In the past year TAL did a good job in the education industry chain , and recently ushered in a new action, as a leading investor to the pay-per-view platform “xiaoe-tech” And behind this, because the ban of “advanced education” from the Ministry of Education becomes a direct blow to TAL. TAL began to talk about the growth model from the endogenous to the extension. However, the latest results show that TAL’s investment impairments have been one of the biggest losses in nine years, with the road to extended mergers and acquisitions already in the face at Waterloo.
On December 21st, Xiaoe-tech, a chinese new education service provider, announced that it had secured a 100 million yuan Round B financing from TAL . With the help of its expertise in extension mergers and acquisitions, the TAL “transformation” To B business seems to be back in town.
It is worth noting that since 2013 Xuersi changed to TAL, TAL continued to invest in the education industry. However, its quarterly report for the 2020 financial year showed that impairments on its investments were one of the main reasons for the first loss since listing.
Data show that the first quarter of the next fiscal year of TAL’s long-term investment impairment losses and other expenses totaled $81.92 million, the first since it listed on the market. Other expenses referred to investment losses due to changes in fair value amounted to $31.33 million, which were mainly related to investment in listed companies.
Since changing its name from “XueErSi” to “HaoWeiLai(in chinese)” in 2013, TAL, which started as a leading k-12 services provider, seems to be looking to make a good future through investment mergers and acquisitions. Since 2013, its foreign investment has reached more than 100, and most of it is located in quality education, study abroad, community and science and technology and other fields. In terms of investment style, TAL is keen on early investment, in order to control risk, most will not make more than 20% of the shares of the investment.
Realistically, FY2019 data show that projects with a 20 percent stake of TAL investment resulted in $14.49 million in impairments on investments. Moreover, a large number of investment does not seem to be able to help TAL solving problem, in the domestic offline education and training supervision of the situation,TAL spent a lot efforts on online eduction, and high online sales costs have become the main cause of profit drag. And, to TAL it’s too early to talk about the profitability of the online business.
According to the results, TAL’s net loss in the first quarter of fiscal 2020 was $7.304 million, down 110.9 percent from a year earlier, the first loss since listing. Of this, the long-term investment impairment loss was $50.6 million, pushing the total $58.09 million for the fiscal year 2019, compared with $9.7 million in the same period last year. Other expenditures amounted to $31.33 million in investment losses resulting from changes in fair value.
The value loss on multiple investment targets of TAL resulted in a total of $81.92 million in long-term investment impairment losses and other expenses in the first quarter of fiscal 2020.
While the first quarter of 2020 results do not disclose the specifics of the loss,” investors may be able to get a glimpse of their 2019 fynd.
Data show that its long-term investment projects in fiscal 2019 impairment of $58.09 million, of which online education and online platform-related projects, impairment of $34.88 million, or 68.5 percent.
Faced with losses in the first quarter of 2020, TAL Chief Financial Officer Luo Wei also said that further expansion of the online business products and size, and increased investment in technology, is the main cause of the loss. In this way, TAL’s online education is still hard to make a profit.
In fiscal year 2019, a total of six direct investment projects were disclosed under Long Term Investment, Baby Tree, Fclassroom, Beauty, changingedu haifeng education and DADA English.
The return on investment of the baby tree is measured at fair value. FY19 figures show that TAL has invested $130 million in Baby Tree. Baby Tree’s share price has been falling since April 2019, from about HK$6.5/share to HK$3.6/share today, and its market value has shrunk by almost half, making it the main cause of other expense losses.
Obviously, after a lot of early investment, TAL is going through a post-investment dilemma.
The investment in xiaoe-tech is another layout of the future business at the B-side. Although Zhang Bangxin only offered to explore the To B business in 2017, TAL is fast-moving.
The To B division was established in January 2018 and the “Future Magic School” system platform was launched in February. In recent years, the TAL’s To B field of external investment is also very frequent, has invested in the xuekeNet, kaoyanBang.
