Chinese EdTech Firm 17Zuoye to Seek IPO on NASDAQ

Consumer Discretionary Author: Qasim Khan Nov 16, 2020 11:00 AM (GMT+8)

The online learning platform for K-12 students has submitted its prospectus to the US Securities Regulatory Commission (SEC) and plans to be listed on the NASDAQ under the ticker symbol 'YQ.'

Consumer

The underwriters of the USD 100 million IPO are Morgan Stanley, Goldman Sachs and Bank of America.

17Zuoye provides 'Internet +education' solutions for basic K12 students in China. Through their technology, the firm integrates on- and off-campus teaching. According to the company it provides teaching, learning and evaluation applications to more than 900,000 teachers, 54.3 million students, and 45.2 million parents across the country. It currently serves 70,000 schools, covering one-third of public primary and secondary institutions. 

With that being said, there is no denying that the company has recorded losses of CNY 2.5 billion in less than 3 years. 

17Zuoye's products are operated through an integrated model of 'in school + after school.'

The prospectus shows that for 'in school,' as of the first half of 2020, 17Zuoye Smart School Classroom Solutions covered about 56% of primary schools, 60% of middle schools and 7% of high schools.

As for 'after school' for 2018, 2019 and the nine-month period ending September 30, 2020, the revenue of the firm were CNY 93.883 million, 360 million and 751 million, respectively, accounting for 30.2%, 88.5% and 93.0% of the total revenue, hence showing that online K12 after school tutoring is the main revenue source.

Talking about users, primary schools are the main users of paid courses. In 2019, primary schools accounted for 70.6% of the paid courses followed by lower secondary schools (28.1%) and higher secondary schools (1.3%). As of September 30, 2020, the platform has a DAU of 6.8 million and an MAU of 19.5 million.

According to the prospectus, the revenue of the K12 education platform in 2018, 2019 and the first nine months of 2020 was CNY 310 million, 406 million and 808 million, respectively with Net losses of CNY 656 million, 964 million and 975 million, respectively. It has taken the firm less than three years to lose a total of CNY 2.5 billion. As of September 30, 2020, the cash and cash equivalents of 17Zuoye are CNY 814 million.

Chinese K12 online education competition is getting fiercer by the day, with listed giants such as TAL, New Oriental, NetEase and Yuanfudao and non-listed upstarts backed by billions of dollars such as Yuanfudao and Zuoyebang are looking to grab chunks of the market share. This fierce competition results in high marketing investment which has been the main reason for so many EdTech firms not being able to turn a profit.

For 17Zuoye, the sales and marketing expenses will surely increase in the near future.  According to the prospectus, the firm seeks to further promote after-school tutoring and in-school products and services, through enhanced advertising programs.