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Briefing Oct 15, 2020 10:53 am EqualOcean

16 Firms from China Included in GSV's 'Global Edtech 50'

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Oct 26, 2020 12:20 pm ·

Online Education Firm 17Zuoye Plans IPO before 2021

According to Chinese media channel IPO Zhidao, online K12 education platform 17Zuoye will formally submit the F-1 prospectus to the US Securities and Exchange Commission soon and plans to complete its listing before the end of 2020. Due to the impact of the epidemic, Chinese online education companies listed on the US stock market, such as NetEase Youdao and GSX Techedu, have performed relatively well in 2020. However, GSX Techedu saw a massive drop in share price on October 20, 2020. If we talk about the overall year, GSX's range increase was recorded at 207.23%, while NetEase Youdao saw an 88.21% increase. In the same period, New Oriental and TAL, the two top-listed edtech firms on the US stock market, were up 45.87% percent and 40.64%, respectively.  Like Larry Chen, GSX Techedu's founder and CEO, Liu Chang, the founder of 17Zuoye, has a strong understanding of New Oriental. He served as the youngest school principal at one of New Orientals schools and later as the assistant vice president of New Oriental.  At present, the company's specific products include school education platforms, a family education platform, an online subject tutoring platform for primary and secondary schools, and a social education platform. Among them, online schools are the primary source of income for the firm. According to the same source, as of May 2020, 17Zuoye's products have covered 160,000 schools in 365 cities across China, with over 100 million users. The user ratio of teachers, parents and students is about 1:10:20. It seems as if more leading online education companies are planning IPOs soon, considering their aggressive spending on advertisements. We might see two leading companies, Yuanfudao and Zuoyebang, go public either by the end of this year or early 2021.  Yuanfudao has recently completed an investment worth USD 2.2 billion, whereas Zuoyebang has been rumored to be working on a Pre-IPO USD 650 million round. EqualOcean asked the latter company to comment – they replied to say that the story is just a rumor. 

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Oct 21, 2020 02:26 pm ·

Yuanfudao Officially Completes USD 2.2 Billion Financing Round

With its latest round totaling up to USD 2.2 billion, Yuanfudao's post-investment valuation has skyrocketed to USD 15.5 billion – exceeding that of India's K12 education platform BYJU'S, which is valued at USD 11.1 billion, making the Chinese firm the world's highest-valued unicorn in the edtech industry.  This round of financing officially started in early August this year, but was finally divided into two sub-rounds. Old shareholders such as Tencent, Gao Yu Capital, Boyu Capital and IDG Capital pre-empted the purchase of firm's shares in August and completed the USD 1.2 billion at the end of August. It is also worth mentioning that Zuoyebang, which is a direct competitor of Yuanfudao, has been rumored to be working on a new USD 650 million round; upon being asked by EqualOcean Zuoyebang denied the news, saying it is just a rumor. Although with the huge amount of capital being spent on advertisements the company might be looking for another round before an IPO. Based on previously disclosed data, Yuanfudao's cash revenue for 2020 is expected to be between CNY 18 billion and CNY 20 billion, of which the K12 section has a target revenue of approximately CNY 15 billion and the adult education section approximately CNY 4 billion.  The core competence in the online education track is operational efficiency, which can be broken down into two main parts: one is to promote conversion rates and the other is the renewal rates. In the education industry, low renewal rates can be a fatal blow to education brands, though the problem is not obvious when they are small – but once the scale reaches millions, renewal is one of the indicators that control the rise or downfall of the enterprise.  Earlier, according to multiple sources, Yuanfudao's renewal rate was 80%, though the company's representative was quick to deny that.  The firm's operations director mentioned that renewal data should be split into old renewals and new renewals, the two data are very different, Yuanfudao's new (users) renewal rate is more than 70% because it is their first time experiencing the product, the courses may not be suitable, so renewal is relatively poor.  Although Yuanfudao has raised huge rounds, at the same time it is spending a lot of capital on an aggressive advertisement strategy. This might be an indication of the firm going public next year. 

