New Oriental Financial Report Double Increase Omo Strategy Overall Layout K-12

On April 20, New Oriental handed in its report card for the third quarter of fiscal year 2021.

Compared with many domestic online education listed companies such as who Xue and other domestic online education companies, the revenue and net profit of the report card submitted by New Oriental have both increased in revenue and net profit in 2020.

According to the New Oriental report, the company's operating revenue in the third quarter of fiscal year 2021 (up to February 28, 2021) was 7.724 billion yuan (RMB, the same below), a year-on-year increase of 29.0%, and a net profit of 979 million yuan, a year-on-year increase of 9.9%. From the perspective of income structure, the net income of New Oriental Education Projects and services is 7.160 billion yuan, accounting for 92.7% of the total income.

Yu Minhong, executive chairman of the board of directors of New Oriental, said that the company's performance in the third quarter of fiscal year 2021 was much better than expected, mainly due to the comprehensive recovery of after-school education business of K 12 middle and primary schools as the company's growth engine. The number of students enrolled increased by 57% year-on-year, and the income increased by about 37% year-on-year. Among them, the business income of middle school increased by 35% and that of primary school increased by about 40%.

Prior to that, domestic online education listed companies disclosed their annual reports in 2020, with a number of annual revenue growth, net profit falling sharply and even turning from profit to loss, including who to learn from the education giant who is also listed in the US stock market.

According to the annual report of 2020, the company's net profit will change from profit to loss with 236.89% increase in revenue in 2020, with a loss of 1.393 billion yuan, down 714.63% year on year.

According to the arithmetical equation, the sharp increase of revenue and the serious decline of net profit indicate that the cost has expanded. In the past 2020, due to the sudden outbreak of the epidemic, the online education industry staged a "burning money" marketing "scuffle".

Marketing muddle

The most direct result of "burning money" marketing "scuffle" is the sharp increase of enterprise cost, which leads to the serious decline of net profit. In this process, the excessive increase of marketing personnel and other situations need to be paid when the "scuffle" gradually stops.

New Oriental is no exception.

"Our top priority remains to control costs and reduce company wide spending to minimize the negative impact of the epidemic." This is the position announced by New Oriental Group on the occasion of the second quarter report of fiscal year 2021.

From the financial report data, the cost of New Oriental mainly comes from marketing expenses and administrative expenses.

In the third quarter of fiscal year 2021, New Oriental's marketing expenses were 1.012 billion yuan, a year-on-year increase of 32.0%, and the expense rate was 13.1%, an increase of 3.39%. The company said the main reason for the increase was the increase in marketing staff to gain market opportunities after the new outbreak.

In the past year, online education giants such as who to learn from and tal future have poured money into marketing, and relevant advertisements can be seen everywhere online and offline.

As far as tal is concerned, on April 22, it released its financial report for the fourth quarter of fiscal year 2021 (as of February 28, 2021). During the reporting period, the company's marketing expenses amounted to 4.280 billion yuan, an increase of 171.57% compared with 1.576 billion yuan in the same period of last year.

Although Yu Minhong did not approve of such a "burning money" marketing model from the beginning, in the K12 marketing war, insufficient investment means that the market is divided up. Even if it is unwilling to do everything, New Oriental has to follow the trend and join the "scuffle", but New Oriental is relatively restrained.

"This quarter, we have begun to control marketing expenses. In the future, we will be more cautious about marketing expenses, because we want to improve teachers' qualification and teaching quality." Yang Zhihui, executive president and CFO of New Oriental, said at the third quarter financial report of New Oriental in 2021. Such a statement means that New Oriental will not participate in the marketing war in the summer enrollment season.

In terms of administrative expenses, the cost of New Oriental in the third quarter of fiscal year 2021 was 2.549 billion yuan, a year-on-year increase of 36.1%, and the expense rate was 33.0%, an increase of 6.49%.

"The main reasons for the growth are the expansion of the network of schools and learning centers, the increase in the number of employees, and the increase in the cost of the development of the online and offline integrated education ecosystem." New Oriental said.

Layoffs

A week ago, there was a rumor on the Internet that pointed to the centralized layoffs of New Oriental online company in the past month, involving multiple positions such as lecturer, teaching guidance and operation of large class business in primary and secondary schools. Different departments have different layoff targets. About 20% of the lecturers in the middle school department have left their posts.

In response, New Oriental online made an emergency response, saying that New Oriental online did not have centralized layoff actions or plans, let alone the so-called "department redundancy indicators.".

"There are regular quarterly optimizations, but they are not one size fits all layoffs. Like most of the Internet companies in rapid change, New Oriental online implements a strict staff performance appraisal system, in which the teaching staff is the top priority. It is indeed a long-term practice to optimize teachers whose teaching quality and performance are not up to standard on a quarterly basis. " New Oriental online said.

In view of the fact that about 20% of the leading teachers of the middle school division have left their posts and the layoff targets, New Oriental online said that the responsible person of the middle school business division has indeed been adjusted, but the company has no target of 20% layoff for the middle school business department.

