worth USD 750 million.  Other than that, listed Chinese edtech companies have shown their strengths as well. NetEase Youdao released its Q1 unaudited financial report which showed the firm has achieved a steady growth for a fifth consecutive quarter. Another US-listed firm, GSX Techedu, has been a hot topic. Its financial results have been found too good to be true for some US research firms. The Chinese online tutoring company has been shorted as many as 10 times in the first half of the year but the stock is showing no signs of weakness – instead, recently it hit the highest ever amount since it was listed.  With Edtech companies such as Yuanfudao (猿辅导), Zuoyebang (作业帮) and Xueba (学霸君) suddenly catching the limelight and seeing this as an opportunity, major Internet companies have stepped up their efforts in the online education track as well.  Alibaba (BABA: NYSE) launched a product called 帮帮答, directly translated to ‘help me answer.’ It is a paid question and answer platform for primary and secondary school students for academic problems. This is the first independent product launched by Alibaba in the field of education. Zhang Yiming, the founder of the world’s most valued unicorn, ByteDance, expressed his intention to consider and plan for a new strategic direction towards education in a letter released on the eighth anniversary of the company. “The online tutoring market has been very hot recently, and many people ask about my company's business progress. In fact, I am not anxious and have patience. I think it is still very early. The education business must have more fundamental innovations, of course, provided we have a deeper understanding. Especially for a company that already has a successful business, starting a new business is not easy. Bold attempts in new fields are an important part of starting a business.” Zhang said. It is evident that the epidemic has created a window of opportunity for huge tech giants to enter the education industry – but at the same time firms which are already are in the business have stepped up to prove the strength and advantages of online education. By providing free online classes, companies such as Yuanfudao, GSX Techedu and Zuoyebang gained millions of users.

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GSX Seemingly Immune to Allegations as Stock Price Reaches New Highs

GSX Techedu, a firm with a current market cap of USD 13.4 billion, saw its stocks reach USD 57.81 – an all-time high since getting listed almost a year ago, in June 2019. The firm has been performing rather well on the stock market regardless of being shorted 10 times within 3 months.  One of China’s largest online education firms is becoming a battle-ground stock. Short interest – people betting against it – is surging due to prominent fraud allegations. The reason behind the stock surging may well be the firm’s management openly disputing the accusations since which the stock has rallied nearly 60%, suggesting at least some investors find the explanations reasonable. On February 26, Grizzly Research, a research firm that produces differentiated research insights on publicly traded companies, released a 50-page report, ‘Why We Believe GSX Techedu is the Worst Publicly Traded Education Company.’ The firm really took a hit on April 14, after short-seller Citron said it's ‘the most blatant Chinese stock fraud since 2011.’ Following Citron's first report, as many as 16 US law firms initiated class actions to investigate the Chinese education company that was recently valued at USD 10 billion, for exaggerating profitability. The survey focused on whether the company overstated indicators such as profitability, income, student enrollment, and teacher qualifications, or did not disclose information related to investors. What’s worse, on May 7, Citron Research issued the third part of the report in a series of GSX Investigations. Citron presented to US regulators definitive evidence of GSX Techedu committing securities fraud using multiple undisclosed related party transactions to hide expenses/liabilities. The report also pointed out that it is highly unlikely that GSX claimed to acquire a customer at half the cost vs. peers. And over 80 highly suspicious WeChat official accounts engaging in customer acquisition solely for GSX that were not registered to any disclosed GSX entity. Muddy Waters, the same firm which unveiled the Luckin Coffee fraud, joined the party in late May, claiming at least 70% of the firm’s users are robots and calling it a massive loss-making business. The ADRs tumbled 34% from their Feb. 24 peak the following day.  Larry Chen, the founder of GSX, replied via his social media account by saying, “Muddy Waters did some homework for the report. It’s just a pity that they didn’t understand the business model of our online live large class.” As of June 24, according to Bloomberg, Carson Block, the founder of Muddy Waters Capital LLC, has renewed his short-selling attack on the Chinese after-school tutoring platform. Block called the USD 14 billion stock’s recent price surge “a massive middle finger pointed at Washington.” He also alleged failure by China’s securities watchdog to regulate the US-listed company. It's fair to note GSX’s management has been providing investors with explanations for these fraud accusations. So, the investors have to either believe the company they have invested in – or put faith in these short sellers. Both Muddy Waters and Grizzly Research provided instructions for investors wanting to replicate their findings. The accusations are quite serious. Such stories can bring a company’s stock to record lows or even get delisted if proven. The investors themselves should do some extra due diligence with the stock – i.e. verify the research findings and compare to GSX Techedu management's explanations. The ones not willing to put forth this extra effort shouldn't consider buying shares, at least until these allegations are resolved.  It is evident that the epidemic has created a window of opportunity for huge tech giants to enter the education industry but at the same time firms which are already are in the business have stepped up to prove the strength and advantages of online education. By providing free online classes, companies such as Yuanfudao, GSX Tecchedu and Zuoyebang gained millions of users. According to a recently released iiMedia's (艾媒) research report on the development of China's online education industry, the online education market in China reached CNY 404.1 billion in 2019 and it is expected to reach CNY 453.8 billion in 2020. The report further stated that the total number of online education users in China is expected to reach 309 million by 2020, around 40 million more than the estimates of iResearch.

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