The share price of New Oriental Online was under pressure on the first day of listing, and it was difficult to escape the problem of customer acquisition cost.

New Oriental Online (01797.HK), an online education service provider, successfully landed on the Hong Kong Stock Exchange today. The offering price per share was set at HK$ 10.2, and the estimated net financing in Hong Kong was about HK$ 1.567 billion, officially becoming the first online education share of Hong Kong stocks.

According to public information, the online public offering of New Oriental was about 8.18 times oversubscribed, and the international offering shares initially submitted for sale in the international offering were greatly oversubscribed.　

At 9: 00 am, Yu Minhong, Chairman of New Oriental Education Technology Group, Sun Chang and Sun Dongxu, co-CEOs of New Oriental Online, boarded the main platform of the HKEx and officially launched the listing ceremony in Hong Kong. Li Xiaojia, Chief Executive Officer of HKEx, attended the ceremony. Wang Jiangtao, represented by the famous teacher of New Oriental Online, and Sun Lunbo, represented by the students, rang the gong.　

After listing, New Oriental Online rose 0.2% to HK$ 10.24, and the IPO price was HK$ 10.2. As of 9: 31: 53 Beijing time, New Oriental Online reported HK$ 10.32, an increase of 1.18%.

Sun Chang, co-CEO of New Oriental Online, said in an interview with the live media that the listing of New Oriental Online on the main board of the Hong Kong Stock Exchange is an important milestone in the company’s development. Listing in Hong Kong not only enables the company to enter the international capital market, but also provides sufficient funds for the company’s long-term development, enabling it to grasp and seize the opportunities of industry development.

At the same time, she also said that in the future, she will continue to work hard in three business directions: providing quality courses, actively expanding content supply and consolidating her own platform, and become a "lifelong learning partner" for the students.

The business of New Oriental Online was established by New Oriental in 2005. Relying on the New Oriental Group, New Oriental Online provides courses in three core branches, namely, university education, K-12 education, and online education for preschool education.　

New Oriental Group is still the largest shareholder of New Oriental Online, accounting for 66.72%; The second largest shareholder is Image Frame, a subsidiary of Tencent, accounting for 12.06% of the shares. Tigerstep, an investment holding company wholly owned by Yu Minhong, holds 1.85% of the shares.　

According to the prospectus, at present, the company’s product matrix mainly includes five business brands, namely, New Oriental Online (flagship brand), Oriental Youbo, Cool Learning Dona, Cool Learning English and New Oriental Education Cloud, including live+recording courses of different class sizes, mainly covering most of the contents that students will study from preschool education to university and post-education.

Judging from the flow of students’ registration in various courses, university education (college exam preparation, overseas preparation, English learning and others) still dominates.

In addition to the direct student flow in the C-end user group, New Oriental Online also has a layout in the B-end. This part is mainly to explore institutional customers and provide educational content and service packages for universities, public libraries, telecom operators and online video streaming service providers.

According to the prospectus, the total revenue of New Oriental Online Group in fiscal year 2016, fiscal year 2017, fiscal year 2018 and the six months ended November 30, 2018 were 334 million yuan, 446 million yuan, 650 million yuan and 478 million yuan respectively; The net profit was 59.6 million yuan, 92.2 million yuan, 82 million yuan and 36.2 million yuan respectively.

According to Jost Sullivan’s report, in terms of total revenue, New Oriental Online was the largest comprehensive online tutoring and preparation service provider in China in 2017, accounting for 0.63% of the total market revenue. At the same time, the company’s flagship brand, New Oriental Online Platform, was also the largest online education brand in the exam preparation market of China University, with a market share of 8.2%.

Sun Dongxu, co-CEO of New Oriental Online, said that listing means a new starting point for New Oriental Online. As the controlling shareholder of New Oriental Online, New Oriental’s parent company and subsidiaries continue to maintain close cooperation after listing, and at the same time, it also requires subsidiaries to accept more open challenges and tests.

It is worth noting that as the first online education company that successfully landed on the Hong Kong Stock Exchange, New Oriental Online listed the New Third Board as "New Oriental Network" in March 2017. However, the New Third Board has low transaction volume, poor liquidity and difficult financing. On January 10, 2018, the operating entity of New Oriental Online — — The shareholders’ meeting of Beijing Xuncheng decided to voluntarily delist the shares, which was approved by shareholders with a total number of shares of about 98.25%. On January 18th, the listing was terminated and the regulatory approval was obtained, and the delist was completed on February 14th. The official listing time is less than one year.　

New Oriental Online is the only profitable online education company in the capital market at present, which is the biggest advantage of New Oriental Online in the capital market. Of course, this is related to its strong resources and brand export advantages backed by its parent company, New Oriental Group.

However, even relying on the resource advantages of New Oriental Group, New Oriental Online can’t get rid of the growing competition for online education. According to the latest prospectus, the profit of New Oriental Online has fallen sharply, and there is a suspicion of "performance changing face". Reflected in the first day of listing, after a small increase, the share price of New Oriental Online also began to fall. Less than an hour after the opening, the share price fell below the issue price.

On February 1, 2019, New Oriental Online updated the hearing materials. However, the updated prospectus shows that the performance of New Oriental Online has undergone a sharp reversal. According to the prospectus, as of November 30, 2018, the total revenue of New Oriental Online was 477 million yuan and the gross profit was 281 million yuan, compared with 328 million yuan and 223 million yuan in the same period last year.　

