China’s Education Giant New Oriental Lost Around USD 900 Million After Crackdown

Consumer Discretionary Author: Sasha Chen Feb 23, 2022 01:31 AM (GMT+8)

Since China banned the company from making a profit in the billion-dollar private education industry, on February 22, 2022, New Oriental reported a loss of USD 876 million for the six months to November 30, compared with a USD 229 million net profit over the same period of last year.

New Oriental Building

In September 2021, the Chinese government issued the Law on the Promotion of Private Education as a strong reform of China's private education sector.

This legislation aims to ban for-profit tutoring in attempts to cut off homework burdens and after-school training in China's education sector. This is also a state policy of alleviating family costs on childcare expenses and boosting the country's low birth rate.

Founded in 1993, New Oriental is one of the largest Chinese online tutoring companies and experienced a tremendous loss after the major crackdown. New Oriental's share price has plummeted more than 92% since its peak last year and its competitor Tal Education was dropped by 96%, respectively.

To combat the ever-pressing business environment, the company has laid off 60,000 employees in January 2022 to preemptively cut operational costs. Prior to this ban, New Oriental had employed over 100,000 staff, including 54,200 teachers, and occupied a significant market share in China's education sector.

New Oriental's heavy losses have been underpinned by the strict national regulation as investors often consider it as an important indicator of purchasing power. As the company ceases offering tutoring services to students from kindergarten through grade nine, it had long expected a substantial adverse impact on the net revenue in 2022.

From the company's press release in November 2021, it announced that the company will shift its focus towards educational products and services that are not related to K-8 Academic AST Services and will explore new business growth initiatives.