Services Mover to Watch: China Online Education Group – ADR (NYSE:COE)
On Wednesday, Shares of China Online Education Group – ADR (NYSE:COE) lost -8.17% to $17.09. Trading volume recorded for this company was about 113,144 shares as contrast to its average volume of 39,801 shares. The stock’s intraday range was $15.80 to $17.83. The company has the total of 0.00 outstanding shares, while its market capitalization is about $342.24M.
China Online Education Group (COE), a leading online education platform in China, with core expertise in English education, recently declared its unaudited financial results for the fourth quarter and fiscal year ended December 31, 2016.
Fourth Quarter 2016 Financial Results:
Net Revenues
Net revenues for the fourth quarter of 2016 were RMB128.20M (US$18.50M), a 131.8% increase from RMB55.30M for the same quarter last year. The increase was mainly attributed to a boost in the number of active students and, to a lesser extent, a boost in the average revenue per active student. The number of active students was 115.50 thousand, a 92.20% increase from 60.10 thousand for the same quarter last year.
Cost of Revenues
Cost of revenues for the fourth quarter of 2016 was RMB45.40M (US$6.50M), a 115.90% increase from RMB21.0M for the same quarter last year. The increase was mainly driven by a boost in total service fees paid to teachers, mainly because of the delivery of a raised number of paid lessons, and to a lesser extent, because of the raised cost per lesson with the expansion of western teachers.
Gross Profit and Gross Margin
Gross profit for the fourth quarter of 2016 was RMB82.80M (US$11.90M), a 141.60% increase from RMB34.30M for the same quarter last year.
Gross margin for the fourth quarter of 2016 was 64.60%, contrast with 62.0% for the same quarter last year. The increase was mainly the result of raised prices and a stable teacher cost base.
Operating Expenses
Total operating expenses for the fourth quarter of 2016 were RMB233.40M (US$33.60M), a 60.4% increase from RMB145.50M for the same quarter last year. The increase was mainly the result of increases in sales and marketing, product development, and general and administrative expenses.
Sales and marketing expenses for the fourth quarter of 2016 were RMB138.60M (US$20.0M), a 39.80% increase from RMB99.10M for the same quarter last year. The increase was mainly because of higher expenses related to a boost in the number of sales and marketing personnel, raised expenses associated with publicity efforts and recognized share-based compensation expenses. There were no share-based compensation expenses recognized before the second quarter of 2016 as the initial public offering performance condition was not considered probable until the occurrence. Apart from share-based compensation expenses, non-GAAP sales and marketing expenses were RMB137.60M (US$19.80M), a 38.80% increase from RMB99.10M for the same quarter last year.
Product development expenses for the fourth quarter of 2016 were RMB46.10M (US$6.60M), a 115.8% increase from RMB21.40M for the same quarter last year. The increase was mainly the result of newly added technology and course development-related personnel to further strengthen technology platforms and expand curriculum offerings, recognized share-based compensation expenses, and technical services fees. There were no share-based compensation expenses recognized before the second quarter of 2016 as the initial public offering performance condition was not considered probable until the occurrence. Apart from share-based compensation expenses, non-GAAP product development expenses were RMB42.30M (US$6.10M), a 98.30% increase from RMB21.40M for the same quarter last year.
General and administrative expenses for the fourth quarter of 2016 were RMB48.80M (US$7.0M), a 94.8% increase from RMB25.0M for the same quarter last year. The increase was mainly because of additional personnel necessary to support expanded operations, the recognition of share-based compensation expenses, North American teacher recruitment costs for the American Academy program, and costs related to compliance and reporting obligations as a public company. There were no share-based compensation expenses recognized before the second quarter of 2016 as the initial public offering performance condition was not considered probable until the occurrence. Apart from share-based compensation expenses, non-GAAP general and administrative expenses were RMB44.30M (US$6.40M), a 77.10% increase from RMB25.0M for the same quarter last year.
Loss from Operations
Loss from operations for the fourth quarter of 2016 was RMB150.60M (US$21.70M), contrast with RMB111.20M million for the same quarter last year.
Non-GAAP loss from operations for the fourth quarter of 2016 was RMB141.50M (US$20.40M), contrast with RMB111.20M for the same quarter last year.
