Market Overview

China Online Education Group Announces First Quarter 2019 Results

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BEIJING, June 14, 2019 /PRNewswire/ -- China Online Education Group ("51Talk" or the "Company") (NYSE:COE), a leading online education platform in China, with core expertise in English education, today announced its unaudited financial results for the first quarter ended March 31, 2019.

First Quarter 2019 Financial and Operating Highlights

  • Net revenues were RMB323.0 million (US$48.1 million), a 23.0% increase from RMB262.6 million for the first quarter of 2018.
  • Gross billings were RMB452.5 million (US$67.4 million), a 27.4% increase from RMB355.3 million for the first quarter of 2018.
  • Gross margin was 67.3%, compared with 64.6% for the first quarter of 2018.
  • Non-GAAP net loss was RMB59.5 million, a 55.1% decrease from RMB132.4 million for the fourth quarter of 2018.
  • Operating cash inflow was RMB8.4 million (US$1.2 million).

Key Operating Data


For the three months ended




March 31,


 March 31,


Y-o-Y


2018


2019


Change







Gross billings (in RMB millions)

355.3


452.5


27.4%

K-12 mass-market one-on-one offering

224.7


389.7


73.4%

        K-12 small class offering

36.9


14.9


(59.6%)

Adult offering

57.4


33.1


(42.3%)

K-12 American Academy one-on-one offering

36.3


14.8


(59.2%)

Active students[2] (in thousands)

190.8


227.4


19.2%

"We had a solid start in 2019, with both revenues and gross billings topping the high end of our guidance," said Mr. Jack Jiajia Huang, Founder, Chairman and Chief Executive Officer of 51Talk. "Our first quarter results reflect the successful and consistent execution of our strategic initiatives which focus on our flourishing K-12 one-on-one mass-market program in China's lower-tier cities.

"We continue to streamline our business to focus our resources on providing high-quality programs for the growing K-12 market. With a solid presence in the largely saturated tier-one cities[3], we are keenly focused on bringing our programs to China's large and underserved markets in non-tier-one cities. Through targeted marketing and growing referrals, our offerings are being well received in these areas, with gross billings continually growing. In the first quarter our gross billings from non-tier-one cities accounted for 72.8% of our K-12 mass-market one-on-one offerings, compared with 63.0% a year ago. Our goal, as we move through the year, is to continue to make learning accessible throughout China by bringing our educational offerings to underserved markets where we can leverage our existing programs. At the same time, we will strive to improve our technology and course offerings to create additional value for our students, teachers and all of our stakeholders," Mr. Huang concluded.

Mr. Min Xu, Chief Financial Officer of 51Talk, added, "The diligent execution of our K-12 penetration and alignment strategy contributed to our improved bottom line and healthy growth in the first quarter. We reduced our Non-GAAP net loss by 55.1% to RMB59.5 million, from RMB132.4 million for the fourth quarter of 2018, and our one-on-one business gross billings grew by 37.4% year-over-year. In addition, consolidated gross margin expanded by 270 basis points to 67.3% and gross profit increased by 28.1% to RMB217.2 million, both on a year-over-year basis. Through enhanced product quality and improving services, emphasis on referrals, and prudent cost control, we believe continuous calibration of these levers will support our continued growth and further improve our bottom line." 

[1] Gross billings for a specific period, which is one of the Company's key operating data, is defined as the total amount of cash received for the sale of course packages and services in such period, net of the total amount of refunds in such period.

[2] An "active student" for a specified period refers to a student who booked at least one paid lesson, excluding those students who only attended paid live broadcasting lessons or trial lessons.

[3] Tier-one cities include Beijing, Shanghai, Shenzhen and Guangzhou.

First Quarter 2019 Financial Results                         

Net Revenues

Net revenues for the first quarter of 2019 were RMB323.0 million (US$48.1 million), a 23.0% increase from RMB262.6 million for the first quarter of 2018. The increase was primarily attributed to an increase in the number of active students. The number of active students for the first quarter of 2019 was approximately 227,400, a 19.2% increase from approximately 190,800 for the first quarter of 2018.

Net revenues from one-on-one offerings for the first quarter of 2019 were RMB295.5 million (US$44.0 million), a 20.4% increase from RMB245.5 million for the first quarter of 2018. Net revenues from small class offerings for the first quarter of 2019 were RMB27.5 million (US$4.1 million), compared with RMB17.1 million for the first quarter of 2018.  

Cost of Revenues

Cost of revenues for the first quarter of 2019 was RMB105.7 million (US$15.8 million), a 13.8% increase from RMB92.9 million for the first quarter of 2018. The increase was primarily driven by an increase in total service fees paid to teachers, mainly due to an increased number of paid lessons. 

Cost of revenues of one-on-one offerings for the first quarter of 2019 was RMB90.8 million (US$13.5 million), a 12.0% increase from RMB81.1 million for the first quarter of 2018. Cost of revenues of small class offerings for the first quarter of 2019 was RMB14.9 million (US$2.2 million), a 26.1% increase from RMB11.8 million for the first quarter of 2018.

