iHuman’s international drive hops ahead with Cricket Media tie-up

The edutech company’s new alliance with a U.S. children’s media brand with more than a half century of history looks more promising than its earlier global expansion efforts

Key Takeaways:

• iHuman has formed a new partnership with U.S. children’s publisher Cricket Media, aiming to boost its three-year-old globalization drive
• The new partnership could help return the edutech company to revenue growth, following two years of declines amid sluggish demand in its home China market

By Doug Young

Going global is all the rage these days among Chinese companies, most stymied by a slowing economy and heavy regulation at home. But doing business overseas is often easier said than done, and it’s far easier to announce new products and strategic alliances than actually deriving money from such efforts.

That might explain the muted reaction to iHuman Inc.’s (IH.US) latest announcement of a new strategic tie-up with Cricket Media, a U.S. publisher of a children’s magazine with history dating back to 1973. Shareholders responded with a 3.6% drop for iHuman’s stock on Thursday after release of the announcement, which will see the two sides work together to bring Cricket’s work to the 21^st century using some high-tech touches.

To be fair, iHuman also released its latest quarterly report on Thursday, and some of the negative reaction might have been in response to that. The report was a mixed bag, including continuing revenue declines but a return to profit growth for one of China’s older players in the edutainment space, whose roots date back to the former online game company Perfect World.

We should also point out that iHuman’s stock has been doing quite well in general lately, up around 80% so far this year amid a broader rally for many U.S.-listed Chinese stocks. Education stocks have fared well in the recent rally, as many that survived a major regulatory crackdown in 2021 and 2022 continue to recover from that.

The latest tie-up looks somewhat intriguing, as it will provide iHuman with a well-established U.S. brand in children’s literature, including not only a library with more than a half century of history, but also associated sales and distribution channels.

The company’s global expansion dates back to 2022 with the launch of its bekids brand of apps. It later launched its Aha World brand designed to make learning more fun by adding entertainment elements. The company provided some of the latest developments on Aha World in its latest quarterly earnings report, which we’ll detail shortly.

But the bottom line is that iHuman’s global foray, three years after its official launch, has yet to become a significant revenue spinner for the company. It made no mention of international revenue in its latest earnings report, and its latest annual report for 2024, filed in April, says its revenues are still “primarily derived in China.”

The new Cricket Media partnership will see the two sides develop products using the U.S. company’s extensive library. iHuman will use its expertise in digitalization to create edutainment and interactive learnings products from that library. The first product from the collaboration, called Reading Stars, is described as a platform “where kids don’t just read, they build a personalized city with earned stars, play mini-games to test their knowledge, and discover that reading is its own reward,” according to the announcement.

We’ll have to see how this new initiative develops, but it certainly looks like it could have more potential than iHuman’s older bekids and Aha World initiatives, which were purely self-developed and thus lacked the local resources that Cricket Media has.

Sagging revenue

iHuman’s big stock gains over the last year look somewhat unusual, given that the company’s revenue has been declining since the second half of 2023 and continued to fall in the second quarter. Instead, the rise looks like a valuation correction, as investors look for well-run Chinese companies whose shares were overly punished during a selloff dating back to 2021.

Even after the run-up over the last year, iHuman’s stock still trades at a relatively modest price-to-earnings (P/E) ratio of 12. That’s well below peers like Youdao (DAO.US) and Fenbi (2469.HK), which trade at multiples of 33 and 34, respectively. iHuman’s price-to-sales (P/S) ratio looks a little more respectable at 1.32, which is roughly the same as Youdao’s 1.33 but trails Fenbi’s 2.23.

iHuman’s discount could owe partly to its falling revenue. That trend continued in the second quarter, as the figure dropped 7% year-on-year to 200 million yuan ($28 million) from 215 million yuan a year earlier. While declines are never good, the latest rate of decline marked an easing from an 11% drop in the first quarter, and a 10% decline for all of 2024, showing the company could return to growth either late this year or in early 2026.

Most of iHuman’s other major metrics also fell, including a 3.5% decline in monthly average users to 23.72 million. One area that rose was the company’s cost of revenue, whose 1.6% increase undermined its gross margin, which dropped to 67.8% from 70.5% a year earlier. But both of those numbers are relatively high, showing the company can still operate quite profitably.

iHuman also lowered its operating costs year-on-year by 12.5%, showing it’s trying to control its operational spending. It appears to be making efforts to collect unpaid bills from its customers as well, reporting its deferred revenue and customer advances dropped to 240 million yuan from nearly 320 million yuan at the end of 2023.

Those efforts ultimately filtered down to the bottom line, as iHuman reported its net income for the second quarter rose to 31.9 million yuan from 24.7 million yuan a year earlier – its first year-on-year profit growth in more than a year.

The company also talked up several of its other recent new initiatives, including a major upgrade for Aha Makeover, part of its Aha World overseas brand. It also added a feature to its Chinese app that allows children to use photo recognition technology to identify Chinese characters they don’t recognize.

Such incremental product improvements look like relatively standard business practice, and probably won’t dramatically improve iHuman’s performance anytime soon. The Cricket Media tie-up, by comparison, looks more promising if the two sides can effectively market its products using Cricket’s U.S. resources. If they can, perhaps we’ll finally see iHuman start to announce some international revenue figures in some of its upcoming financial reports. And perhaps it will return to revenue growth sooner than expected.

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