New Oriental online education subsidiary files for Hong Kong IPO

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Koolearn, an online education company under New Oriental, is planning to file for a Hong Kong initial public offering (IPO) in April, said Yu Minghong, founder and president of New Oriental, in an interview (in Chinese).

New Oriental could not be reached for comment.

Koolearn will launch its IPO roadshow this Thursday, determine the price of its shares on March 20, and start trading on the Hong Kong Stock Exchange on March 27, according to a separate report (in Chinese). Analysts forecast Koolearn could raise $90 million to $104 million.

Chinese media reported that the company was seeking to raise $200 million to $300 million in November, when Koolearn passed the listings hearing.

Founded in 2005, Koolearn.com is a subsidiary of New Oriental, which is listed on the New York Stock Exchange (NYSE). Koolearn offers college tutoring, K-12 education, and online preschool tutoring programs.

The company listed on the over-the-counter New Third Board (National Equities Exchange and Quotation) in Beijing in late 2016, but delisted in February 2017 due to “needs for business development and strategic plan adjustment,” the company said. Other reports (in Chinese) suggested that the company’s shares did not perform well on the exchange. Five months later, the online education company filed its Hong Kong exchange IPO application in July.

Koolearn reported RMB 651 million ($97 million) in revenue in 2018, with a net profit of RMB 82 million ($12 million), down from net profit in 2017 of RMB 92 million ($14 million), according to its prospectus. The company said the drop in profits was largely due to increased marketing and advertising spending. As of November, Koolearn garnered 1.1 million paying users within a six-month period, however, user acquisition costs also more than doubled. The company is heavily dependent on its big-name backers, namely New Oriental, who owns a 66.7% stake, and Tencent, who holds 12.1%. Koolearn and New Oriental share content and user curricula, and Koolearn has benefited from its parent company’s brand name, which helped keep acquisition costs low during its early years.

Koolearn is the largest online education brand in the Chinese college-exam preparation market, holding 8.2% market share in 2017 by revenue, according to consulting firm Frost & Sullivan.

China’s increasingly competitive online education market has forced companies to ramp up their user acquisition efforts and increase spending on marketing and advertising. Koolearn competitor Hujiang recently laid off a significant percentage of its workforce and is reorganizing its “loss-making” businesses.