Overview: Soros Fund’s position in New Oriental Edu & Tech Group
Must-know: Changes to Soros Fund Management’s 2Q14 positions (Part 5 of 7)
New Oriental Education & Technology Group
Soros Fund Management initiated new positions in CONSOL Energy (CNX), Level 3 Communications (LVLT), Time Warner Cable (TWC), and New Oriental Education & Technology Group (EDU). It sold positions in FedEx (FDX) and Monster Beverage (MNST).
Soros Fund Management’s position in New Oriental Education & Technology Group
Soros Fund Management’s new position in American Depository Receipts (or ADRs) of New Oriental Education & Technology Group accounts for 0.48% of the fund’s second quarter of 2014 (or 2Q14) portfolio.
New Oriental Education & Technology Group is the largest provider of private educational services in China based on the number of program offerings, total student enrollments, and geographic presence. It offers a wide range of educational programs, services, and products.
New Oriental Education & Technology Group’s programs, services, and products
This range of programs, services, and products consists primarily of
English and other foreign language training
test preparation courses for admissions and assessment tests in the U.S., the People’s Republic of China, and the Commonwealth countries
primary and secondary school education
development and distribution of educational content, software, and other technology
online education
New Oriental Education & Technology Group’s 6 segments
The company operates through six segments:
language training and test preparation
primary and secondary school education
online education
content development and distribution
post-secondary education
overseas study consulting services
Total student enrollment in tutoring for academic subjects and test preparation courses for the latest fiscal year ended May 31, 2014, increased by 5.1% year-over-year from approximately 2,540,300 in the prior fiscal year to approximately 2,668,700.
New Oriental Education & Technology Group’s revenues
New Oriental Education & Technology Group currently derives revenues from the following sources:
educational programs and services
books and others
Educational programs and services revenue
This revenue accounted for 89.4% of its total net revenues in the fiscal year ended May 31, 2013. It consists of language training and test preparation courses, primary and secondary school education, and online education.
Books and others revenue
This revenue accounted for 10.6% of its total net revenues in the fiscal year ended May 31, 2013. It distributes and sells books and other educational materials developed or licensed by the company through its own distribution channels—its bookstores and websites—and also through third-party distributors.
Fiscal fourth quarter revenue and earnings beat estimates
New Oriental Education & Technology Group’s latest results for fiscal 4Q14 beat estimates. Fiscal 4Q14 revenue was up 20.0% year-over-year to $287.5 million, while net income increased 52.2% year-over-year to $42.9 million. Total net revenues for the fiscal year ended May 31, 2014, increased by 18.7% year-over-year to $1.13 billion. An increase in student enrollments in tutoring for academic subjects and test preparation courses mainly drove the growth. An increase in average selling prices also drove growth.
Total student enrollments in tutoring for academic subjects and test preparation courses in the fourth quarter of the fiscal year of 2014 increased by 4.0% year-over-year to approximately 581,400 from approximately 559,000 in the same period of the prior fiscal year.
The company said its ‘Harvest the Market’ strategy has driven a significant improvement in profitability during the year. Gross margin for fiscal year 2014 increased by 30 basis points from 60.0% in fiscal year 2013 to 60.3%. Operating margin increased by 450 basis points from 12.8% to 17.3%.
Management further noted that, “Our overseas test preparation and overseas study consulting businesses together recorded year-over-year gross revenue growth of about 22% to approximately $440.6 million, while our U-Can grade 7 to 12 all-subjects after-school tutoring business recorded year-over-year gross revenue growth of about 23% to approximately $328.4 million.”
Shares plunged after the earnings announcement
Shares fell after the earnings announcement, as the company said it expects a slower top-line growth in the first half of fiscal year 2015. It expects total net revenues in the first quarter of fiscal year 2015—June 1, 2014, to August 31, 2014—to be in the range of $412 million to $427.5 million, representing year-over-year growth in the range of 6% to 10%.
It reduced its previous learning center opening plan of 10 to 12 per quarter in light of the slower-than-expected revenue growth outlook for the first quarter of 2015. Apart from macroeconomic factors, the company said a lower-than-normal projected revenue growth rate can be attributed to the reduced number of schools and learning centers in its network, decline in enrollments for the company’s legacy business lines of adult English and domestic college English test preparation, and increasing competition and uncertainty about the implementation of new policies related to the English test for the gaokao—the college entrance exam.
To benefit from expansion of online education products and services
New Oriental Education & Technology Group’s online education website, koolearn.com, offers over 2,000 online courses in language training, overseas and domestic test preparation, and vocational education. This website has over 9.2 million cumulative registered users by the end of fiscal year 2014 and about 177,700 paying users in fiscal year 2014. The company is also exploring opportunities to invest in selected online education companies with minority stake to further support its efforts to develop a comprehensive online and offline integrated education ecosystem. It’s expanding its online education products and services to benefit from the growth in the online education market. Users are expected to touch 1.2 billion in 2017. iResearch data estimated that online education users in China are expected to reach 1.2 billion in 2017.
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