Tencent-backed Koolearn stock jumps 83% as virus keeps kids away from schools

Photo: Internet Archive

Koolearn Technology Holdings Ltd. has soared alongside rival Chinese online learning companies since the coronavirus outbreak. Now, the stock has become the $36 billion industry’s priciest as well as one of its most shorted.

A unit of New York-listed New Oriental Education & Technology Group Inc., Koolearn has surged 83% this year after the epidemic shut schools and forced many of the country’s 200 million-plus school students online.

In response, the company hosted free classroom live-streaming and other activities for its more than two million K-12 and college learners, hoping to snag new users and quicken growth. The stock is now trading at 17 times blended forward 12-month sales, roughly quadruple the 4.4 average of 46 Chinese education companies tracked by Bloomberg.

But some investors question the extent to which the loss-making company — of which Tencent Holdings Ltd. owns almost 10% — can convert users pushed online by necessity into longer-term paying customers.

As of Feb. 25, about 14.2% of Koolearn’s free-floating stock had been shorted by investors, not far off a historic high of 15.7% set on Feb. 18, according to Markit data. And at HK$33.75, Koolearn is already trading 26% above its average target price.

“This model is not necessarily sustainable,” said Jacky Choi, chief investment officer at Zeal Asset Management. “The conversion rate of online education is actually very low, which is the risk these companies will face in the future.”

Investors remain sanguine about Koolearn’s industry over the longer term. It’s taken off over past decades: In 2018, revenue from Chinese e-learning climbed 26% to 252 billion yuan ($36 billion) and paying users reached 135 million, according to a report by iResearch. Revenue will double by 2022, the research house estimates.

But there’re a lot of competitors for a slice of that pie. Koolearn is spending at a furious pace to expand and attract users, keeping it in the red, said Ye Le, a China Securities analyst. It’s expected to remain loss-making till at least 2022 though those losses will shrink, according to projections compiled by Bloomberg.

Bloomberg

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.