It is worth noting that, in addition to the frequent investment in the B-side sector, since 2013, TAL investment has reached more than 100, keen to complement the non-K12 track short board, such as quality education, study abroad, community and science and technology, can be called the education sector investment veteran players.
For example, the strategic investment of baby tree and Qinbaobao, will improve the business to the front end of K12, the development of early education field industry chain. And the research network and Minerva is to extend the user’s use to k12 back end.
In addition, TAL also investins in knowledge-paying guokr, hundunyanxishe and so on. Arguably, TAL is the best in expanding borders with capital means.
And in addition to the extension of the industrial chain, perhaps, TAL has greater “ambition”. In an online environment where training institutions are strongly regulated, TAL founder Zhang Bangxin has said that TAL will be transformed from an offline company to a technology services company.
In recent years, TAL has also been a preference for investment in technology. Its research and development costs in fiscal 2018 exceeded 1 billion yuan, including the Internet, artificial intelligence and brain science.
Although there is already its own online foreign teacher brand “Le Foreign Teacher”, but in 2018 still investined in DADA English, which is behind the DADA English in the application of artificial intelligence technology, teaching content research and development of the preference. Among the 134 enterprises in the first batch of 197 blockchain information services, the “Future Learning Trail Chain” project of the future ranked among them, becoming the first batch of approved education filing projects.
It is worth noting that, in terms of investment style, good future is keen to invest early. Round A and previous investments accounted for 62% of investments in good future 2015. And 2018 by the impact of the investment environment, good future investment round mainly concentrated in the A-round and C-round stage, and the Number of A-round, C-round investment accounted for 30% of the total investment.
Good Future CFO Kaufman has said that because most investments are early, other companies will not invest more than 20 per cent of the shares, which can effectively control risk.
The reality is that a large number of early projects in equity investments have not been developed as expected, and projects within 20% of the future holdings in FY2019 resulted in an investment impairment of $14.49 million, accounting for 28.5% of the impairment of long-term investment projects in FY2019. And, in addition to the losses, relying on investment does n’ go doesn’t help solve the problem in the future.
Difficult to change
At present, offline courses account for 78% of TAL’s income, such as xue er si, libu English and Moby Think Hall, where xue er si account for more than 60% of the overall TAL income.
However, since the government’s strong oversight of off-campus training institutions in 2018, public information shows that at least 25 educational institutions are in danger of failing in 2019, 21 of which are off-line.
Under the circumstances, TAL’s offline business is also feeling the pressure. Data show that the next fiscal year 2020, the first quarter of offline training revenue growth of only 20%, of which Xue er Si revenue growth rate of only 10%.
The offline winter makes TAL before the re-stake of the 1-to-1 model is not good to do, TAL is also striving for self-help.
In September 2019, TAL investment of one-on-one brand Haifeng education was exposed to large-scale layoffs. And according to all-weather science and technology reports that HaiFeng education has been merged with gently tutoring.
Data show that the business of gently tutoring is mainly offline “one-to-one” counseling institutions. And TAL’s investment in gently tutoring has been from the B-round to the D-round, become TAL’s investment the most times the company.
In addition, TAL of the “DaHai 1 to 1” also changed its name to xue ersi net school 1 to 1. Intention of TAL is trying to one-on-one “embedded” the overall online after-school tutoring business, after which the DaHai 1 to 1 will be directly from learning and thinking about the network school guidance, which is behind the future to save a lot of cost-saving considerations.
At the same time, TAL vigorously develop the online business, due to the high cost of online sales, has also become a drag on its performance of one of the main factors.
According to statistics, as of July 2019, the total amount of advertising for online education companies in summer enrollment amounted to 3 billion to 4 billion yuan. While TAL online sales expenses rose from 36.6 percent in FY2016 to 99.92 percent in FY2019, it was too early to answer questions about the earnings of the online business when asked about the business goals for the online business during the Q2 Q1 conference call.
With a large number of entrants and more intense competition, the growth of revenue in the good future has slowed, from 68.26 per cent in FY16 to 49.44 per cent in FY19.