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K-9 subject business is completely shut down, will New Oriental become a new hope?

It has been almost 4 months since the “double reduction” policy was issued. The public is concerned about Yu Minhong and$NEW ORIENTAL-S (09901.HK)$The discussion did not abate in popularity. Recently, Yu Minhong and New Oriental have been trending one after another.

On November 15, New Oriental$HKEX (00388.HK)$According to the announcement, it is planned that by the end of 2021, all learning centers across the country will stop providing subject-related training services (K-9 subject training services, including compulsory education and preschool) to kindergarten to grade 9 students, which is expected to have a significant adverse impact on future performance and revenue.

According to an announcement, New Oriental's K-9 business building suddenly collapsed. New Oriental said in the announcement that for the fiscal year ending May 31, 2020 and 2021, the total revenue generated by providing K-9 subject training services was about 50%-60%.

If K-9 isn't going to be done, what will New Oriental do?

Yu Minhong once revealed on his personal Douyin live broadcast on the evening of November 7 that New Oriental plans to set up a large-scale agricultural platform. He will work with hundreds of teachers to help sell agricultural products through a live broadcast. The topic hit the headlines on November 12 and sparked a buzz. Some highly praised Weibo comments saying:“The New Oriental is about to become a new hope.”

What kind of voice did live streaming and the new business bring?

Yu Minhong began a live broadcast, which attracted widespread attention from the industry.

Mainstream media also participated in the review. On the morning of the 13th, “Economic Daily” published the article “New Oriental Should Not Copy Li Jiaqi”, which sparked a buzz among netizens and media. On the evening of the 14th, Yu Minhong responded to the article on the Douyin live broadcast, saying, “Thanks for the kind reminder, New Oriental will live up to expectations and move forward,” and has also brought New Oriental to the forefront of public opinion.

Actually, this is not the first time Yu Minhong has done a live broadcast; as early as 2020, he entered the Douyin live broadcast room. At first, live streaming of knowledge content dissemination was the main focus, and at the end of 2020, live streaming of courses was carried out, expanding the voice of New Oriental.

No more online classes. Will Yu Minhong's transition to live streaming to live streaming work?

The Economic Daily article mentioned above stated:“It is understandable that the New Oriental, which is in urgent need of transformation, is focusing on this path of 'becoming rich'. However, judging from objective conditions, it is difficult for live streaming to help farmers become a new pillar of the enterprise.”

The article points out that objective conditions determine that live streaming of agricultural goods from the market to regulation is extremely challenging. It is not easy for New Oriental to cross borders from off-campus training to live e-commerce, but as an enterprise with educational genes, New Oriental may become a cradle for new professional farmers, and suggests that New Oriental pay attention to the weekend research market that students urgently need.

Most netizens are complaining about New Oriental. Some netizens said, “Is it wrong to donate seats and bring goods to help farmers? “I don't think”, “Compared to Via, Li Jiaqi, etc., the New Oriental teaching team will be more professional and persuasive. “Very good”, “Under the pandemic, research is very difficult and risky”. Some netizens also said, “New Oriental has a source of students, a brand, and a teaching base. Moving to the research industry, it is entirely possible to continue to refine and become a leader and lead the development of industry standards. It is indeed much better than doing any live broadcast.”

Yu Minhong's attitude on this is, thanks to the reporter for their comments. If the live broadcast brings goods, it really needs to be on par with industry leaders. However, he is opposed to making quick money. In his live broadcast response, he mentioned:“There's one point I don't really agree with. The article says, 'Move from one industry that earns quick money to another. ' Actually, there is no quick money or bad money in the business model.”

Yu Minhong said that buying agricultural products in New Oriental is not about making money; what they consider more is public welfare. Yu Minhong is also from a rural area and wants to work with New Oriental teachers to support rural revitalization. On November 4, Yu Minhong said on Weibo that under business adjustments, New Oriental has transferred new desks and chairs to rural primary and secondary schools, and has donated nearly 80,000 sets. According to information, the price of each set of desks and chairs in the second-hand market is 600-700 yuan. Excluding transportation costs, New Oriental has already contributed no less than 50 million yuan in this donation.

Looking at it now,Most netizens are more supportive of Yu Minhong。 Weibo users have said one after another, “Very good, you can't use desks and chairs for schools that need them, and there's no waste at all,” “It's not easy, it's really nice,” and “Are you bringing agricultural products? “I have a vision and continue to support Mr. Yu”, “People are able to spread the word, they are not good people. Following the path of serving the working people is a bright path of justice.”

However, there are also opponents who question whether New Oriental has the ability to enter new industries across borders. A Weibo user said, “The power of capital is strong, and capital is also very greedy. Will getting involved in the agricultural product distribution sector eat up both ends? In the end, farmers can't make money, but consumers have to pay a high price?”

Also, what Yu Minhong did on the live broadcast was not a personal influencer IP, but the entrepreneurial history of New Oriental and his career as an educational entrepreneur.

