Leading enterprises burn more money, and small and medium-sized institutions struggle to survive. In 2020, the online education track will present a situation of "ice and fire".
Under the catalysis of the epidemic, online education ushered in an unprecedented flow dividend. As the offline education market continues to recover, users are also returning to offline education institutions. This means that the upcoming winter vacation will be difficult to continue the low customer acquisition cost of the winter and summer vacations in 2020, and "money burning marketing" is imperative.
For the leading enterprises, the money burning war is not over for the time being, while for small and medium-sized online education enterprises, the development window period may have already closed.
According to IT orange data, in 2020, the education industry raised 233 financing cases, less than 389 in 2019, but the amount of financing reached 104.678 billion yuan, basically equal to the total amount of financing in 2017-2019.
On January 16, Chen Nan (a pseudonym), an investor who has long been concerned about the education field, said in an interview with the Times, "In 2020, the financing situation of the online education industry can be roughly summarized as 80% of the funds were taken away by the top 20% of the institutions." In the track, K12, children's spoken English and children's programming are hot areas at present.
It is worth noting that the online education track has not yet produced a company that can achieve long-term stable profits. Therefore, after endless money burning marketing, when to generate profits is still the concern of investors.
Chen Nan told the Times that the main reason why capital is optimistic about online education at present is that it can generate stable cash flow and has a good realization mode.
Giant continuous blood transfusion
Compared with stable and mature offline education institutions, even the insiders are uncertain whether the business model of the newly emerging online education can run smoothly.
At the 2020 Yabuli Forum, Yu Minhong, the founder of New Oriental (EDU. NYSE/09901. HK), openly expressed his doubts about the online education model: "Up to now, I don't think online education is a run through business model." He asserted that for every dollar of online education income, it will cost two dollars. Once the capital stops blood transfusion, online education will be in great sorrow.
According to Yu Minhong's statistics, in 2020, the capital input to the education field was nearly 15 billion dollars, "and the income of the entire online education is about tens of billions of yuan".
However, New Oriental has never stopped trying online education.
In March 2019, New Oriental Online (01797. HK), the online education business of New Oriental, was listed in Hong Kong, and New Oriental held about 53.2% of the shares of New Oriental Online.
In order to reserve food for the upcoming winter holiday marketing, on October 14, 2020, New Oriental Online announced that it planned to issue 59.432 million shares to New Oriental and Tigerstep (wholly-owned by Yu Minhong) at a price of 3.87 US dollars per share, with a total subscription of 230 million US dollars.
The relevant person in charge of New Oriental Online said in an interview with the media that online education, as an industry that has broken out in recent years, is in the early stage of development. Therefore, the development focus of the entire online education industry is not short-term profitability, but to explore a healthier business model.
TAL, which is also the leader, has also made large-scale financing in the near future.
On December 29, 2020, TAL announced that it had reached a private placement agreement of US $3.3 billion with investors such as Silver Lake Investment, of which US $2.3 billion was convertible bonds and US $1 billion was newly issued shares, accounting for 2.2% of the total share capital. The transaction is expected to be completed in the near future.
The offline business of New Oriental and TAL once suffered heavy losses due to the epidemic, but with the gradual recovery of offline business in the second half of 2020, it can not only achieve online and offline business linkage, but also bring sufficient cash support for online business.
Other listed online education institutions also show signs of continuing to seek financing.
GSX. NYSE, who was short for 15 consecutive times because it was the first to achieve scale profit in the industry, also ended the "myth" of profit for nine quarters in the third quarter of 2020. As the sales and marketing expenses in the third quarter soared 522.22% to 2.0558 billion yuan, learn from who lost 933 million yuan in the quarter.
On December 7, 2020, Xiang Renxue said that several value investors had agreed to purchase the newly issued shares of the company totaling about 870 million dollars. This move is to increase the company's cash reserves, so as to increase the all-round investment in its K12 business brand High Road Classroom.
The rise of the new rich
In addition to the head education institutions like New Oriental and TAL, which are connected online and offline, more and more Unicorn companies are emerging in the online education track.
Among unlisted online education companies, the valuation of ape tutoring and homework help, which started with the photo search app, is high, and it's hard to tell the difference at one time. Some insiders even call these two companies, together with TAL and New Oriental, the "Four King Kong" of online education.
On December 24, 2020, Ape Counseling announced that it had obtained $300 million financing from Yunfeng Fund and had completed the delivery. After this round of financing, the valuation of Ape Counseling has reached US $17 billion, becoming a unicorn company with high valuation in the global online education industry.
The last round of financing of Ape Counseling was the US $2.2 billion financing led by Tencent and DST in October 2020, which was also a single financing with a high amount * in the Internet industry in 2020.
On December 28, 2020, Action.com followed suit and announced the completion of the * next delivery of the financing of the E+round of super $1.6 billion, * with a valuation of about $9.6 billion after the new investment. This round of investors includes Alibaba, Tiger, Softbank, Sequoia Capital, etc. In the last round, ABC completed the round E financing of US $750 million in June 2020.
