OneSmart Education Suspends All Business

Three years after IPO, the private tutoring company in China gets crushed by the regulatory crackdown and is under threat of delisting at 24 cents a share.
Oct. 12, 2021 22:46
OneSmart Education Suspends All Business

(CapitalWatch, Oct. 12, New York) OneSmart International Education Group Ltd. (NYSE: ONE) halted trading Tuesday morning after announcing the suspension of all its education programs and learning centers.

The company's stock halted trading at 40 cents a share after the markets opened on Tuesday, then slid to 24 cents a share in after-hours. Since early May, when Beijing just began drafting new rules in the wildly-growing private tutoring sector, the market value of OneSmart has declined 92%.

Now that the cutthroat new rules have gone into effect, companies that failed to restructure timely are shutting down their operations. OneSmart released a brief statement today, saying the company is forced to suspend its business "primarily due to challenges posed by recent changes in the relevant policy and regulatory landscape in China's private educational service industry and the resulting operational difficulties experienced by the Company."

OneSmart also said two of its independent directors have resigned. In June, the company lost its chief financial officer and chief strategic officer, Honggang (Greg) Zuo.

As of February 2021, OneSmart operated 457 learning centers in 36 cities China, providing K-12 after-school tutoring in core HappyMath, FasTrack English, Online, and VIP One-on-one classes. Average monthly student enrollment was 135,714. In the financial report for the three months through February, released in May, the company was optimistic on its post-Covid recovery, noting "robust demand" and investing into brand awareness and technology.

It was these compulsory core subjects that Beijing regulators addressed in the crackdown. After-school educators were forced to become non-profit, terminate foreign ownership and lay off foreign teachers, significantly limit tutoring hours, and follow set fee standards. And the Chinese education industry believed to be "immune" even by seasoned investors such as Vision Knight Capital's David Zhe Wei, catastrophically lost in value. New Oriental Education & Technology Group Inc. (NYSE: EDU; HKEX: 9901), which counted 10.6 million students in 2020, now commands a market cap of under $4 billion, trading at $2.16 per share compared with $17.40 a share in January. Another giant, TAL Education Group (NYSE: TAL), has lost 93% of its market value year-to-date, falling to $4.70 today from $69.22 early in 2021.

Edtech companies scrambled to re-focus: for example, NetEase-backed Youdao Inc. (Nasdaq: DAO) recently announced a plan to dispose of its after-school tutoring services for academic subjects as it focuses on adult class offerings and smart learning products. Education giants with enough cash on hand are turning to non-academic classes such as arts and sports – but while these are likely to survive with a diminished value, the smaller players are getting pushed out.

Meanwhile, Chinese parents eager in invest in their children's education and students scrambling to prepare for college entrance exams or looking to the West for opportunities are now left hanging. Time will tell whether the new policies will relieve the financial burden on families and lead to the baby boom that Beijing hoped for.

OneSmart celebrated its initial public offering in New York in March 2018, raising $180 million after pricing at $11 per share. On IPO day, chairman and CEO Xi (Steve) Zhang talked of long-term investment value and far-reaching acquisition and expansion plans.

"We plan to acquire some regional players, because the market needs some consolidation. It is so fragmented," Zhang told CW at the time. "We also plan to expand internationally, gradually and cautiously. Maybe we will do some selected acquisition in North America, Europe and Japan. But right now, our number one priority is still China."

Zhang projected "40% annual growth over the next three years."

In early August, OneSmart received a warning from the New York Stock Exchange for trading below the required minimum of $1 per share. It has six months to regain compliance and remain listed.

ONE, OneSmart, TAL, EDU, DAO, China, Education