Net Loss
Net loss for the fourth quarter of 2016 was RMB154.20M (US$22.20M), contrast with RMB114.30M for the same quarter last year.
Non-GAAP net loss for the fourth quarter of 2016 was RMB145.0M (US$20.90M), contrast with RMB114.30M for the same quarter last year.
Basic and diluted net loss per American depositary share (“ADS”) attributable to ordinary shareholders for the fourth quarter of 2016 was RMB7.70 (US$1.11), contrast with basic and diluted net loss per ADS attributable to ordinary shareholders of RMB29.62 for the same quarter last year. Each ADS represents 15 Class A ordinary shares.
Non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders for the fourth quarter of 2016 was RMB7.24 (US$1.04), contrast with non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders of RMB29.62 for the same quarter last year.
Balance Sheet
As of December 31, 2016, the Company had total cash, cash equivalents and time deposits of RMB647.0M (US$93.20M), contrast with RMB214.0M as of December 31, 2015. The increase was mainly because of the proceeds raised in the Company’s initial public offering and concurrent private placement in June 2016.
The Company had deferred revenues (current and non-current) of RMB687.10M (US$99.0M) as of December 31, 2016, contrast with RMB272.20M as of December 31, 2015.
Fiscal Year 2016 Financial Results:
Net Revenues
Net revenues for the fiscal year 2016 were RMB418.30M (US$60.20M), a 170.40% increase from RMB154.70M for the last year. The increase was mainly attributed to a boost in the number of active students and, to a lesser extent, a boost in the average revenue per active student. The number of active students was 163.20 thousand, an 88.80% increase from 86.50 thousand for the last year.
Cost of Revenues
Cost of revenues for the fiscal year 2016 was RMB147.20M (US$21.20M), a 146.60% increase from RMB59.70M for the last year. The increase was mainly driven by a boost in total service fees paid to teachers, mainly because of the delivery of a raised number of paid lessons, and to a lesser extent, because of the raised cost per lesson with the expansion of western teachers.
Gross Profit and Gross Margin
Gross profit for the fiscal year 2016 was RMB271.10M (US$39.10M), a 185.40% increase from RMB95.0M for the last year.
Gross margin for the fiscal year 2016 was 64.80%, contrast with 61.40% for the last year. The increase was mainly the result of raised prices and a stable teacher cost base.
Operating Expenses
Total operating expenses for the fiscal year 2016 were RMB783.30M (US$112.80M), a 87.90% increase from RMB416.80M million for the last year. The increase was mainly the result of increases in sales and marketing, product development, and general and administrative expenses.
Sales and marketing expenses for the fiscal year 2016 were RMB464.90M (US$67.0M), a 56.40% increase from RMB297.30M for the last year. The increase was mainly because of a boost in the number of sales and marketing personnel, raised marketing and promotional expenses and share-based compensation expenses. There were no share-based compensation expenses recognized before the second quarter of 2016 as the initial public offering performance condition was not considered probable until the occurrence. Apart from share-based compensation expenses, non-GAAP sales and marketing expenses were RMB459.80M (US$66.20M), a 54.60% increase from RMB297.30M for the last year.
Product development expenses for the fiscal year 2016 were RMB152.70M (US$22.0M), a 179.70% increase from RMB54.60M for the last year. The increase was mainly the result of a boost in the number of technology and course development-related personnel, and recognized share-based compensation expenses. There were no share-based compensation expenses recognized before the second quarter of 2016 as the initial public offering performance condition was not considered probable until the occurrence. Apart from share-based compensation expenses, non-GAAP product development expenses were RMB136.50M (US$19.70M), a 150.0% increase from RMB54.60M for the last year.
General and administrative expenses for the fiscal year 2016 were RMB165.70M (US$23.90M), a 155.20% increase from RMB64.90M for the last year. The increase was mainly because of additional personnel necessary to support expanded operations, the recognition of share-based compensation expenses, recruitment costs mainly related to North American teacher recruitment for the American Academy program in addition to sales team expansion, and costs related to compliance and reporting obligations as a public company. There were no share-based compensation expenses recognized before the second quarter of 2016 as the initial public offering performance condition was not considered probable until the occurrence. Apart from share-based compensation expenses, non-GAAP general and administrative expenses were RMB138.70M million (US$20.0M), a 113.70% increase from RMB64.90M for the last year.
