This former leader in online education is shedding its remaining tutoring business to concentrate on livestreaming and online product sales.

The former leader in online education is shedding its remaining tutoring business to concentrate on livestreaming and online product sales

Key Takeaways:

  • East Buy is selling its tutoring business to its parent, New Oriental, at a high price while also raising HK$1.63 billion from an in-group share placement
  • The company has set up a paid membership system for e-commerce livestreaming in China, emulating Walmart’s “Sam’s Club”


By Molly Wen

A leading Chinese tutoring company that has shapeshifted between education services and e-commerce over the last two years has decided to draw distinct lines around its businesses.

New Oriental Education (EDU.US; 9901.HK) was forced back to the drawing board two years ago after a government crackdown on its core work of academic tutoring for school students. The group’s online tuition arm, rebadged as East Buy Holding Ltd. (1797.HK), ventured out into e-commerce product sales and livestreaming, while retaining some educational activities.

Those blurry business outlines are about to sharpen up, after East Buy announced last Tuesday that its residual tutoring operations were being sold to its education-focused parent, leaving the e-commerce firm better able to focus on selling private-label products and livestreaming.

The statement said the move was designed to avoid business overlap and to delineate the group’s activities more precisely. Under the deal, East Buy gets 1.5 billion yuan ($210 million) for its tutoring business and sheds 153 million yuan in net debt.

The money transfer from New Oriental to East Buy does not stop there. On Friday, East Buy announced it would also raise HK$1.63 billion ($218 million) by placing shares with New Oriental priced at HK$31.75, the previous day’s closing level. Once the deal closes, the parent’s shareholding in East Buy would rise from 54.91% to 57.08%.

East Buy said it would spend the share placement proceeds on developing and expanding its business, as well as covering management and operating expenses.

Explaining the reasons behind the refocus, East Buy cited a shift towards blended offline and online learning since the Covid pandemic, while its business had become increasingly weighted towards livestreaming and online sales of private-label products. Shedding the non-core tutoring would allow more efficient allocation of resources, with the potential to generate better shareholder returns.

Until a name change in January, East Buy operated as Koolearn, a company set up in 2005 to deliver New Oriental’s online tutoring for children and university students. However, the 2021 clampdown aimed at shielding youngsters from excessive study pressure forced the company to axe its tuition based on the school curriculum. That erased about 30% to 40% of revenue and forced the company to look elsewhere for reliable income streams.

E-commerce proved to be a winner. In its results for the fiscal year through May 2023, released in August, East Buy logged revenue of 4.5 billion yuan, a year-on-year surge of 651%, and posted a net profit of 971 million yuan, reversing a net loss of 534 million yuan the previous year.

The earnings contribution from tutoring pales in comparison to East Buy’s income from e-commerce. The revenue breakdown includes 3.9 billion yuan from product sales and live e-commerce, with private-label products accounting for 2.6 billion yuan of that total. The company brought in 590 million yuan from its college education segment including English language courses for graduate study and overseas exams, just 14% more than in the same period a year earlier. Meanwhile, revenue from providing digital library services for universities, public libraries and other institutions fell nearly 35% from the previous year to 38.16 million yuan.

The latest reorganization and financing moves suggest New Oriental is betting heavily on the future of its East Buy subsidiary as a pure e-commerce specialist.

A new e-commerce club

In the world of commercial livestreaming, sales are heavily dependent on the number of viewers, with stable online traffic as a marker of business prospects.

East Buy enjoyed a big traffic bonus last year from the short-video platform Douyin, but the host’s algorithms never favor any single livestreaming account over time, posing a longevity challenge for the sales channels. East Buy’s finances show that Douyin remains its most important channel for live e-commerce sales, with annual paid orders via the platform exceeding 136 million.

However, this year East Buy looks to have slipped down the popularity pecking order. Research from Everbright Securities into East Buy’s performance on Douyin found its average daily gross merchandise value (GMV), the average daily volume of viewers and the comprehensive conversion rate all declined month on month from May to July 2023.

What’s more, at the end of July one of East Buy’s livestreaming accounts and related online stores were suddenly blocked on Douyin for seven days. The hiatus shone a spotlight on the tug-of-war between the e-commerce firm and its platform host, as East Buy created channels in its own app and launched livestreaming in August on Taobao, one of Douyin biggest rivals, to diversify its traffic routes.

On Oct. 17, East Buy became China’s first livestream e-commerce firm to launch a paid membership system. For a fee of 199 yuan a year, customers gain access to hundreds of private-label products with benefits including 12% discounts and a set of vouchers. The model resembles the warehouse membership club operated by U.S. retail giant Walmart (WMT.US). “Sam’s Club”, with more than four million paid members in China, charges an annual subscription fee of 260 yuan for access to around 800 products.

But market watchers have doubts about East Buy’s prospects in the paid membership market, which requires strong capability in selecting products, negotiating deals and managing stock to give users a competitive offer. To generate higher profit margins, the business would also need to provide bulk products and large packaging for families and institutional customers.

East Buy, as a star e-commerce player, has a current price-to-earnings (P/E) ratio of about 29 times, a slight premium over livestreaming platform Be Friends Holding (1450.HK) at 28 times. Investors may need to keep an eye on the performance of the paid membership scheme to judge whether East Buy can sustain its sales without being a hit on Douyin.

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