Both of the above two companies are the top players of online education. The financing frequency of less than half a year not only shows that the capital is optimistic, but also shows that this track is burning money fast.
Chen Nan told the Times Weekly that nowadays, Homework Group and Ape Coaching are supported by Alibaba and Tencent respectively, and the gap between them and other competitors has also initially emerged.
The online education track is overcrowded and has too many competitors, which has become the consensus in the industry.
At the third quarter financial report meeting of DAO. NYSE, Zhou Feng, CEO of Netease Youdao, said that the concentration of online education in 2020 was higher than that in 2019. "As the focus of the online education market, K12 has only 5-6 players occupying most of the market share." Zhou Feng said that online education is accelerating its development and is still in the stage of capital investment rather than making money.
On January 14, Xia Fei, an education industry observer, said in an interview with Time Weekly that in 2021, the top players may be able to distinguish one from the other, but it is impossible to determine the final outcome. However, the intensification of Matthew effect in the industry will undoubtedly be a major blow to small and medium-sized institutions. "For small and medium-sized online education institutions, unless they can get access to low-cost traffic channels, such as Tencent, byte beating their own education brand, it will be very difficult to break through," Xia Fei said.
There are also cross-border entrants who intend to gain a share in the hot online education market.
At the beginning of 2020, the game company Sanqi Mutual Entertainment announced the acquisition of children's programming company Miao Xiaocheng. According to the official disclosure, the two sides will achieve greater synergy and utilization of resources, channels and other aspects.
In December 2020, the Time Weekly * reported that the mobile phone manufacturer OPPO had acquired the online education platform Fruit Online School of K12, which was split from the online course business of the South China K12 education giant Excellence Education. Some insiders speculated that OPPO would give great support to the online school in terms of channels and traffic.
For OPPO, in recent years, OPPO has begun to continuously improve the smart terminal ecosystem, and has successively launched terminal products including smart watches, smart TVs, etc. According to the prediction of Duojing Capital Education Research Institute, it is estimated that by 2022, the market size of K12 education intelligent hardware will reach 57 billion yuan.
"If there is online course business as the basis, it will be easier to do education hardware, and it can also complement the ecological chain of OPPO's entire education business." A senior mobile phone practitioner once speculated to the Times reporter.
Profit conjecture
The huge marketing expenses are one of the important reasons why online education institutions lose money.
On January 16, a person from a leading online education company told the Times that the current online education platforms mainly include subway bus stops, elevator advertisements, well-known variety shows and some short video platforms.
Winter and summer vacation are the peak season of after-school tutoring market. Since the fourth quarter of 2020, the promotion war of major online education institutions has started.
According to the data from the mobile marketing data analysis platform App Growing, from November to December 2020, education advertising accounted for 5.89% and 7.63% of all categories of advertising, respectively, and the advertising efforts increased month by month.
In the fourth quarter of 2020, the top five educational brand advertisements are XRS (produced by TAL), Homework Group, Youdao Boutique Class (produced by Youdao of Netease), Zebra AI Class (produced by ape coaching) and Gaotu Class (produced by learning from whom).
According to the research report data of Essence Securities, in 2020, the summer marketing and promotion budgets of Ape Counseling, XRS Online School, Homework and Who to Learn from will be 1.5 billion yuan, 1.2 billion yuan, 1 billion yuan and 800 million yuan respectively, totaling 4.5 billion yuan.
This has also resulted in a substantial increase in customer acquisition costs.
Chen Nan told the Times that at present, the cost of getting customers in the online education industry is generally more than 4000 yuan. "The large amount of marketing done in winter and summer will always be reflected in the cost of getting customers".
However, according to Duojing Capital, citing the data of industry insiders, if the customer acquisition cost of online education enterprises exceeds the critical point of 2300 yuan, they will not be able to recover the cost later and will suffer permanent losses.
Chen Nan predicted that after the fierce battle in 2021, there may be * profitable online education companies in 2022, "if not unexpected, it will be one of the Homework Group or the ape tutoring. The gap between these two companies and their rivals has initially emerged".
According to the data disclosed by Ape Counseling in October 2020, there are about 3.7 million students in total on Ape Counseling online courses and its zebra AI courses. Among them, 2.2 million students are currently enrolled in the online course of ape counseling in autumn, and 1.5 million are enrolled in the zebra AI course.
From the comparison of the number of students in regular courses in autumn, ape tutoring and homework gang seem to be evenly matched.
According to media reports, in the autumn of 2020, the total number of students in the big paid class of Homework Help will exceed 10 million, and the number of students in the regular class in the autumn will exceed 2.2 million.
Xia Fei believes that for the players of the online education track, the competition has not yet reached the match point, and the players can only prepare food and grass to keep moving. "Cash flow is food and grass. Without food and grass, we will definitely fall behind. It is certain that in 2021, the amount of financing and the scale of money burning marketing will only be larger and more, and online education will only continue to be crazy." Xia Fei told TIME.