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Oct 19, 2020 04:53 pm · Jingmeiti

VIPKid's Current Users Exceed 800K

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Analysis EO
Sep 21, 2020 09:59 am ·

Yuanfudao, China's First K12 Unicorn [2/2]

Core business analysis Increase in the number of users What actions did Yuanfudao take in terms of increasing the number of users? 1. As of 2020, Yuanfudao became a partner of China Railway Jixun, the operator of CCTV 'Chinese Poetry Conference' and China Railways official app. From online TV programs to offline transportation, all-round advertising has increased the firm’s brand awareness. 2. In terms of word-of-mouth, Yuanfudao aims at improving the user experience of parents. Parents can receive class reports and check class performance after their children have finished the live class. After the exam is over, parents can receive the exam report and check the performance asap so that they have a comprehensive understanding of student learning. This is incomparable to either a tutoring class or an offline training organization. Improve conversion rate It is evident from the front page of the app that Yuanfudao provides users with free and low-cost experience courses.  The fee for the most important and difficult special subjects at senior high school is only CNY 1, the famous 'thought enlightening' lesson is free to watch and there are a couple of other free or very low-priced courses. The free/low prices allow students to take trial courses and relieve users from worrying about the quality of the courses and their learning effects. This is critical to enhancing trust. On the other hand, the method of setting up coupons for newcomers and inviting friends to register to receive ape coins encourages users to spend and improves users' platform participation and enthusiasm. Finally, before users purchase core special courses, they can listen to them for free, which is very helpful to improve users' willingness to buy. In addition, Yuanfudao supports the behavior of dissatisfied withdrawing once the course is purchased. After the user listens to the first class, if they are not satisfied, they can withdraw before the second class.  Pricing strategy In terms of pricing, Yuanfudao first introduced a large number of low-price courses worth CNY 1 to attract users and increase users' trust. Hence reducing the risk cost of the user's first payment and paving the way for them to pay for the second time. As we know Yuanfudao mainly promotes large-class double-teacher courses, consisting of 30 lessons. The price of group lessons ranges from a few hundred yuan to more than CNY 1000. On average each lesson costs CNY 15-30, which isn’t very high if the teaching quality is high, especially compared to offline tuitions which may cost thousands of yuan.  It can be said that Yuanfudao has performed rather well in the three points mentioned above which is also evident by the increasing revenues year-on-year.  Industry chain Consumers of k12 online education products, that is the parents of the students, are generally mainly those born in the 80s and 90s. This group of parents is, firstly more educated, secondly, they accept the importance of online education and are ready to spend invest in their children's education.  Many parents do not register for offline tutoring classes and rely on the school’s traditional classroom teaching because they feel that their children have to complete homework when they come back from school and extra classes would be an extra burden. The problem is that in this way, the teacher can only take care of a number of students in the classroom, and others keep fail to keep up so they can only find another way. The traditional class model also has the problem of long class time and low efficiency. If they do decide to sign up for offline training institutions, the level of teachers in training institutions varies, good teachers are not guaranteed and top of that the fee is also very high. Some parents choose one-on-one offline tutoring. Comparatively, this method is safe and efficient. However, the current group of tutors is mainly college students and part-time teachers, lack of teaching experience and limited level is a problem. It can be seen that satisfying the parents' demand is a huge hurdle. Students Elementry: At the elementary school level, students’ learning autonomy is relatively poor, and it’s often the case that students are eager to play and run away easily in class. At this time, someone needs to supervise the learning and cultivate children to develop correct learning concepts and good learning habits. Junior high: Junior high school students begin to enter adolescence and rebellious period and become physically and psychologically sensitive. During this period, facing increasing academic pressure, students need to have study habits and learning methods that suit them. Otherwise, it is easy for them to get tired of being taught.  High school: At this stage, students have heavy academic work and face the pressure of the college entrance examination, that is, they need correct learning methods and a lot of exam training. Different students have different understanding and learning levels. Teach students in accordance with their aptitude and efficient special counseling is what they need. Teachers In 2015, the state issued regulations banning off-campus tuition fees for primary and secondary school teachers. At the same time, It has also issued a series of policies to encourage the development of online education. For some teachers, it is another source of income, but the workload due to the traditional school education system in China leaves teachers with no time or energy to give after school online classes. That’s why online education firms opt for part-time teachers with little to no teaching experience. However, it is not easy to find suitable methods to solve these common problems. Based on the above facts, it can be seen that parents, students, and teachers have their own demands and they have not been solved well at this stage.  To sum up the article, it is safe to say that: - The combined influence of policies, economy, social culture, technology, COVID-19 and other factors has promoted the rapid development of the k12 online education industry and will continue to maintain a relatively high growth rate in the next few years. - Yuanfudao, Zuoyebang, and Xueersi Online are the market leaders of the k12 online education industry. Each company has its own differentiated competitive advantage, but so far, there has not been a single company occupying most of the market share. The businesses of these three companies overlap and differ. In the next few years, the competition between them will become more intense. How to attract and how to retain users will be the focus of these companies.  - Yuanfudao's marketing strategy such as using a combination of online and offline marketing, a large number of advertisements on media and public transportation to has been its competitive advantage against the other two. Other than that, a series of operating methods such as free trial listening and newcomer coupons have played a large role in increasing paid users.  To find more about Yuanfudao click to check part 1 of this article. 