Loss from Operations
Loss from operations for the fiscal year 2016 was RMB512.10M (US$73.80M), contrast with RMB321.80M for 2015.
Non-GAAP loss from operations for the fiscal year 2016 was RMB463.90M (US$66.80M), contrast with RMB321.80M for the last year.
Net Loss
Net loss for the fiscal year 2016 was RMB514.80M (US$74.10M), contrast with RMB327.10M for the last year.
Non-GAAP net loss for the fiscal year 2016 was RMB466.50M (US$67.20M), contrast with RMB327.10M for the last year.
Basic and diluted net loss per ADS attributable to ordinary shareholders for the fiscal year 2016 was RMB45.50 (US$6.55), contrast with basic and diluted net loss per ADS attributable to ordinary shareholders of RMB83.60 for the last year. Each ADS represents 15 Class A ordinary shares.
Non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders for the fiscal year 2016 was RMB41.87 (US$6.03), contrast with non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders of RMB83.60 for the last year.
Mr. Jack Jiajia Huang, Founder, Director and Chief Executive Officer of 51Talk, said, “We are pleased to cap both our fourth quarter and fiscal year 2016 with continued broad-based momentum and record-high results in net revenues, gross billings and number of active students. Our remarkable growth in 2016 was mainly driven by our growing K-12 student base, which accounted for 55.40% of gross billings in 2016, up from 30.30% in 2015, and reached 64.40% in the fourth quarter 2016. I am especially happy to be reporting these strong results while at the same time also reporting our fiscal year net operating cash flow reached RMB28.70M.”
Mr. Huang continued, “We expect to see nonstop strong demand for online English learning for both K-12 and adult students in 2017, and our aim remains to speedily grow our business to meet this demand. We are leveraging our industry-leading technologies, curriculum development capabilities, teacher training, and improved student services to further increase students’ satisfaction and learning effectiveness. Together with a greater focus on word-of-mouth referrals, we aim to further improve our sales and marketing efficiency.”
“In 2017, we intend to maintain our leadership position in the mass market in addition to further grow our premium-level American Academy program. Key strategies to drive these aims include radically upgrading student services and improving learning results through raised interaction with Chinese English teachers, in addition to introducing new technologies and new course format options. Our R&D team is presently developing proprietary, next-generation audio and video learning technologies, which we plan to leverage to roll out exciting new product portfolios during the year,” Mr. Huang concluded.
Mr. Jimmy Lai, Chief Financial Officer of 51Talk, added, “Our strong results for the fourth quarter were emphasized by net revenues and gross billings growing by 131.80% and 125.50% year-over-year, respectively, and gross margin of 64.60%, contrast with 62.0% for the same quarter in 2015. Non-GAAP sales and marketing expenses as a percentage of gross billings continued to show improvement, falling to 48.20% for the fourth quarter from 78.30% in the year-ago period. Non-GAAP sales and marketing expenses only raised by 38.80% year-over-year, while our gross billings raised by 125.50% year-over-year. We are dedicated to improving our operating efficiencies and to seizing the dynamic growth opportunities before us.”
Mr. Lai continued, “As our K-12 student enrollment has risen significantly in the past year and became the majority of our student base in the fourth quarter, we started to see slight seasonality in lesson-taking patterns. K-12 students tend to take fewer lessons in the fourth quarter, corresponding with the fall school semester, and contrast to the third quarter, which is seasonally high and overlaps with their summer breaks. We will closely monitor the patterns as our K-12 student base continues to increase.”
Outlook:
For the first quarter of 2017, the Company presently anticipates:
- Net revenues to be between RMB148.0M to RMB153.0M, which would represent a boost of about 105% to 112% from RMB72.20M for the same quarter last year; and
- Gross billings to be between RMB310.0M to RMB315.0M, which would represent a boost of about 100% to 104% from RMB154.80M for the same quarter last year.
Technical Analysis:
The stock price is going up to its 52-week low with 37.27% and lower from its 52-week high with -32.29%. The stock has shown its weekly performance of -8.02% and monthly performance stands at 24.65%. The stock price is moving down from its 200 days moving average with -3.23% and upward from 50 days moving average with 17.49%.
Analyst recommendation for this stock stands at 2.00.