The 21st Century Economic Reporter Wang Feng reports from Beijing On May 21, Gaotu (NYSE: GOTU) released its financial report for the first quarter of 2024.
According to the financial report, as of March 31, 2024, Gaotu had realized a revenue of 950 million yuan (RMB, the same below), a year-on-year increase of 33.9%, which exceeded previous market expectations. The net loss was 12.3 million yuan, and the net profit was 3.04 million yuan under non US GAAP.
In anticipation of the high road of the recovery of the education market, we continued to increase investment in this quarter, resulting in "overspending" of business costs and operating expenses and losses.
However, compared with the huge cash reserves, Gaotu's losses in this quarter are bearable, which makes the outside world look forward to the growth performance in 2024 and the changes in the competition pattern of the education market.
The largest increase in revenue since the "double reduction"
Gaotu's growth in the first quarter of 2024 exceeded expectations.
In the fourth quarter of 2023, Gaotu's cash income reached nearly 1.3 billion yuan, the highest level in a single quarter in the past three years.
Many of these cash income will be recognized as income in the first quarter of 2024. Therefore, Gao Tu CFO Shen Nan said at the financial report meeting of the fourth quarter of 2023, "We have been able to effectively continue the trend of accelerating growth to the first quarter of 2024."
At that time, Gaotu predicted that the revenue in the first quarter of 2024 should be between 908 million yuan and 928 million yuan, with a year-on-year growth of 28.4% to 31.2%.
However, the financial report released on May 21 exceeded expectations again, with revenue reaching 947 million yuan, a year-on-year increase of 33.9%, the largest growth since the second quarter of 2021, i.e. "double reduction".
Moreover, in the first quarter, Gaotu's cash income was 729 million yuan, up 35.3% year on year. After excluding one-time impacts such as shift renewal and staggered schedule, the cash income of comparable caliber increased by more than 70% year on year.
(Source: Koto Quarterly Report) According to the financial report, the revenue rose sharply in the first quarter, mainly due to the efficient undertaking of the strong market demand, and the continuous year-on-year growth of cash revenue in 2023.
Gaotu's income is mainly contributed by learning services, accounting for 95% in 2023. Among them, non discipline training business and traditional learning services (basically high school business) contribute more than 70% of the total income.
In recent years, due to the clearing of non compliant small and medium-sized institutions in the training market, the market demand continues to be strong, and the market share of compliance head institutions has increased significantly. Not only Gaotu, but also K12 non discipline training and traditional learning service businesses such as New Oriental, TAL and Xueda Education are growing rapidly.
Shen Nan, CFO of Gaotu Group, said: "With abundant cash reserves, we continue to promote the development of advantageous businesses, constantly strengthen the improvement of products and organizational strength, and further consolidate the company's brand awareness and competitive advantages. We expect that the positive growth trend of cash revenue will continue throughout the year, and will gradually promote the accelerated growth of revenue."
Seeking change in product and channel
It is expected that the market may be further concentrated. Gaotu is increasing its investment, taking more market share, and promoting further growth of revenue. However, in the short term, it will cause expenditure to exceed income and record losses.
In the first quarter, Gaotu recorded an operating loss of 77.7 million yuan, and an operating profit of 95.14 million yuan in the same period last year; The net loss was 12.3 million yuan, and the net profit recorded in the same period last year was 110 million yuan; Non US GAAP net profit was 3.04 million yuan, compared with 130 million yuan in the same period last year.
The main reason for the net loss was the sharp increase in business costs and operating expenses.
In the first quarter, the main business cost of Gaotu was 270 million yuan, an increase of 69.6% over the same period last year's 160 million yuan, mainly due to the increase in the labor costs of the lecturers and second lecturers and the cost of teaching materials.
In the first quarter, the operating expense of Gaotu was 750 million yuan, an increase of 66.6% compared with 450 million yuan in the same period last year, mainly due to the increase in labor costs and the increase in marketing activities.
Among them, the sales expenses increased from 280 million yuan in the same period last year to 510 million yuan; R&D expenditure increased from 96.98 million yuan in the same period last year to 150 million yuan; The administrative expenses increased from 78.17 million yuan in the same period last year to 95.19 million yuan.
While increasing investment, Gaotu is also seeking changes in products and channels.
Chen Xiangdong, the founder, chairman and CEO of Gaotu Group, said: "The company focuses on polishing teaching products and expanding customer acquisition channels. On the product side, it focuses on improving the matching between teaching products and user needs, creating a diversified product matrix to better meet users' learning needs and improve learning efficiency. At the channel end, we will make efforts to expand diversified channels, open up and optimize the teaching process based on the characteristics of products and content, and improve the efficiency of customer acquisition. "
On the product side, Gaotu no longer only provides online live broadcast of large classes, but explores offline, online one-on-one and other forms.
At present, the Gaotu Graduate Entrance Examination has set up campuses in Beijing, Zhengzhou, Shenyang, Wuhan and other places. The Gaotu Youth Growth Center, which includes sports, humanities, thinking and other categories, has opened more than 50 offline stores in 9 cities, including Guangzhou, Shanghai, Chongqing, and Nanjing.
Caibao said that at present, multiple business lines such as Gaotu postgraduate entrance examination, overseas study and so on are rapidly distributed in various places, and through the combination and mutual promotion of online business and offline business, a learning service closed-loop is created.
"Gaotu has been an Internet company since its inception, and does not have the gene for offline education business. Now it is vigorously exploring offline business, mainly because it has recruited a number of new business backbones, some of whom are Chen Xiangdong's old talents in New Oriental, so it has the ability to operate offline." An insider told 21st Century Business Herald.
Although the layout is rapid, Shen Nan said at the financial report meeting of the fourth quarter of 2023, "The impact of offline business on financial performance is still very limited. The development of offline operations is also a very long cycle, from user training to word of mouth recommendation, which requires continuous investment. Therefore, we will patiently wait for offline business growth."
A good sign is that offline and online one-on-one products with relatively low gross margins have not yet lowered the overall gross margins of Gaotu. In the first quarter, although the gross profit rate of Gaotu declined, it still reached 71.3%.
Will not rekindle the "money burning war"
On the channel side, the sales expenses of Gaotu in the first quarter rose by 82% to 510 million yuan, which is the highest level since the fourth quarter of 2021.
"The increase in sales expenses is a common phenomenon in head education institutions. The sales expenses of Gaotu are not the largest among head education institutions, but the growth rate is one of the highest," said the above informed person.
He doesn't think that online education will reignite the "money burning war" before the "double reduction". "Externally, the supply and demand structure of the market has been rearranged, and there is no stock competition to grab the share of competitors; internally, the increase in sales expenses is to match the growth, and the input and output are relatively reasonable at present."
Shen Nan said at the financial report meeting of the fourth quarter of 2023 that Gaotu has deployed 30 new channels, especially the short video live broadcast platform channel and some offline channels. This is bound to require more investment.
Chen Xiangdong said: "Our cash reserves are sufficient. Our cash and cash equivalents, restricted funds, short-term investments and long-term investments totaled about 3.8 billion, an increase of about 370 million year on year. Our excellent performance in this quarter has deepened our confidence in teaching products and services, talent training and organizational upgrading, and strategic investment in the expansion of multiple innovation channels."