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Analysis EO
Sep 20, 2020 01:03 pm ·

Yuanfudao, China's First K12 Unicorn [1/2]

Yuanfudao took full advantage of the closure of schools during the lockdown period in China caused by the COVID-19 pandemic; it announced free consolidated preparatory lessons and live lessons for primary and secondary school students across the country. This allowed the firm to gain millions of users over a very short period while spending little capital on marketing.  The firm was established back in 2012, developing smoothly over the past eight years. After raising a total of seven rounds of financing and a staggering valuation of more than USD 3 billion, it is safe to say that Yuanfudao is the first unicorn company in the Chinese online K12 field. In today's increasingly fierce competition in the k12 online education field, how does Yuanfudao establish its position in the industry? What kind of competitive advantage does it rely on to stand out among its fellow competitors? This article takes you through the following aspects to give you an in-depth understanding of the operation logic of this company and the entire K12  education industry. Industry K12 education generally refers to the basic education received by students aged 6-18 from elementary school to high school. The education of children within this age group has always been valued by all sectors of society. Since 2013, various Internet giants and small and medium-sized companies have begun to focus on K12 online education. Favoring policies In recent years, the Chinese government has introduced a series of policies for online education to promote the use of information technology such as the Internet to serve the entire process of education and teaching and accelerate the innovation and development of smart education, build a 'Internet + education' support service platform, paving the way for the development of online education. In February 2018, four ministries and commissions jointly issued the notice on effectively reducing the extracurricular burden of primary and secondary school students to carry out special governance actions for off-school training institutions, and strictly regulated and rectified K12 institutions. Growing economy In recent years, the adjustment of the national birth policy has resulted in providing a huge potential user base for the K12 education industry. With the upgrading of China's consumption structure and the improvement of living standards, the proportion of per capita expenditure on culture, education and entertainment has also increased. According to the National Bureau of Statistics, the per capita expenditure on education, culture and entertainment of urban residents continued to increase in 2018, accounting for 11.4% of consumption expenditure. Hence we may conclude that parents are willing to invest more money in their children's education. Technological development The development of science and technology has been at the core of creating space for K12 online education to develop.  The popularization of smartphones since 2012 has greatly improved the convenience of k12 online education. These devices have made real-time learning without any geographical barriers possible. The continuous innovation and iteration of big data and processing technology, the use of scientific and technological means to enhance the learning experience, to stimulate learning interest and cultivate scientific learning habits – all of this has allowed students to obtain high-quality educational resources more conveniently. The above-mentioned factors at all levels have jointly promoted the rapid development of the K12 online education industry in recent years. Can this rapid development and growth continue in the next five year? According to statistics from iResearch, in 2017, the market size of the K12 online education industry was nearly 30 billion yuan. In the next few years, it will continue to maintain a rapid growth rate of 30%-40%. By 2022, it will reach around CNY 150 billion. At the same time, the user scale of the K12 online education industry has maintained a steady growth from 2015 to 2020. The penetration rate has also increased from less than 10% in 2015 and will reach about 20% by the end of 2020. The K12 online education industry still has a lot of room for growth and will likely maintain rapid growth in the next few years. COVID-19 boost 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. This has led to a huge decrease in customer acquisition cost for these companies. New customer marketing costs per head in 2020 (winter) was were recorded at less than 5% of the cost for 2019 (summer).  Fellow Competitors The online education track is full of competitors, with giants such as New Oriental with rich faculty and years of offline experience looking to grab a chunk of the market share. New companies have emerged as well during the past few years backed by strong investors and huge capital such as Yuanfudao itself, Zuoyebang, 17Zuoye, Onion Maths, VIPKID, etc. According to the latest statistics from Qimai data, in the monthly activity ranking of educational apps, the three apps of Yuanfudao, TAL owned Xueersi Online School, and Zuoyebang Live Class have long occupied the top three positions. The parent companies of these three educational products are the absolute leader in the industry in terms of user scale, company valuation, and market revenue. The following is an analysis of the development history and business models of these three companies, which will help us to understand the differences between different companies in the industry. Xueersi In 2013, Xueersi Education