On Day Two of public trading, China’s Zhangmen Education Inc. (NYSE: ZME) ended 14% lower. This was not a surprise – as past cases show, if a Chinese stock surges 48% on debut day, the gains may be short-lived.
The Chinese e-learning platform for K-12 priced its stock at $11.50 per American depositary share – near the lower end of the expected range of $11 to $13 – and peaked as high as $20.52 per share as it lifted off on Tuesday. By day’s end, ZME stock settled at $16.99 and slid on Wednesday to $14.60 per share.
The IPO occurred at the time China is tightening the caps on the tutoring market which has boomed over the past few years and propelled by the Covid-19 outbreak in 2020. And while Zhangmen describes itself as “a leading online education company in China focused on providing personalized online courses to K-12 students” in its press releases, careful to avoid the word “tutoring,” the prospectus states as follows: “Our core course offerings encompass one-on-one and small-class after-school tutoring services covering all core K-12 academic subjects.” The company goes on to say it’s been the largest one-on-one e-learning platform since 2017, holding 32% of the market share in 2020.
And it’s because of those new regulations in the market that the IPO was significantly downsized. Bloomberg earlier reported that Zhangmen aims to raise up to $300 million in capital. In the end, the deal came down to $41.7 million – and an existing principal shareholder in Zhangmen, an entity controlled by SoftBank Group Corp., has subscribed for 12% of the shares offered in IPO.
Still, the company has attracted some big underwriters to the offering. They were Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc., CICC Hong Kong Securities Ltd., Macquarie Capital (USA) Inc., Futu Inc., Tiger Brokers (NZ) Ltd., and SNB Finance Holdings Ltd. They may acquire an additional 543,450 ADSs within 30 days.
In addition to SoftBank, Zhangmen has been backed by Warburg Pincus and China Renaissance Holdings.
China’s private after-school tutoring space was recently limited by time frames and more bans are expected from the Ministry of Education by the end of June, as reported by Reuters. The news weighted significantly on U.S.-listed Chinese education stocks across the board, with industry leaders New Oriental (NYSE: EDU) and TAL Education (NYSE: TAL) tumbling in half over recent months.
On IPO day, Zhangmen did not respond to a request for comment.