However, it is worth noting that the net profit from June to November 2018 was 36.2 million yuan, a decrease of 59.87% compared with 90.2 million yuan in the same period of 2017.　

In view of the serious shrinkage of profits, New Oriental Online also gave an explanation in the new prospectus. According to the prospectus, the reason is that the company’s marketing expenditure increased significantly from June to November in 2018, and the reason for the increase in marketing expenditure was the increase in customer acquisition cost. According to the data, the average customer acquisition cost of New Oriental Online increased from 55 yuan in fiscal year 2018 to 138 yuan.

At the same time, the increase in promotion activities in media online and the increase in advertising fees are the main reasons for the sharp increase in media online’s promotion expenditure, which increased from 29.7 million yuan in June-November 2017 to 109 million yuan in the same period in 2018, with the focus on universities and K12 education. Affected by this, New Oriental Online’s sales and marketing expenses rose to 233 million yuan from June to November 2018.　

In fact, in recent years, with the help of capital and high traffic cost, the profitability of online education companies has become a common problem in the industry. Among them, marketing has a great relationship with the rising cost of obtaining customers. 51Talk and fluent English, which have successfully landed in the US stock market, all face similar dilemmas in their financial reports, which are caused by rising marketing costs.

Some insiders said that if online education companies want to get a formal paid student, they need to go through many channels: first, reach users by online advertising or offline push, then screen users by telemarketing, and finally let customers place orders through audition. This is a set of standardized sales processes that have been formed in the education industry at present.　

Thanks to the resource advantages of New Oriental Group, compared with other online education companies, New Oriental Online will naturally be easier to get customers. However, as an important participant in the online education industry, New Oriental Online can hardly escape this trend.　

According to the prospectus, from June to November, 2018, in addition to the outstanding performance of the university education sector with traditional advantages, New Oriental Online maintained a high gross profit margin, K12 education and preschool education continued to decline.　

From June to November 2017, the online pre-school business line of New Oriental still had a net profit of 14.2 million yuan, while in the same period of 2018, it lost 2.7 million yuan, and the gross profit margin also dropped from 3.0% to -21.6%. Among them, there is continuous investment in its pre-school education sub-brand "Cool Learning Dona".　

Just like the famous teacher strategy of New Oriental Group, New Oriental Online initially attracted the majority of students because of the online "famous teacher" course. However, as more and more "famous teachers" of the group leave home to start their own businesses, the continuous loss of talents leads them to realize the problems and make adjustments in the direction of shaping "famous teachers".　

For the online education business, Yu Minhong appeared and expressed his views in the Hong Kong roadshow before the listing of New Oriental Online on March 15th. He said that the sign of online education maturity includes several points:　

First, the biggest element of education is interaction. The original online education can not be realized, but now it can be realized;

Second, the development of 5G network will promote the maturity of online education;

Third, China has a vast territory, and smart phones accelerate the group cognition in remote areas. There are different classes in New Oriental, and the crowd distinction is also clear.

Fourth, 1 to 1 is not the main mode of education. Internet+education should provide educational services to a wide range of people at low cost and high quality.　

Yu Minhong believes that educational products must have three sections: 1. Content+teaching system; 2. Application of science and technology; 3, teaching, that is, teachers. Because education is not only content transmission, but also solving emotional demands.

On the other hand, New Oriental Online believes that the key advantage barrier that distinguishes it from other late competitors is that it is one of the earliest online education enterprises in China, so it has accumulated a lot of learning behavior and result data from students, which can be used to analyze and guide the output performance of teachers and content teams.

As of November 30, 2018, the company disclosed that it has more than one million test questions and a large number of teaching resources in the knowledge base to support the subsequent research and development capabilities.

According to the prospectus, through its own product matrix, technology research and development, and the synergy with parent brand, the number of paying students of New Oriental Online is constantly pushing up.

In FY 2016, FY 2017 and FY 2018 (the company’s fiscal year ends on May 31st each year), the number of students enrolled in online courses of New Oriental was about 360,000, 639,000 and 1.1 million respectively, with a compound annual growth rate of 74.8%. In the first half of 2019, the number of paying students of New Oriental Online was 1.1 million, which reached the full-year level of the previous fiscal year in half a year.

In addition to ensuring the existing famous teacher resources and teaching system, according to Yin Qiang, CFO of New Oriental Online, in terms of science and technology, New Oriental Online will maintain a very favorable investment every year.

For example, the adaptive learning system introduced as early as four or five years ago will make the next learning plan according to the different effects of each student’s learning, including what to learn and what exercises to do, which will improve students’ learning ability and academic performance more effectively than offline unified learning.　

New Oriental Online also plans to continue to increase R&D investment and enhance its technical capabilities in the future. Yesterday, in an internal letter jointly issued by Sun Chang and Sun Dongxu, co-CEOs of New Oriental Online, they said:

"New Oriental Online must increase its investment in technology, including artificial intelligence, so that technology can become the engine of the company’s development. Let technology fully empower education, improve teaching efficiency, optimize learning experience, and truly lead the development of online education industry. "

Yin Qiang said that on the one hand, continue to develop technical capabilities that are crucial to the user experience, such as network infrastructure, mobile applications, artificial intelligence and big data analysis capabilities; On the other hand, establishing a strategic partnership with technology enterprises and educational content providers and investing in it, with a view to creating technical opportunities with synergy with existing platforms, will help upgrade the existing information technology infrastructure of New Oriental Online and upgrade the cloud-based learning platform.(This article is the first titanium media, author/Li Chengcheng, editor/Zhao Yuhang)