In the first half of 2020, COVID-19 has shrouded the world. The crisis has spotlighted the online education market in China, and the acceptance level for online education among parents and students has been rising. Although offline education may return to the center stage since China's epidemic situation is gradually stabilizing, online education is likely to become the new normal throughout 2020.

In secondary markets, China-based online education companies and vocational education stocks have performed well because of the policy support and market demands, which has also been reflected in the number of financing deals in corresponding sub-sectors. In this article, JMDedu will further analyze China's education industry prospects, and Duojing Capital and EDU Insight collect most of the Chinese data.

Online education stocks buck the decline and are poised to keep climbing

According to the statistics from Duojing Capital, four online education stocks have surged by more than 100% during the past six months, including Wah Fu Education (NASDAQ: WAFU) which increased by 301%, 51Talk(NYSE: COE) by 178%, Genshuixue(NYSE: GSX) by 164%, and Netease Youdao((NYSE: DAO) by 146%. Besides, Ginkgo Education and Hope Education listed in Hong Kong also soared by more than 90%.

Overall, the epidemic has spurred online education in China, thereby accelerating the education informatization sub-sector. Moreover, the vocational education track has performed well due to leading companies’ strengths and policy support. Thus, these three sub-sectors will face enormous growing space.

On the contrary, apart from the deleveraging of financial markets since 2018, most offline education companies have been closing to curb the spread of coronavirus. Lots of their users have turned to buy online learning products. Industry insiders analyzed that two even three hundred thousand small- and medium-sized offline training institutions may go bankrupt.

As for international education, study abroad agencies have a few students due to global travel bans and successive cancellation of relevant offline examinations in China like IELTS and TOEFL. Thus, an industry reshuffle will take place, and there will be fewer opportunities for newcomers. But for those companies with business advantages and enough funds, resources integration seems to be a good chance that Bright Scholar has set a full industry chain.

We can also see that stock prices of companies aimed at early childhood education such as RYB Education(NYSE: RYB) decline in the first half of 2020, which is not only because of the tight regulations but also the closure of offline businesses.

Deep dive: breaking down the investment by sub-sectors

In H1 2020, 113 financing deals closed by China-based EdTech ventures raised around 17.7 billion yuan($2.52 billion), which shrank by 38.6%, but the total amount is not much different compared to H1 2019. As for the reasons, Yuanfudao's latest round plays an important role, contributing to 1 billion US dollars. With so many companies in need of cash, investors are more cautious about early-stage investments and eyeing more defensive movements. 

When we look at the top 10 deals in H1 2020, four of them were closed in the K-12 sub-sector, accounting for 63.37% of the total financing amount. Among the 113 financing deals disclosed, competency-based learning (36 deals), vocational education(17 deals), and education informatization(15 deals) are the top 3 sub-sectors followed by early childhood education (14 deals) and K-12(13 deals).

When China's 80s and 90s generation give birth to a baby, they are no longer bystanders of school education. They have a different education mindset that competence-based education has been attached to more importance. Meanwhile, the government has released a package of support policies, making this track keep rising amid the pandemic.

However, some categories are not suitable for moving online, such as dance learning, which relies on teachers’ offline demonstration and instruction. These kinds of institutions still face great challenges when OMO has become an industry trend. On the one hand, leading players offer free trial classes or discounting for getting more traffics, resulting in a trap of low price competition. Thus, small- and medium-sized companies are facing more difficulty acquiring consumers. On the other hand, the Matthew effect has intensified, and capitals are more concentrated on the mature projects.

The number of deals closed in the vocational education track ranks the second position, which bucks the downturn, and the financing amount has also kept increasing in recent months. The coronavirus has made a large number of candidates pursue a “stable job” such as civil servants and public school teachers, which brought certain benefits to institutions aimed at postgraduate entrance examination tutoring and career planning. Moreover, as more and more new occupations occur in the Chinese society such as new media, unpiloted vehicles, blockchain, new farmers, and the big data, vocational education tracks for blue-collar or junior white-collar are on the rise. Plus, school-enterprise cooperation, together with the integration of production and education, have also been further deepened.

Amid the epidemic, traditional school education has been forced to transfer to online, so the education informatization products became the only choice. And this process is not reversible. Schools will continue to use such products when getting a good teaching effect. Plus, boosted by the national policy, education informatization track has ushered in a burgeoning age. Players will focus on improving their services and tools instead of vying for more market shares. For example, ClassIn and DingTalk have attracted a lot of global users, and the latter even has been one of the distance learning solutions recommended by UNESCO.

Financial markets across the world have been shaken by the spread of COVID-19, while education investment in China seems to buck the plummeting venture trend in the first half of 2020. We believe that with the resumption of offline classes since July, the education industry will gradually back on track.

Future trends in China’s ed-tech space

Looking back at the first half of 2020, no matter which track it is, offline educational institutions have been completely shut down. But if not the epidemic impact, OMO will still be an inevitable trend for facilitating user experiences in the long run. The coronavirus crisis accelerates natural selection in the education industry.

Also, there are two other trends worthy of attention: lifelong learning and educational short-video. Currently, Chinese society is currently facing the upgrading of industrial structure brought about by the population aging and the decline in the labor force. One the one hand, average life expectancy is rising, and people’s retirement is delayed, promoting the lifelong education concept for learners. On the other side, as mentioned above, new occupations are emerging, which will require higher personal skills. In a fast-changing world, it’s much more effective to iterate on new solutions and accelerate learning. Therefore, lifelong learning is bound to become the future trend of China’s education market.

As for educational short-video, the new track has become popular amid the epidemic that JMDedu has analyzed in our previous article, Most of such institutions are still at the initial stage, and there are not enough examples to talk about whether this model can achieve profits. So how far will "short video + education" go after the traffic bonus fading away? The answer remains unknown.