Dissecting Business Model of GSX: High Growth Rates but an Uncertain Future
2020-09-16 17:53:57


Chinese leading online education company Genshuixue(NASDAQ: GSX) announced the financial results of the second quarter of the 2020 fiscal year earlier this month. During the reporting period ended June 30th, GSX achieved RMB 1.65 billion revenue, an increase of 366.6% year-on-year, and its net profit increased by 133% year-on-year to RMB 72.71 million. The paid course enrollments reached 1.567 million, increasing 332% over the same period last year.

On the day when the Q2 report was disclosed, GSX’s stock price plummeted by more than 18% to $77 per share, while its stock price went up with fluctuations previously even GSX has been shorted twelve times by multiple shorting agencies. Industry insiders believe that the stock price decrease is closely related to nearly 161 million yuan loss from operations in the Q2 2020 fiscal year.  Moreover, the report revealed that GSX is being investigated by the U.S. Securities and Exchange Commission after short-sellers accused the Beijing-based firm of inflating its sales.

When it went public in June 2019, the market value of GSX was less than 3 billion dollars, and now GSX touches a USD 20 billion valuations. Compared with the New Oriental, which was established in 1993, GSX just ushered in its sixth year of founding. In this article, JMDedu will talk about the business model of GSX, and some information was from ZaixianEdu2020 and GSX’s Quarterly Results.

Understanding GSX's business model

The main business of GSX is online after-school tutoring services for K12 students, contributing to more than 80% of its revenue in 2019. And the other incomes came from the business of foreign languages, vocational courses, and interest-oriented classes.

Founded in 2014, GSX used to be a PaaS provider like E-commerce platform Taobao to connect individual teachers, education companies, and students. From 2014 to 2016, GSX's income mainly came from the membership fees paid by companies and teachers. While in 2017, the company started to focus on students, transforming itself as an online education platform and developing the live-streaming large-sized courses.

For GSX, its cost is mainly composed of three parts: sales, teacher salaries, and technology research and development. All the efforts were represented by the increasing enrollments of GSX's online paid course in recent years. In 2017, the number was less than 80,000. By 2019, this number has increased by more than 34 times, exceeding 2.74 million.

Analysis of GSX’s business strategies

First, let’s review GSX’s product categories and teaching modes. As we mentioned in the previous part, GSX’s profitability is supported by K12 services, especially online courses. The courses' unit price is between 99 and 4980 yuan that the lower price is mainly for trial lessons, and the higher is for the product with live-streaming large-sized class.

Live-streaming, large-sized class, and dual-teacher consist of GSX’s basic teaching model. The advantage of live-streaming courses is more class participation, having better effects on attracting students to finish their curriculum. So in the online education sector, live-streaming courses(generally set in the range of 1,000 yuan to 10,000 yuan) are much more expensive than video courses(tens of yuan to hundreds of yuan). And large-sized class enables GSX to obtain a higher percentage of revenue growth without a proportionate increase in teachers and teaching & research costs. As for dual-teacher, this term used to be known as a blended learning model combining the online lecturing teacher and local assistant teacher. Now it can also be understood as an online lecturing teacher combing with an online tutoring teacher in charge of preview, review, and homework corrections. We can see specific teaching methods from GSX’s financial report.


GSX believes that the dual-teacher system is essential to success. Thus a lot of resources and incentives have been invested in maintaining the high quality of teachers and mentors, for example, on-the-job training and competitive pay-for-performance models.

The most significant difference between online and offline education companies is that the former always emphasizes technology because they need to create learning scenarios with online tools to make up or even exceed the offline learning experience and obtain more potential users. The same goes for GSX. The company emphasized that technology is the backbone of GSX’s highly scalable business model. The technology mentioned here points to two indicators: student experience and operational efficiency, achieved via the live-streaming system, the application of big data and AI, as well as its internal BOSS system(business & operation support system).

For the entire online education industry, a large number of companies have suffered losses for a long time due to the high sales and marketing costs. However, GSX achieved continuous profitability as shown in its financial report. Besides promoting courses through various online and mobile channels to increase brand awareness, GSX has always pursued a low-cost promotion plan that is to provide well-designed courses, including a series of 2-5 days of trial lessons and follow-up courses with regular price lectured by the same quality teachers. “GSX allows students to withdraw at any time for regular-priced courses, and parents will get refunds in proportion.  Currently, this seems to the easiest way for parents to rest assured." Said industry insider.

Uncertainty in GSX’s business model and strategy

When talking about the risks, apart from the factors that make up the macro-environment like economic factors, political and legal forces, relatively controllable micro-dimensions should be attached much attention as well, such as the profitability of the business model and the stability business strategy. 

Last year, GSX’s most revenue came from K12 online courses, which were lectured by 232 teachers, and the net revenue brought by the top 10 teachers was 36.3%. In other words, of the approximately 2.1 billion, more than 700 million was generated by the ten teachers. Reliance on star teachers may put companies at risk because the attractiveness of the courses to students will decrease when top teachers leave. But it is worth noting that GSX’s income proportion of the top 10 teachers is declining year by year.


From the perspective of its profitability, GSX’s net income in 2019 was 226.6 million yuan (32.5 million US dollars), compared with 19.7 million yuan in 2018 and a net loss of 87 million yuan in 2017. Profitability depends much on the ability to maintain or increase profit from the operation. Whether it is to increase revenue at a rate higher than the growth of costs and operating expenses or reduce the operating expense ratio, GSX needs to find a way to reduce cost and increase profits.

Moreover, competition in the Chinese online education market is increasingly intensified. Online education companies, including GSX, need to face the challenges of increased competitors and squeezed market space. In this context, will the business strategy of GSX be copied or even surpassed? Can GSX quickly update and match the needs of learning services put forward by the new generation? But the most important is the investigation results from the U.S. SEC.

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