Gaotu Techedu Inc. (NYSE: GOTU) (“Gaotu” or the “Company”), a leading online large-class tutoring service provider in China, announced its unaudited financial results for the second quarter ended June 30, 2021.
Gaotu Q2 FY2021 Income Statement
Net revenues for Q2 2021 hit a record high, achieving RMB2,232.3 million(USD345.7 million), an increase of 35.3% year-over-year, mainly driven by the growth in paid course enrollments for K-12 courses during the period from Q4 2020 to Q2 2021. In Q2 2021, net revenues of online K-12 courses increased 51.0% to RMB2,091.4 million(93.7% of total net revenues), and net revenues of language, professional and admission were RMB140.1 million(6.74% of total net revenues), a 46.9% year-over-year decrease from RMB250.4million in Q2 2020.
Gross profit margin for Q2 2021 decreased to 67.6% from 78.1% in the same period of 2020. The decline was primarily due to the increase in compensation for instructors and tutors, simultaneously resulting from the increased number of them and more competitive salaries provided, to attract excellent talents to improve teaching quality and students’ learning experience, according to the report.
Total operating expense for Q2 2021 was RMB2,362.7 million(USD365.9 million), which increased from RMB1,450.4 million in Q2 2020. Selling expenses rose by 36.2%to RMB1641.1 million, as a result of higher marketing expenses to expand the user base and enhance the Company's brands, and an increase in compensation to sales and marketing staff. Within that, expenses for traffic acquisition were approximately RMB0.9 billion this quarter, a significant decline from RMB1.37 billion for Q2 2020. “The selling expenses margin decreased year-over-year to 74%. We have seen continual improvement of margin, which falls back to its original level a year ago, since we stopped news feed and on-live advertising spending in May. ” said Shannon Shen, CFO of Gaotu at the earning conference call.
Research and development expenses rose by 204.9% to RMB426.5 million and general and administrative expenses went up by 128.9% to RMB242.0 million, driven by an increase in the number of educational content development professionals and technology development personnel, general and administrative personnel, as well as an increase in compensation paid to such staff.
The quarterly net loss for Q2 2021 was RMB918.8(USD142.3 million), compared to a net income of RMB18.7million in the same period of 2020. The large net loss was mainly contributed by the 62.9% year-over-year increase in total operating expense.
As of June 30, 2021, deferred revenue balance was RMB1,976.4 million(USD304.9 million), primarily consisted of tuition collected in advance; cash and cash equivalents, and short-term and long-term investments were RMB5,486.9 million. "Even like we paid for the cancellation penalties for leasing agreement or the severance cost for our employees, that still left us sufficient cash to continue to develop and explore new business and support our business in the future." Said Shannon.
Gaotu's business and strategies adjustment
To actively respond to the double reduction policy released on July 24, Gaotu rapidly adjusted the organizational structure. Larry Chen, CEO of Gaotu pointed out that professional education, STEAM courses, and vocational education and digital products will be the focuses.
Gaotu has been accelerating the layout of professional education since last October, nearly nine months before the nation's call. Currently, Gaotu Online covers subjects in professional education, including language training, post-graduate exam preparation, financial certificate preparation, public office exam preparation, overseas study preparation, and others. "In exploring professional education, the public office exam sector has maintained its relatively high level; paid users in the financial certificate sector have increased 4 times year over year, " stated by Shannon in the financial report, "Professional education is rapidly changing and upgrading. In the future, we will focus on those areas that are strongly supported by the government, creating a multi-facet, interactive platform that encompassing all educational categories for life-long learning.”
Other than that, Larry Chen indicated in the earning call that Gaotu would expand their investment in the STEAM education segment. He took programming as an example, "just in July 2021, the conversion rate from trial classes to regular priced fall courses exceeded 30%."
As for the compliance for K-12 after-school tutoring, Gaotu responded with business and strategy adjustment, which has been completed in the aspects of advertising, class hour adjustment, standardization of the content, and tuition pre-payment. In terms of fee standards on tuition, Sandy Qin, IR director of Gaotu said "Up till now, we have not yet received any precise guidance on the price control on online education. We will adjust our pricing after we have received specific government instructions." Regarding turning Academic AST Institutions for students at the stage of compulsory education into not-for-profit organizations, "Gaotu will continue to communicate with the government, " added Sandy.