Mynd.ai turns new page with completion of U.S. backdoor listing

The former education business of gaming company NetDragon hopes to entice investors with its rollout of software services next year for its classroom-based educational hardware panels

Key Takeaways:

• Mynd.ai has completed its listing on the NYSE American, taking over the publicly traded shell of a company that was wiped out by China’s education crackdown of 2021
• The company’s main asset is the former education business of gaming company NetDragon, including an educational panel hardware unit and complementary software services

By Doug Young

It’s lesson time.

That’s the plan coming from the newly minted Mynd.ai Inc. (MYND.US), which has become the latest company to rise from the ashes of China’s education crackdown of more than two years ago. Mynd.ai formally took on its new name and assets on Dec. 13, as the listed company closed its acquisition of the education assets of Chinese gaming company NetDragon (0777.HK).

Before the asset transfer, Mynd.ai was known as Gravitas Education Holdings, which operated a chain of preschools in China that were largely wiped out as a result of the education crackdown. That preschool business was sold as part of the makeover that paved the way for the injection of NetDragon’s education assets into the company.

The resulting new company, whose name changed to Mynd.ai as of Dec 13, looks nothing like the former Gravitas. Most importantly, the company’s assets are all outside of China, consisting mostly of a money-losing hardware business selling customized computers, also known as educational panels, to schools around the world in markets like the U.S., Britain, Italy and Australia, with plans to move into developing markets like Thailand and Egypt.

That distinction is quite important for investors, since the new Mynd.ai won’t be subject to the same unpredictable Chinese regulators who snuffed out a multibillion-dollar industry overnight with their ban on private companies providing tutoring services for primary students in 2021.

Still, Mynd.ai is losing big money at the moment, as it focuses on getting as many of its educational panels into classrooms as possible, most of those carrying the Promethean brand name. As it builds up its classroom footprint, the company hopes to start selling educational software for schools to use over its panels in their daily instruction. Such a business, known as software as a service (SaaS) carries much higher margins than hardware sales due to the easy of scalability – which Mynd.ai hopes will lift the company to its first profits.

NetDragon first announced its plan to spin off its education business back in April. The company derives roughly half of its revenue from the education business, and the other half from its older game business. But the game business is its profit engine, carrying an enviable gross margin of 97% in the first half of this year. By comparison, the education business had a far lower gross margin of just 24%, keeping that part of the business squarely in the red.

With the spinoff now complete, the real challenge begins for Mynd.ai to convince investors it has a winning formula that can earn profits in the not-too-distant future. The company has a current market value of about $200 million, based on a regulatory filing last week that showed it had the equivalent of 45.5 million American depositary shares (ADSs) as of Dec. 13, multiplied by its latest closing price of $4.52 on Dec. 22 just before the Christmas holiday.

Chinese or foreign?

Mynd.ai’s latest value would give it a relatively weak price-to-sales (P/S) ratio of just under 0.5, which is hardly what one might expect for a company with such big growth and profit potential. The figure trails the 3.12 for foreign edutech firms Udemy (UDMY.US) and 1.93 for Chegg (CHGG.US). But it’s not far from the 0.64 for China’s own Youdao (DAO.US), showing there may still be some confusion about whether this is a Chinese or foreign edutech play.

NetDragon itself is one of China’s older gaming companies, and will continue to control the new Mynd.ai with 72.9% of its shares. But the company certainly wants investors to think this is a foreign company beyond the grasp of Chinese regulators. We would tend to agree that this looks like a foreign company since most or all its assets are outside China, even though the company itself is controlled by a Chinese entity.

Ownership aside, the other big issue most likely weighing on investors’ minds is Mynd.ai’s big losses, and also a worrisome sales drop in its latest reporting period.

Revenue from NetDragon’s education business shot up 34% in 2022 to 4.3 billion yuan ($603 million), as schools in many of the markets where it operates snapped up its interactive panels in the race to obtain the latest high-tech learning gadgets. But then the figure suddenly sagged by a similar 29% year-on-year to 1.7 billion yuan in the first half of this year.

Company executives said the big revenue drop was temporary, and represented a sort of breather after the big 2022 gains as the market digested all the new panels purchased the previous year. NetDragon’s education division reported a loss of 249 million yuan in the first half of this year, much larger than the 36 million yuan loss a year earlier.

“We currently expect to release the first software subscription package with integration of Promethean panels by the end of the year,” NetDragon said, referring to its education business in its interim results in August. “We are also in active discussion with our partners to explore collaboration in large language models,” it added, hinting at the potential for artificial intelligence to accelerate the adoption of its panels and demand for its software services.

NetDragon first entered the education business as a diversification move in 2014, more than a decade after launching its original gaming business. It quickly grew the business through a series of acquisitions, starting with its $130 million purchase in 2015 of London-listed Promethean World. Two years later it purchased Los Angeles-based JumpStart, a partner of DreamWorks Animation. And in 2022, Promethean acquired Explain Everything, a digital whiteboard app that is becoming the foundation for Mynd.ai’s SaaS business.

Promethean sold 253,000 panels last year alone, meaning it probably has a large enough base to start earning some significant money from its first subscription services when they become widely available next year. Now it just needs to gain some traction for that part of the business, and also return to revenue growth. Doing both of those things could breathe some needed life into the company’s new listing on the NYSE American exchange.

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