Gross Profit and Gross Margin

Gross profit for the first quarter of 2019 was RMB217.2 million (US$32.4 million), a 28.1% increase from RMB169.6 million for the first quarter of 2018.

Gross margin for the first quarter of 2019 was 67.3%, compared with 64.6% for the first quarter of 2018.

One-on-one offerings gross margin for the first quarter of 2019 was 69.3%, compared with 67.0% for the first quarter of 2018. The increase was mainly attributable to the inclusion of the Company's audio picture book in course packages, which carries a higher margin. 51Talk's small class offering gross margin for the first quarter of 2019 was 45.7%, compared with 30.7% for the first quarter of 2018.

Operating Expenses

Total operating expenses for the first quarter of 2019 were RMB278.1 million (US$41.4 million), a 0.7% decrease from RMB280.2 million for the first quarter of 2018.

Sales and marketing expenses for the first quarter of 2019 were RMB186.3 million (US$27.8 million), an 8.6% increase from RMB171.6 million for the first quarter of 2018. The increase was mainly due to higher sales personnel costs related to an increase in the number of sales and marketing personnel. Excluding share-based compensation expenses, non-GAAP sales and marketing expenses for the first quarter of 2019 were RMB186.0 million (US$27.7 million), a 9.2% increase from RMB170.4 million for the first quarter of 2018.

Product development expenses for the first quarter of 2019 were RMB40.7 million (US$6.1 million), a 22.1% decrease from RMB52.2 million for the first quarter of 2018. The decrease was primarily due to a decrease in the number of personnel. Excluding share-based compensation expenses, non-GAAP product development expenses for the first quarter of 2019 were RMB40.1 million (US$6.0 million), a 20.8% decrease from RMB50.7 million for the first quarter of 2018.

General and administrative expenses for the first quarter of 2019 were RMB51.2 million (US$7.6 million), a 9.2% decrease from RMB56.4 million for the same quarter last year. Excluding share-based compensation expenses, non-GAAP general and administrative expenses for the first quarter of 2019 were RMB48.1 million (US$7.2 million), an 8.4% decrease from RMB52.6 million for the same quarter last year.

Loss from Operations

Loss from operations for the first quarter of 2019 was RMB60.9 million (US$9.1 million), compared with RMB110.5 million for the first quarter of 2018.

Non-GAAP loss from operations for the first quarter of 2019 was RMB57.0 million (US$8.5 million), compared with RMB104.0 million for the first quarter of 2018.

Net Loss

Net loss for the first quarter of 2019 was RMB63.3 million (US$9.4 million), compared with RMB112.7 million for the first quarter of 2018.

Non-GAAP net loss for the first quarter of 2019 was RMB59.5 million (US$8.9 million), compared with RMB106.1 million for the first quarter of 2018.

Basic and diluted net loss per American depositary share ("ADS") attributable to ordinary shareholders for the first quarter of 2019 was RMB3.15 (US$0.45), compared with RMB5.55 for the first quarter of 2018. Each ADS represents 15 Class A ordinary shares.

Non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders for the first quarter of 2019 was RMB2.85 (US$0.45), compared with RMB5.25 for the first quarter of 2018.

Balance Sheet

As of March 31, 2019, the Company had total cash, cash equivalents, time deposits and short-term investments of RMB697.1 million (US$103.9 million), compared with RMB712.1 million as of December 31, 2018.

The Company had deferred revenues (current and non-current) of RMB1,780.2 million (US$265.3 million) as of March 31, 2019, compared with RMB1,676.1 million as of December 31, 2018.

Impact of Recently Adopted New Accounting Standard

In February 2016, the FASB issued ASU 2016-02 "Leases", which generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use assets on the balance sheet and to provide enhanced disclosures surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements. The Company adopted the new standard on January 1, 2019 on a modified retrospective basis and did not restate comparative periods. The Company recognized approximately RMB55.8 million as total right-of-use assets and RMB54.2 million as total lease liabilities for the operating leases on its consolidated balance sheet as of January 1, 2019. Other than the foregoing, the new lease standard did not have a material impact on the Company's consolidated financial statements.

Outlook

For the second quarter of 2019, the Company currently expects:

  • Net revenues to be between RMB342 million to RMB347 million, which would represent an increase of approximately 21.4% to 23.2% from RMB281.7 million for the same quarter last year;
  • Total gross billings to be between RMB465 million to RMB470 million, which would represent an increase of approximately 10.7% to 11.9% from RMB420.0 million for the same quarter last year.
  • Gross billings for the Company's one-on-one business are expected to be between RMB433 million to RMB438 million, which would represent an increase of approximately 15.0% to 16.3% from RMB376.5 million for the same quarter last year.
  • Gross billings for 51Talk's small class business are expected to be approximately RMB32 million, which would represent a decrease of approximately 26.4% from RMB43.5 million for the same quarter last year.

The above outlook is based on the current market conditions and reflects the Comp

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