In an interview with the media, Yu Minhong's live streaming planning team said that due to Yu Minhong's personal IP and the tonality of his Douyin video content, Yu Minhong has planned the two directions of reading books and public welfare to help farmers. Yu Minhong has also done live streaming sales for public welfare before. The previous few times, Yu Minhong's personal planning was carried out, and the whole process will be on the right track with the team's intervention.

However, there is news spread on the Internet that Yu Minhong's live streaming account on Douyin has been blocked. According to Yu Minhong's Douyin account, the most recent live broadcast was on the evening of November 11. The content of the Douyin short video that Yu Minhong recently updated is a book recommendation and his recent bad voice, respectively.

Behind the live streaming delivery plan, K9 subject training was completely shut down

The reason behind Yu Minhong's live streaming delivery plan is that with the gradual implementation of the “double reduction” policy, New Oriental's K9 business has been gradually reduced to a complete shutdown.

According to media reports, as early as September 17 at the New Oriental Executive Meeting at 10 a.m., Yu Minhong announced that offline enrollment in elementary and middle school science services would be stopped after the fall course was over, and that various cities would also gradually close offline teaching sites. According to Yu Minhong revealed on the live broadcast on November 7, New Oriental will rent out 1,500 teaching sites, and the renovation costs for these 1,500 teaching sites have already exceeded 5 billion yuan.

The planned shutdown of elementary and middle school subject business was also accompanied by plans for drastic layoffs. Yu Minhong once revealed at the executive meeting that New Oriental originally planned to lay off 40,000 employees by the end of August, but as of mid-September, there were less than 10,000 layoffs. The number of layoffs is expected to exceed 40,000 by the end of the year.

After the offline enrollment program was shut down, online online courses were also shut down.$EAST BUY (01797.HK)$It was announced on October 25 that out-of-school training services for kindergartens to grade 9 subjects in mainland China will be terminated. It is expected to take effect before the end of November 2021.

After announcing the closure of K-9 subject training services, New Oriental's K-9 subject training business came to a complete end.According to New Oriental's 2021 financial report (as of May 31), New Oriental's revenue from K12 after-school tutoring, exam preparation, and other courses in FY2021 was US$3.667 billion, accounting for 85.8% of total revenue. However, the provision of K-9 subject training services, which were shut down this time, accounted for about 50%-60% of revenue in FY2021.

In terms of online business, in FY2020 and FY2021, New Oriental Online's K12 business revenue was 295 million yuan and 787 million yuan respectively, accounting for 27.3% and 55.5% of total revenue, respectively. When announcing the business shutdown, New Oriental Online issued an announcement stating that in the past two fiscal years, the K9 business accounted for about 58%-73% of the K12 segment. According to this calculation, K9 business revenue in fiscal year 2021 accounted for about 32%-41% of New Oriental Online's total revenue.

It is worth noting that,The K-12 subject training business in the New Oriental has not been shut down, yet the difference between K-9 and K-12 is that it is training for the high school level, as well as training content outside of the compulsory education stage stipulated in the “double reduction” policy.However, the “double reduction” policy also imposes relevant restrictions on training outside of subject education in high schools.

In addition to subject education, what has not been restricted by the “double reduction” is the field of quality education, which is also a rival of the New East$TAL Education (TAL.US)$As the main driving force of education enterprises, other education companies have also announced that they will shut down extracurricular training services for subjects at the compulsory education stage or transform quality education.

On November 13, Good Future issued a statement saying that off-campus training services for subjects in compulsory education in mainland China will end on December 31, 2021. On the same day, Good Future's two major business schools, which focus on business studies and learning and thinking online schools, both issued statements stating that they will transform and focus on quality education.

November 15,$Gaotu Techedu (GOTU.US)$An announcement was posted on the official microblog stating that in order to actively and strictly implement the requirements of the national “double reduction” policy on compulsory education, Gaotu will end subject extracurricular training services at the compulsory education stage in mainland China on December 31, 2021, that is, primary and middle school levels.

$Xueda(Xiamen)Education Technology Group (000526.SZ)$An announcement was also issued on November 15. In order to strictly comply with regulatory requirements and further adjust and optimize the existing business structure, the company plans to stop developing online subject education and training services at the compulsory education stage from January 1, 2022. The plan is expected to take effect before December 31, 2021.

NetEase$Youdao (DAO.US)$It was announced on November 16 that the K9 business will be shut down by the end of 2021 and will be transformed into the four major fields of adult education, quality education, learning hardware, and education informatization.

Most companies completely shut down their K9 subject training business at the end of the year, announcing that a new business transformation process in the education and training industry has also begun.

With multiple adjustments, New Oriental has begun the pace of transformation

After K-9 subject education was announced to be completely shut down,What is left of New Oriental is the three paths of quality education, study abroad examinations, and vocational education based on the original business.Along these three paths, New Oriental has made various efforts, including organizational restructuring, returning to old businesses, and opening new businesses.

