EdTech Giant TAL's Net Income Surges to USD 37.9 Million after Double Reduction

Consumer Discretionary Author: Muriel Meng Editor: Yiru Qian Oct 30, 2023 06:19 PM (GMT+8)

Education corporates gradually recovered from the "Double Reduction" policy through business model transformation and upgrades.

Online Education

On the evening of 26 October, Tomorrow Advancing Life (TAL:NYSE) released its unaudited financial report for the second quarter of fiscal year 2024. As of 31 August 2023, TAL's revenue for the second quarter in 2023 was USD 412 million, up 40.1% year-on-year; net income of USD 37.902 million, surging drmatically by 4916% year-on-year, reversing the loss to profit.

Since the implementation of the "duoble reduction policy" which aims to ease the burden of excessive homework and off-campus tutoring for students undergoing compulsory education for over two years, TAL finally prevented itself from losing. "Due to the seasonal impact of summer holiday, the enrolment growth has contributed to the significant year-on-year growth of study business revenue in the second quarter by double-digit," Peng Zhuangzhuang, the CEO of TAL expressed.

In the first half of the fiscal year, TAL realized the revenue of USD 687 million, increasing by 32.7% year-on-year; and net loss of USD 7.135 million, squeezed by 84% year-on-year. It is reported that the gross profit in the fiscal second quarter achieved USD 242.5 million, with a year-on-year growth of 37.1%. Operating costs and expenses were USD 383 million, increasing by 30.9% year-on-year. Specifically, selling and marketing expenses were USD 116.3 million, up 48.9%. Meanwhile, general and administrative expenses were USD 97.1 million, decreasing slightly by 0.1% year-on-year, and operating costs and expenses of USD 20.9 million declined by 23.9% year-over-year.

In addtion, TAL illustrated an impairment loss on long-term investments of USD 30.8 million in the financial report for the second quarter, with a remarkable 366.67% year-over-year increase, and income tax income of USD 10 million, also with a 322% year-over-year growth. Regarding current asset, the combined balance of  accumulated cash, cash equivalents and short-term investments were USD 2,963 million, along with a balance of USD 325.4 million in deferred revenue.

Despite the positive and satisfactory financial performance indicators, after the release of the financial report, after the opening of the market on 26 October EST, the share price of TAL showed a downrise, closing at USD 9.7, decreasing by 5.18%.

After discotinue the course training business, the current operating business of TAL is divided into three parts. The study service business includes the quality education, international education, and overseas business. Content solutions include various kinds of teaching aids, mobile applications, learning devices, as well as providing technology solutions to third-party organisations. Learning tablets are becoming a potential business growth point for TAL. According to IDC, TAL shipped approximately 90,000 units of learning machines in the second quarter of 2023, ranking fourth in the domestic learning tablet market and rising its market share to 8.6%. Confronting the market competition, the most favorable advantage of TAL learning tablet is its content resources.

Compared with the previous performance, "double reduction" still poses unignoring negative impacts on the performance of TAL. Minsheng Securities pointed out that the performance of learning service centers has steeply plummeted during 2022. From 2021 to 2022, the learning center, service center, and coverage of the city fell by 998, 840, 80 respectively.

However, the situation has begun to reverse. TAL revealed that it has achieved 220 learning centers at the end of the second quarter of FY2024. "We believe there is a viable business model and a clear path forward for small offline classes. In addition, our online large class intensive learning business continued to make progress during the quarter. Operational efficiency metrics, such as retention, have remained at viable levels. In terms of global market layout, in the second quarter of FY2024, TAL established new learning centers in the U.S., Singapore and Hong Kong, China to reach overseas markets through Think Academy. Nevertheless, due to seasonality, TAL expects revenue from learning services to decrease by 25% in the next quarter, with learning services' business focus remaining on growing its network of learning centers.

According to Minsheng Securities, in spite of the significantly shrinking scale of TAL's business and enrollment, the average customer unit price has reached a record high in recent years. The average customer unit price of long-term regular-price classes in FY2023 was CNY 2,473 per person, while regular-price class enrollment plummeted from 18.8 million in FY2021 to 2.4 million in FY2023.

Under the wave of ChatGPT, TAL also chases the opportunity to make efforts in the AI education scene. On the morning of September 6, Paris time, Tian Mi, CTO of TAL, demonstrated for the first time at the main forum of UNESCO's "Digital Learning Week" that AI Tutor, a personalized learning product application based on Scholastic MathGPT, will be launched in the near future, and internal testing of the product will be carried out recently.

As of press time, TAL closed at USD 9.24 apiece, with a market capitalization of USD 5.9 billion.