The coronavirus outbreak has been hitting China’s economy hard as many businesses have had to temporarily shut down their operations amid tight quarantine rules. But measures to stop the spread of the illness have also become an unexpected boon for at least one industry: online education.
With the opening of schools pushed back to March and all extracurricular activities suspended, tens of millions of students have been told to go online to study. And the country’s providers of online tutoring services are suddenly experiencing a surge in interest from students and their parents.
The biggest winner appears to be TAL Education’s Zhang Bangxin, who saw his wealth increase by $1.7 billion, giving him a current net worth of at least $10 billion. His New York-listed company rallied 20% last month on expectations of strong growth. The 40-year-old Zhang has catapulted past the likes of JD.com’s founder Richard Liu ($8.7 billion) and Baidu’s Robin Li ($7.1 billion) to reach No. 24 on China’s wealth rankings.Today In: Asia
“This is like a natural marketing campaign for these companies,” says Jiao Wei, an analyst at Shanghai-based research firm 86 Research. “Parents who didn’t know much about online education can now see how it works and how classes are being streamed online.”
TAL has partnered with more than 300 public schools across China to stream free classes, and its Xueersi unit is providing complementary K-12 online tutoring sessions. Other education companies are also launching more e-learning courses, while developing data tools to analyze student performance and help teachers track their progress.
Shares of New York-listed New Oriental rose 7.3% last month, adding $190 million to the wealth of its founder Yu Minhong. His current net worth is estimated at $3.4 billion. And Chen Xiangdong, founder of GSX Techedu, also listed in New York, has seen his net worth rise to $4.75 billion, thanks to a 40% rally that added another $1.3 billion to the value of his stake in the same period. The three education billionaires’ combined $3.2 billion gain makes them stand out as rare winners at a time when the coronavirus outbreak has battered industries ranging from hospitality to retail and logistics. As of Thursday, the virus that had infected nearly 80,000 people in China has been estimated to shave $60 billion off China’s economic growth.
Analysts say that education companies are likely to benefit from the increased attention for their services for some time. After both students and parents become more familiar with virtual classrooms, they can be enticed to try other products and pay for services down the road. Terry Weng, a Shenzhen-based analyst at research firm Blue Lotus Research Group, estimates that 22% of Chinese K-12 students will take part in online tutoring by end of this year, up from 17% in 2019. Driven by tough competition for good schools and jobs, as well as technological advances in virtual learning, China’s online education market is expected to more than triple to 696 billion yuan ($99.3 billion) in 2023 from last year’s 203 billion yuan, according to research firm Frost & Sullivan.
But analysts also caution that the current e-learning boom may not translate into higher revenue or profit—at least not in the short term. In a bid to attract more users, many services are being offered for free or at a discount. Blue Lotus’s Weng estimates that when TAL actually charges its virtual classes, they are sold at a 10% to 30% discount compared with lessons for its offline learning centers. The company generated $6.5 million in profits from $2.5 billion in sales during the first nine months of 2019. Before the virus struck, TAL was estimated to derive between 20% and 30% of its revenues from online learning and the remainder came from its offline centers.
Still, investors seem willing to overlook any short-term loss and focus on future gains. Aside from faster user growth for their online services, TAL and New Oriental’s offline businesses may also capture a larger share of the overall education market. This is due to the fact that smaller service providers are running out of cash, and probably won’t stay in business much longer. They still have to pay rent and teachers’ salaries, even when China suspended all types of offline classes and ordered tuition refunds.
“The gradual exit of smaller education firms means there are more opportunities for TAL and New Oriental,” Weng says. “Investors are more keen for their future performance.”