was renamed as TAL. In 2015, TAL acquired full shares of First Leap launching gaokao.com, kaoyan.com and 'Lewaijiao,' a new online education product which was created to be the first brand for children's education delivered by foreign teachers. In the early stage of the K12 online education market, Xueersi Online School was launched in 2009 when K12 online education was in its infant stage. In the beginning, it accumulated a large number of user traffic, and its development has been relatively stable since then. Xueersi aims to provide children aged 6-18 with all-subject extracurricular teaching, small class live broadcast + personalized tutoring, and AI technology-assisted teaching. The launch of the dual-teacher mode of live broadcast + tutors in 2015 triggered a new round of performance growth. In Q1 of 2019, the operating income of Xueersi Online School accounted for 9% of the overall income of the future, about 50 million US dollars. Xueersi was founded and developed earlier and got involved in online education earlier. Its advantage lies in his rich teacher resources and management experience. In the first-tier and second-tier cities, there is a large amount of offline education foundation. With more than ten years of accumulated reputation, users have a high degree of recognition for  their education products.  Zuoyebang Being founded in 2014, it didn’t take Zuoyebang long for its iOS version to be ranked on top in the Appstore education category. The firm is dedicated to providing full-discipline learning and guidance services for elementary and middle school students across the country. Its user base exceeds 800 million, with a 170 million MAU rate.  Zuoyebang independently develops a number of learning tools, including photo search for questions, live lessons, ancient text assistant, and composition search. Students can access 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 session, communicate with students of the same age across the country. Yuanfudao Yuanfudao started off as a search tool product called ‘Yuan Question Bank,’ back in 2012, and then shifted its business model to online class education. Since then, the firm has managed to raise a total of eight rounds of financing from renowned investors such as Tencent, IDG Capital, Warburg Pincus, Hillhouse, etc. As of March 2020, in addition to the Beijing headquarters, the company had established teaching and research centers and branches in 11 cities across the country, including Wuhan, Shenyang, Nanjing, Xi'an, Zhengzhou, Chengdu, Jinan, Changsha, Tianjin, and Chongqing, with over 15,000 employees. After nine years of continuous investments from well-known investors, the cumulative number of users of different products of Yuanfudao has exceeded 400 million. Among them, ‘Yuan Question Bank’ has provided 800 million problem practice services for students nationwide, ‘Xiao Yuan Search’ has provided 36 billion homework tutorials, and ‘Little Yuan Corrector’ has over 250 million daily corrections. As the renewal rate of core product courses raises the scale of users and revenue of the firm is expected to hit a new high. According to market research firm App Annie, from January to mid-March this year, Yuanfudao ranked first in ‘educational’ in-app purchases in China's app stores. In February, Alibaba developed DingTalk, which became the most downloaded free application. To sum it up, compared to the other two, Xueersi was established earlier and has the advantages of teachers and teaching content. The brand dividends accumulated by its parent company TAL also allowed Xueersi to accumulate a large user base in first- and second-tier cities. On the other hand, Yuanfudao and Zuoyebang were established at a similar time, and their development history relied on the traffic accumulated by their products to divert new teaching products and finally forming their own product matrix. The two are similar in terms of user scale and business model, hence they are direct competitors. The core businesses of all the above companies is online live teaching module. But at this stage, it can't be said which one is the most dominant. Other than that, there are more other startups catching up with the leaders trying to get a chunk of the market share. In the table below we've shortlisted top 10 education firms with the highest amount of funding raised in 1H, 2020.   To find out more about Yuanfudao's business follow the updates on the second part of this article by clicking here.

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Sep 7, 2020 07:03 pm ·

Ximalaya Sets up a Wholly-Owned Subsidiary

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Oct 22, 2020 05:09 pm ·

TAL Revenues up 20.8% YoY

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Oct 22, 2020 11:12 am ·

GSX Stocks Plummet Amid Leaked Financial Data

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Oct 19, 2020 04:53 pm · Jingmeiti

VIPKid's Current Users Exceed 800K

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Oct 13, 2020 04:44 pm · New Oriental

New Oriental's 2021 Fiscal Year Q1 Net Revenue Down 8% YoY

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Oct 13, 2020 11:39 am · Jingmeiti

Huohua Siwei to Receive USD 100 Million Funding

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Sep 29, 2020 04:32 pm · EO Company

China's Online Education Users Reach 381 Million

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Sep 25, 2020 06:06 pm ·

OPPO and Midea Reach a Strategic Cooperation

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Sep 18, 2020 05:19 pm · 36kr

TAL Cooperates with Alibaba Cloud

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