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Is Koolearn's Stock Surge on Boom in Livestreaming Business Just a Blip?

Key Takeaways:

  • The company’s unique bilingual sales pitches by its anchors have drawn millions to the platform, which topped livestream e-commerce rankings for days
  • But share price rise may have been due to frothy investor speculation in mainland stocks, as opposed to a broad positive long-term view of company fundamentals

By Molly Wen

If the recent sudden reversal of fortunes for shares of Koolearn Technology Holding Ltd. (1797.HK) is anything to go by after the company diversified from a struggling online tuition platform to hawking steaks and other products via livestreaming, then school is definitely out.

Videos of their bilingual anchors peddling wares online have gone viral on social media platforms, resulting in it topping Douyin’s benchmark shopping livestreaming chart for days and investors sending its stock price surging by more than sixfold in the space of a week.

The newfound success is a welcome change for the company, whose core business of online extracurricular K-12 tuition was dealt a fatal blow after the Chinese Ministry of Education last July issued tougher regulations on the sector, banning tutoring for profit. This was seen aimed at cutting the financial burden on parents in a bid to boost a flagging national birthrate.

Its educational offerings have been pared to preparing students to take graduate-school exams, adult language courses and arranging study abroad for students.

The company launched its livestreaming e-commerce business in late 2021 in an effort to plug the gap left by its K12 tuition business, which prior to the government crackdown had accounted for 55% of revenues. But it initially failed to take off, both in terms of gaining attention and generating sales.

However, in just the past week, its bilingual shtick suddenly caught on, big time. On June 9, its livestreaming audience breached the 1 million mark and had soared to more than 13 million by June 17.

There’s no doubt that the main selling point is the English-speaking anchors, most of whom used to be teachers at Koolearn. Unlike traditional Chinese-language livestreamers, who focus on detailed product introductions and offering cheap deals, Koolearn’s anchors provide people with the novel experience of learning English while they shop.

One of the most popular is Dong Yuhui, who was already a renowned online English teacher. He has impressed many by peppering his fluent English product pitches with humor.

The growing excitement Dong and others have created among consumers has also translated into actual sales. According to data from livestreaming and e-commerce analytical platform Douchacha, Koolearn’s single-day gross merchandise volume (GMV) reached around 40 million yuan ($5.95 million) and 60 million yuan on June 14 and June 15, respectively, up from only 3 million yuan on June 9.

On the Douyin livestreaming e-commerce rankings, which it topped for days, Koolearn is poised to become the top multi-channel network (MCN) entity if it can keep daily GMV above 10 million yuan.

The company’s stock has benefited from the sudden craze. Its share price in Hong Kong jumped by nearly 40% on June 10 and hit a one-year high of HK$33.15 on June 16. It has since fallen to HK$15.88 on Tuesday, but that’s still 255% higher than the closing price of HK$4.47 on June 9.

That may have been in part due to Tencent (0700.HK), one of Koolearn’s major shareholders,  selling off most of its stake in the company to take advantage of the price surge. According to a document filed to the Hong Kong Stock Exchange on June 20, Tencent sold 35.61 million shares and 38.99 million shares on June 15 and 16, respectively. This means it has cashed out to the tune of HK$719 million ($92 million) and reduced its shareholding to 1.58% from 9.04%.

Smaller revenue

Profit taking aside, investors are optimistic about the company’s potential in this new field. According to a research report by Tianfeng Securities, Koolearn’s anchors have helped establish a distinctive livestreaming brand and with its unique content have drummed up plenty of traffic. The brokerage believes that the rise in GMV will directly contribute to its revenue and profits and those of its parent company New Oriental Education EDU.

Citic Securities said in a recent report that Koolearn can repurpose its managerial expertise and organizational skills accumulated from its educational background for its livestreaming business, and that by building a proper incentive structure it could put together a great team of anchors and drive growth.

However, despite these rosy takes on the company’s future, there is still some way to go before revenues generated by livestreaming sales can match those of its former core business.

According to Internet data and analytics platform Newrank.cn, Koolearn’s livestreaming sales in the past 30 days before 1:00 pm on June 17 totaled 280 million yuan, with the company pocketing a 15% commission of around 42 million yuan.  Even at an annualized rate, that would be just over a third of the company’s 1.42 billion yuan in revenue for the 2020/21 fiscal year and compared to its parent company’s $4.28 billion (28.7 billion yuan).

Sustainable profitability?

Needless to say, if the company hopes to milk some significant profits from this new venture, Koolearn needs to go beyond merely sales commissions and explore further up the supply chain to exert some influence on product pricing.

Citic securities noted that Koolearn’s online grocery platform is struggling to control product quality and exercise proper supply-chain management, resulting in relatively low unit prices. If the company can’t control product sourcing and distinguish itself from competitors, it will struggle to forge a business model capable of generating sustainable profits, according to Citic.

In fact, it’s possible some of the froth of its stock price surge might have been due to a recent frenzy of speculation in mainland stocks. According to data from the Hong Kong Stock Exchange,  transactions of Koolearn shares surged from June 13 to 17 to rank among the top 10 most-actively-traded stocks. On June 16, transactions involving mainland investors reached HK$4.99 billion in value, accounting for 45% of total value of transactions that day.

This is backed up by Koolearn’s latest price-to-sales (P/S) ratio of 12, which makes it look overvalued compared to the P/S of 0.71 for U.S.-listed Chinese peers TAL Education Group TAL and 0.61 for Gaotu TecheduGOTU. Its valuation similarly towers over those of major livestreaming platforms like Bilibili BILIKuaishou Technology (1024.HK) and Joyy Inc. YY on 3.46, 3.59 and 0.9, respectively.

Whether this impressive valuation will hold up over the long run or come back down to earth is the question.

This post was originally published on this site

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