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51Talk revenue up, net profit down, the more earned more compensation how broken? Analysis

Finance 2017-12-11 21:50:23 1035

Recently, 51Talk released the third quarter ended September 30, 2017. Net revenues of 236.1 million yuan, an increase of 95.1%; net loss of 141.8 million yuan, a loss of 123.5 million yuan last year. Overall, although the net revenue of the third quarter increased by over 90% over the same period of last year, the net loss also continued to expand year on year. In response, i-EDU interviewed 51TalkCFO Lai Youming exclusively. </ strong> </ p>

Cash income is up yoy with student numbers </ strong>

According to the company's three quarterly reports, in the third quarter, cash income of the Company increased by 51.5% over the same period of last year, while the number of active persons increased by 74.50% as compared with the same period of last year. Overall, the Company's cash receipts and student numbers rose YoY in the quarter.

Third quarter results of this year compared with the same period last year, 51Talk revenue growth mainly from the K12 field, revenue in this area rose 99.20%, the relative development of adult courses will be slower; From the cash income, cash income from K12 accounting Has risen from 58% in 3Q16 to 76% in 3Q17. Obviously we can see that K12 business revenue for the company has reached 80%. In the future, as the K12 business gradually becomes saturated, will the company develop some new businesses and find new profit points?

51TalkCFO Lai Youming Exclusively to i-EDU, First, the strength of K12 is that kids can learn continuously, for example, from age 6 to age 12. Adults, learning time is shorter, and some even impulse registration, customer stickiness is not good. Therefore, the company is more focused on the K12 field is in line with the company's development and long-term interests. Globally, K12 students remain the single most important driver of the company's future growth. </ strong>

Source: 51Talk official website screenshots

At present, 51Talk's main two major courses - respectively for adolescents and adults. Among them, the Junior English courses include: Cambridge Youth, Oxford Youth, 51Talk Classic Youth English, Graded Reading and New Concept Youth 5 classes; adult English courses include: Business English, IELTS speaking, 51Talk Classic English, Tourism English and TOEFL speaking five kinds of courses. Moreover, nearly 80% of foreign teachers in the platform come from the Philippines, while the rest are from the United States. The foreign teachers in the United States are offering high-end courses. The fee for a single course is about three times that of Philippine foreign teachers.

Huang Jiajia, founder and CEO of 51Talk, also said in the third quarterly report: "The company focused more on K1 1-to-1 mass market products in the third quarter of 2017 as the K12's parity market has a higher gross margin and the current outlook for the market Broad, while the high-end US 1-to-1 project with a lower gross profit margin is a supplement to the K12 product. " At the same time, he also believes that focusing on the parity market is more likely to give the company a competitive advantage in the 1 to 1 teaching market.

Rising revenues and costs </ strong>

From the quarter profit statement, the company achieved quarterly revenue of 240 million yuan, up 95% from 120 million yuan last year, up 23.5% from the 1.9% qoq in the second quarter of 2017. The substantial increase in operating income of the Company during the quarter benefited from the increase in student numbers. This is also evidenced in the tables listed in the previous section. The number of 51Talk active students has risen from 101,000 in 2016 to 176,000 currently, up 74.5% over the same period last year.

Although the company's revenue growth is encouraging, but the company's expense control still needs attention. Operating costs were $ 90 million for the third quarter of 2017, up 118% YoY from 41 million in the same period last year. The operating cost increased YOY (118% vs 95%) year-on-year (YOY) The increase in costs is mainly due to the payment of teacher service fees. </ strong>

51Talk gross profit growth is slower than revenue growth as operating costs are growing faster than revenue growth. </ strong> The gross profit for the third quarter of 2017 was 150 million yuan, up 83% over the same period of the previous year's 80 million yuan. The gross profit not only slowed down, but the gross profit margin also slightly decreased from the same period of last year as the company increased the U.S. high-end foreign teachers' courses with lower gross margin (US high-end courses gross margin of 40%, much lower than parity courses) 65.8% of the same period of last year dropped to 61.8% of this year.

