[Earnings Insight] Benefiting from 'AI + Education,' TAL Education rebounds strongly with an 18% surge in share price

At the initial implementation of the 'Double Reduction' policy,$TAL Education (TAL.US)$ It has experienced the darkest moments of business suspension and market value halving. Now, this veteran education giant has delivered a surprising report card with its strategic transformation into 'AI + education'.

On January 29, TAL Education Group released its unaudited financial report for the third quarter of the fiscal year 2026, showing significant year-over-year growth in key metrics like net revenue and net profit. Coupled with the continued realization of transformation results, the company's stock price surged by 18.03% on January 29 Eastern Time, bringing its market value back to around 7.7 billion USD. The path to 'rebirth' for this former education giant is becoming increasingly clear.

Q3 performance remains strong

According to the earnings report, in the third quarter of fiscal year 2026 (ending November 30, 2025), TAL Education Group saw explosive growth in performance, with net revenue reaching 7.7 billion USD, an increase of 27% year-over-year. The profit side was equally impressive, as operating profit for the quarter reached 93.123 million USD, reversing from an operating loss of 17.432 million USD in the same period last year, significantly restoring profitability.

Net profit attributable to the company also performed strongly, recording 1.31 billion USD this quarter, a staggering 466.1% year-over-year increase, compared to just 23.069 million USD in the same period last year.

In terms of shareholder returns, basic and diluted net profit per ADS were 0.24 USD and 0.23 USD respectively. Under non-GAAP measures, both were 0.25 USD (three ADSs correspond to one Class A ordinary share). Real profit growth translated into shareholder returns.

Behind the high growth in performance, TAL Education Group’s stable cash flow also drew attention. As of November 30, 2025, the combined balance of TAL Education Group’s cash, cash equivalents, and short-term investments reached 3.617 billion USD, almost unchanged from 3.618 billion USD as of February 28, 2025. The substantial capital reserve allows the company to maintain R&D investment, hardware iteration, and overseas market expansion.

Looking at a longer cycle, the company’s first three quarters of fiscal year 2026 reported net revenue of 2.207 billion USD (up 34.5% year-over-year) and net profit attributable to shareholders of 286 million USD (up 211.2% year-over-year). Both short-term profit bursts and long-term growth sustainability demonstrate robust resilience after the transformation.

Compared with peers, each company’s transformation paths have diverged, leading to different outcomes. Among them, $Gaotu Techedu (GOTU.US)$ also achieved excellent results driven by the optimization of its core business structure and AI support. For the third quarter ending September 30, 2025, its revenue grew 30.7% year-over-year to 1.579 billion RMB, while the adjusted net loss narrowed significantly by 69.9% year-over-year. As of the end of September 2025, the company had cash and equivalents totaling 3.04 billion RMB.

However, NetEase, another leading player in the smart learning sector, $Youdao (DAO.US)$ reported lackluster performance in Q3 2025. Impacted by a strategic scaling back of its 'cash cow' business and insufficient AI-driven demand for smart hardware, revenue growth remained sluggish during the reporting period, with net profit attributable to shareholders plummeting 99.86% year-over-year to just RMB 120,000.

'AI + Education' has become highly sought after, but potential challenges cannot be ignored

"We have always been committed to integrating technology into the learning experience, continuously optimizing content, products, and services to support students’ overall development," said CFO and President of TAL Education Group, Peng Zhuangzhuang, at the earnings call, articulating the company's transformation logic. Today, 'AI + Education' has become a key driver behind TAL Education Group’s earnings growth.

In Q3 of FY2026, the company’s learning services business continued to grow: offline operations benefited from a strategy of disciplined expansion, while online initiatives introduced immersive humanities classrooms with gamified learning mechanisms; the learning device segment became the 'second growth curve,' with both revenue and unit sales increasing year-over-year. The mid-tier new product X5 Classic Learning Machine filled a pricing gap, broadening the consumer base.

User engagement metrics showed strong activity, with learning devices maintaining an average weekly active rate of approximately 80%, and active devices being used for about one hour daily on average. By December 2025, the AI assistant 'Xiaosi' had surpassed 1 billion activations, while the embedded AI companion had provided hundreds of thousands of hours of guided learning.

Despite robust Q3 FY2026 results, TAL Education Group’s management did not shy away from addressing potential challenges at the earnings call, candidly discussing the balance between short-term volatility and long-term investment.

Looking at growth expectations, the company clearly stated that revenue growth in the second half of FY2026 is projected to be lower than in the first half due to two main factors: First, the learning device business is transitioning from an early rapid expansion phase to a more stable growth stage, naturally leading to slower growth rates. Second, differences in product release cycles have resulted in varying base effects—Q3 last year benefited from a new product launch at the end of August, whereas this year’s key product releases were in May, boosting Q2 growth but creating higher base pressure for Q3.

From a business structure perspective, profitability varies across different segments. TAL Education Group’s mature offline and online course businesses have achieved stable profitability, but its learning device segment, which serves as a growth engine, remains in the 'investment phase.' Management noted that the learning device business reported an adjusted operating loss this quarter, as the company prioritizes building long-term competitiveness over short-term profits. Continuous investments are still required for new product development, content expansion, and channel optimization, with no clear timeline yet for reaching breakeven.

Author: Yuan

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