"For the convenience of management, most of the lecturers of the middle school department are moving from Xi'an to Beijing in the past few months. At present, most of the core lecturers in Xi'an base have been transferred to Beijing. In the process of cross city migration, it is inevitable for some teachers to leave. We speculate that the transfer of most of the staff, together with the normal implementation of the optimization work in the current quarter, may have led to a misunderstanding among the outside world that the "centralized layoffs" of the middle school department is going on New Oriental online said.

21st century economic reporter learned from a number of New Oriental online employees that the core content of the so-called seasonal routine optimization of New Oriental online is actually the assessment of "continuation rate", which is also the absolute indicator of assessment. Employees whose renewal rate does not meet the standard will be optimized or eliminated.

It is reported that the indicators of class continuation in different regions and departments will be different, but the core of the assessment mechanism is the same.

This seems to be one of the important assessment indicators for the teaching and training industry.

A teacher who has worked in many teaching and training enterprises, such as New Oriental online, New Oriental and ape counseling, told the reporter that all institutions in the teaching and training industry have such "class continuation rate" assessment form.

"The" continuation rate "is a very important assessment index in every teaching and training institution. In the process of seasonal optimization, the elimination rate of each school is also very high." Another person with years of teaching and training industry experience said.

A former employee of a middle school teacher in a certain area of New Oriental disclosed to the reporter that in terms of the middle school department, there are 50 levels of teachers. For New Oriental, there are four semesters each year: autumn, winter vacation, spring and summer vacation, that is, there are four periods of class continuation. The highest level of class extension in each period is 3 grades, and the lowest level is 3 grades, with 70% class continuation rate as the boundary. Under special circumstances, such as arts and science, art students, etc., the base number (the total number of classes) will be adjusted, but students are required to write a situation statement.

"The retention rate of new teachers will not even exceed 30% within one year, so new Oriental is recruiting a large number of new teachers every year." He added.

A few days ago, with whom to learn also fell into the storm of layoffs, its reply is performance appraisal adjustment and optimization.

Omo strategy

In terms of cost control, New Oriental may have found a suitable way - Omo strategy.

As a latecomer of K-12 business, New Oriental has been catching up with each other, making use of its huge ground school advantages to lay out the Omo strategy and reduce the cost of acquiring customers. The development of ground education against the trend during the epidemic period has also made an important precipitation for the implementation of Omo strategy.

It is reported that in the third quarter of fiscal year 2021, New Oriental opened a new offline training school in Hengshui City. By the end of the third quarter of fiscal year 2021, the classroom area of New Oriental has increased by about 17% year-on-year and 7% month on month.

At the same time, New Oriental has launched Omo online courses in most of the existing cities and 25 new surrounding satellite cities, attracting a considerable number of new users and achieving a high student retention ratio at low cost.

"The epidemic has advanced the Omo strategy of New Oriental by about 3-5 years."

Yu Minhong once said. It is also in 2020 that the Omo strategy will rise to the strategic height of the whole group.

Yu Minhong predicts that in three years' time, the offline to online business volume ratio of New Oriental may be about 3:1.

However, in terms of revenue share, the contribution of New Oriental Omo online course business to its revenue this year is only single digit.

"We expect it to continue to grow and become a major part of our revenue growth. We expect that Omo's online course business will account for about 10% of revenue next year, and its profit will be much higher than that of traditional offline courses. " Yang Zhihui said.

"Because we just started the Omo online course last year, we still need time to validate our business model, but it has performed much better than we expected and we expect to see more profit from it in the next few fiscal years," he added

With the gradual disappearance of the epidemic situation and the full spread of vaccines, the New Oriental learning center is also opening in succession. Judging from the actual situation, except Beijing, New Oriental has opened all learning centers. At present, only a few are open in Beijing. New Oriental expects more learning centers to open in the future. It is expected to open 20% of capacity this year, and 17% in the third quarter.

"Because we have the Omo online learning system, students in Beijing are able to participate in the courses online with a considerable retention rate. Because of the special position of Beijing, we will gradually open the position of offline learning center. We have seen that the profit of business in Beijing is gradually getting better. " Yang Zhihui said.

In addition, he also said that the Omo of New Oriental this year is better than that of last year, and the company will use Omo as part of its summer performance, and the online mode will contribute to the growth of summer performance.

It is reported that New Oriental started to do the summer vacation discount season activities 4-5 years ago. In the preferential activities, New Oriental will give a discount on the basis of 400-500 yuan per class to obtain new students and improve the enrollment rate of new students. At the same time, the summer preferential season is also the main source of enrollment rate for the company throughout the fiscal year. Last year, New Oriental received more than 1 million new students in the summer program, and the retention rate after the summer vacation also reached about 60%.

Yang Zhihui said that New Oriental will do the same preferential activities this year, and expects a significant increase in the data this year, and the retention rate will be higher than last year.

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