GSX Techedu Inc. (NYSE: GSX), one of the leading online K-12 large-class after-school tutoring service providers in China, announced yesterday that certain investors have agreed to purchase through a private placement a total of USD870 million of newly issued Class A ordinary shares of the Company, representing approximately 6.2% of the Company's total outstanding shares. The private placement is expected to be closed in December 2020.

In response, people familiar with the matter said that this deal is to increase the company’s cash reserves for more investment in its K-12 business brand Gaotu, including the research and development of technology and content, the recruitment and well-being of excellent teachers and talents, as well as bettering the students’ learning experience and learning effects. 

At the same time, GSX will make more efforts to prioritize investments in a high ROI market.

On November 20th, GSX announced its unaudited financial results for the third quarter ended September 30, 2020. During the reporting period, the net revenues were RMB1,965.8 million, an increase of 252.9% year-on-year. The net loss was RMB932.5 million, compared with the net income of RMB1.9 million in the same period of 2019. 

In 2020, the development of online education has been accelerated in China, and it is also a year in which the online education companies’ advertising wars become more fierce, reflected by the scale of financing and the growth rate of marketing expenses.

GSX’s marketing expenses have always been a concern in the online education industry. During the first three quarters of 2020, its operating expenses were 4.826 billion yuan, compared with 792 million yuan in the same period last year. Among them, the sales expenses were 4 billion yuan, increasing by 570.62% from 599 million yuan in the last year.

So the private placement is considered that the company is preparing for the “ammunition” in the marketing campaigns.