High marketing costs </ strong> Get customer costs improved </ strong>

In terms of operating expenses, sales, R & D and overhead increased in line with revenue. </ strong> In 3Q17, the Company's sales expenses were RMB167 million, an increase of 38.5% over the same period of last year's RMB120 million. It is also said that 51Talk's marketing costs are higher than the cost of doing business (teacher fees), which is always 51Talk's biggest cost item. </ strong> The company's marketing expenses are mainly used to secure students' fees, which cover both the advertising costs and the sale of one-on-one students by telemarketing. This is a marked departure from the typical placement of listed companies in K12 International Schools, where faculty costs have been the largest cost, typically 30% -50% of total costs. According to the semi-annual report for 2017, the education remuneration of Maple Leaf Education as a percentage of revenue is 32%, while the remuneration of Boss Education Leader accounts for 48%.

In terms of operating costs, the operating costs of the Company are mainly staff costs. The cost increased from RMB 123 million in the 2016 first half year report to RMB 156 million in the first half of 2017, an increase of RMB 34 million or 27.5% over the same period of previous year. As the increase in operating costs was in line with the increase in operating revenue, the gross profit of the Company increased steadily from RMB179 million in the 2016 semi-annual report to RMB227 million in the first half of 2017, an increase of 27% over the same period of last year.

51TalkCFO Lai Youming also exclusive i-EDU said: "At present, online English education is still in the early stages of the industry, a bit like many years ago, electricity providers, parents need some time to change their ideas .51Talk future 2 - Three years will still dominate electricity sales, but now that you've tried a few one-to-many lessons and you've got one-to-many courses or other ways to get customers later, your marketing costs will gradually come down. "

Accordingly, i-EDU calculated that in 2016 Q3, 51Talk access to operating income and marketing costs are 121 million; by 2017 Q3, 51Talk operating income of 236 million yuan, marketing costs of 167 million yuan, marketing The proportion of expenses dropped from nearly 100% to 70% now. This shows that although the cost of listed companies is relatively high due to the start-up period of the industry, the acquisition costs of the company have been greatly improved. </ strong>

In terms of research and development expenses, Q3 2017 spent 61 million yuan, an increase of 47.9% over the same period of previous year. This increase is attributable to the development of new technologies and the associated costs associated with course developers.

In terms of administrative expenses, Q3 2017 was Rmb57 million, up 37.9% from Rmb41m in the same period of last year. The increase was mainly due to the payment of more staff hired for business expansion and related recruitment costs.

Growing company size </ strong> Good start-to-market revenue growth </ strong>

The company reported a loss of $ 140 million in the third quarter of 2017 mainly due to the fact that the entire industry was in an early stage. In addition to the aforementioned need to obtain customers through advertising and sales, the company also needed to upgrade the curriculum and upgrade network equipment User better experience (R & D costs). In addition, the education industry is talent-based, and the company also needs to employ more teachers (management fees).

However, we should see that although listed companies are still losing money, as their size is indeed getting bigger and bigger. According to the company's operating data for this year, 51Talk's revenue increased as the number of students went up, while deferred revenue (future pre-paid tuition fees) also increased with the number of students. It can be seen that 51Talk's marketing strategy is effective and can increase revenue by constantly receiving new students. </ strong>

Note: The figure in revenue (Unit: million) see the right axis

Active number (unit: million), deferred income (unit: billion) See the left axis

With regard to the future prospects of the industry, we can calculate so roughly that there are currently 180 million people in K12, and even if only 1% of the K12 population receive 1 to 1 English education, this market is 1.8 million. Now 51Talk number of active students is 176,000, other competitors VIPKID, VIPABC these competitors will add up to 50-60 million. 50-60 million with 1.8 million compared to a lot of difference, but the permeability of K12 can not be only 1%.

Now online education is the case, the highest penetration rate in the first-tier cities, about 40% -50%, will gradually become saturated, while the overall penetration of 2-3 lines is relatively low. In an exclusive interview with i-EDU, 51TalkCFO Laiyouming emphasized that "the company plans to enter the Tier 2 cities in 2018 and gradually penetrate the Tier 3-4 cities." The cost of 51Talk over VIPKID and VIPABC The advantage is that there are more Filipino teachers who have lower unit prices. More families in tier 2-3 cities will be able to afford tuition fees for Filipino foreign teachers. This natural feature makes it easier for 51Talk to march into tier 2-3 cities than its competitors. </ strong>

51Talk in the future how to layout? How to break the embarrassment of revenue and profit two levels of differentiation? Stay tuned for i-EDU 51TalkCFO Lai Youming Exclusive Interview See you tomorrow! </ strong>