In mid-October, New Oriental issued a notice on the organizational restructuring of the business departments of group training schools. It will abolish other non-standard first-level department structures, including not limited to Premium Middle School, Premium Class Department, Premium One-on-One Department, Premium Personalized Department, and OMO Division; the establishment of a youth department; schools all over New Oriental must set up international study tours and camp education departments, and selectively set up high schools according to their own circumstances.

Among them, the Ministry of Youth Affairs targets the K9 school segment and is mainly responsible for non-subject education and training, and non-subject training services, such as learning machine business; the international study tour and camp education department will target the entire school segment and is mainly responsible for research camp business; the high school department, which includes high school class business and high school one-on-one business, is mainly responsible for subject training services for the high school segment.

Based on the above organizational structure adjustments, in principle, New Oriental training schools retain 2 to 3 standardized business departments, namely the Ministry of Youth, the Ministry of International Study and Camp Education, and the High School Department.

Meanwhile, after the intense K12 war in 2020 came to an end, New Oriental announced that it would return to the college student business. On September 25, the New Oriental University Student Learning and Development Center announced that it will comprehensively upgrade the existing Level 4 and 6 programs, postgraduate programs, overseas examination programs, teaching aid programs, and financial programs. In the future, it will also expand education and training programs such as computer level examinations and judicial examinations.

In addition, New Oriental is also experimenting with various new businesses such as live e-commerce, programming training, and intelligent robot research and development.

New Oriental is serious about selling goods to help farmers live. According to Tianyan Research, Oriental Choice (Beijing) Technology Co., Ltd. was established on October 27, with a registered capital of 10 million yuan. The legal representative is Sun Dongxu. Its business scope includes sales of fresh meat, eggs, aquatic products, fresh fruits, fresh vegetables, edible agricultural products; crop seed management; and retail publications. The company is wholly-owned by Beijing New Oriental Express Network Technology Co., Ltd. New Oriental Education Technology Group Co., Ltd. holds 74.5% of the shares in Beijing New Oriental Express Network Technology Co., Ltd.

In addition to planning to sell agricultural products live, New Oriental has also set up programming companies and robot research and development companies.

According to Tianyan Research, New Oriental invested in the establishment of Beijing Excellent Programming Network Technology Co., Ltd. on November 12, with a registered capital of 3 million yuan. The main business is programming training. The legal representative is Zhu Yu, the former CEO of Dongfang Youbo, a business owned by New Oriental. The company is owned by New Oriental Education Technology Group Co., Ltd. and Zhu Yu respectively about 66.67% and 33.33% of the shares.

On November 15, Jinan Shizhong District Slim Training School Co., Ltd. was established with a registered capital of 500,000 yuan. The legal representative is Chen Long, who is also a corporation in many New Oriental branch campuses; its business scope includes manufacturing teaching models and teaching aids, research and development of intelligent robots, software outsourcing services, and basic artificial intelligence software development. The company is wholly owned by Slim (Beijing) International Education Consulting Co., Ltd., a wholly-owned subsidiary of New Oriental Group.

The registration of a number of new business subsidiaries means that after K-9 was announced, New Oriental has begun the pace of business transformation.

Compared to Dongpo, where is Yu Minhong's road?

Lao Yu remains the strongest pillar of the New Oriental.

In previous live broadcasts, Yu Minhong often talked about Su Dongpo's situation and poetry. He said that he hopes to achieve the same state of mind as Su Dongpo and slowly come out of the derogatory torment. Under business cuts and corporate transformation, Yu Minhong is also experiencing his own “Huangzhou moment.”

Su Dongpo made a beautiful appearance and exited in style. As an education entrepreneur who has suffered setbacks, Yu Minhong has led New Oriental in a variety of business development despite the controversy. The reason is that New Oriental is quite rich in cash flow.

Yu Minhong once mentioned during the live broadcast that there is a rule in New Oriental. It is necessary to guarantee a certain amount of funds on the books to be able to pay tuition refunds and employee wages. Financial reports show that as of May 31, 2021, New Oriental still had cash flow and cash equivalents of US$1,612 billion, with short-term investments of US$3.435 billion, totaling US$5.047 billion (approximately RMB 32.212 billion).

Just like Yu Minhong's response to the Economic Daily, there is no business model for making quick money. This entrepreneur, who has been in business for most of his life, chose to face the decline of the K9 half and is preparing to start a business a second time or even many times.

On the way to starting a business and learning from experience, dare to ask where is the path? The road is at your feet.

Reference:

“New Oriental Online Ends K9 Business to Contribute More Than 30% of Revenue in FY2021”, Sino-Singapore Jingwei

“In Yu Minhong's live broadcast, I saw that selling books is more difficult than educating and training”, Yang Guang, Bao Bao Became

“Why does Yu Minhong like Su Dongpo”, Lunchbox Finance

This article comes from 100 million Euros, original article, author: Wang Yiqun

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