QSG.US

The online education services provider is focusing on personal interest learning courses as a key new growth driver

Key Takeaways:

  • QuantaSing is expanding its personal interest learning business to cover a wider range of topics like short video production and calligraphy
  • The company’s revenue declined slightly year-on-year in the quarter through last December, but it forecast a return to growth of about 10% in the first three months of 2023

  

By Doug Young

Forget about the rat race.

That’s the latest tune emanating from recently listed QuantaSing Group Ltd. (QSG.US), which is increasingly shifting its sights to meet growing demand for adult learning services in China. The company is stepping on the accelerator with its development of personal interest courses, targeting a wider customer base from middle-age adults or seniors who continue to pursue lifelong learning and improvement.

The trend for lifelong learning is increasingly gaining traction in China, and the company believes people also look to adult learning courses as a way to relax and relieve stress from their daily routines in addition to gaining competitiveness in different fields. QuantaSing is tapping into the demand for such services by offering personal interest and self-improvement courses in subjects like short video production and calligraphy. Additionally, in response to demand from learners, the company has been organizing offline events like clubs and memory competitions, as part of its efforts to further explore diversified interactive learning experiences.

“People are willing to pay for short-term online courses for their personal interests or self-improvement. It could be a hobby that will evolve into another pathway to open up more career opportunities, or it could be purely out of their interests,” CFO Tim Xie said at a recent symposium on adult education. “Many people seek to mitigate the stress and anxiety challenges by registering for paid online courses.”

The new focus on personal interest is part of QuantaSing’s latest campaign to tap into a broader Chinese adult learning market that was worth 126.4 billion yuan ($18.3 billion) in terms of revenue in 2021 and is expected to grow about 18% annually over the next few years to reach 288.1 billion yuan by 2026, according to market research firm Frost & Sullivan.

The company made headlines in January when it became one of the first relatively large IPOs by a Chinese company on the Nasdaq after the signing and trialing of a landmark information-sharing agreement between the U.S. and Chinese securities regulators last fall. Before that, such U.S. listings by Chinese firms had ground to a virtual halt since the middle of 2021.

QuantaSing ultimately raised about $40.63 million by selling its American Depositary Shares (ADSs) for $12.50 apiece. The stock has traded in a relatively narrow range since then, closing at $9.87 on Thursday, giving the company a market cap of $550 million. While that size isn’t huge, it’s relatively large among the diverse field of private education companies in China these days.

QuantaSing comes from a much larger field of such companies that thrived for years on the huge importance placed by Chinese culture on education and self-improvement. But a big slice of that group was effectively squashed in just a year after Beijing banned the offering of private tutoring services for K-12 students in core curriculum areas in 2021.

QuantaSing and others focused on adult learning weren’t caught up in that crackdown, though that distinction is often lost on investors less familiar with the sector. To the contrary, Beijing has actually signaled strong support for groups like vocational educators that can teach practical skills like car repair and cooking. It has also has rolled out “China’s Modernized Education 2035,” a government blueprint for a national initiative to support lifelong learning.

Individual online learning

QuantaSing was founded in 2019 and is based in Beijing. The company initially focused on financial literacy courses for adults – a service with strong demand due to China’s relatively recent adoption of western-style financial products. The company still derives a majority of its revenue from such services, which are part of its “individual online learning” services that accounted for about 90% of its total 786 million yuan in revenue in the last three months of 2022, the second quarter of the company’s fiscal year, according to its first post-IPO financial report.

But in its latest quarter through last December, revenue from that segment fell by 139.3 million yuan. That decline was more than offset by a 170.8 million yuan rise in the company’s newer personal interest learning courses, which include the more hobby-like and self-improvement activities we’ve described above. The company is also moving into learning services for companies, including an enterprise talent management service launched last year. Such services grew 68.2% in last year’s December quarter, but still make up a relatively small slice of just over 10% of the company’s revenue.

QuantaSing’s overall revenue has been a bit bumpy over the last year, both rising and falling for different quarterly reporting periods amid pandemic uncertainties, including a 2.2% year-on-year decline in the December quarter. But it signaled things should return to a more solid growth track with the end of pandemic restrictions, forecasting year-on-year growth between 8.6% to 12.9% for the three months through March.

Its registered user base has been growing strongly throughout, roughly doubling year-on-year to 77.8 million in last year’s December quarter. Its paid user base is much smaller but also growing, reaching 400,000 users by the end of last year, up 33% from a year earlier. The company’s gross billings for individual learning courses, which tends to be a more forward-looking indicator of interest, also rose 12.1% year-over-year during the quarter to 818.8 million yuan.

QuantaSing’s bottom line has also swung in and out of the black over the past year, including a 41.4 million yuan loss in the most recent quarter versus a 46.1 million yuan profit a year earlier. But the company returned to profitability on an adjusted basis, which excludes employee-based stock compensation, in the December quarter, after falling into a loss on that basis the previous quarter.

Investors are still relatively cautious on China’s education sector in general, giving QuantaSing a price-to-sales (P/S) ratio of 1.57. That’s ahead of the 1.12 for domestic peer Youdao (DAO.US), but behind global peers like Coursera (COUR.US) at 3.45 and Udemy (UDMY.US) at 1.94.

At the end of the day, investors will require some time to start differentiating and understanding the new generation of private education companies emerging from China in the aftermath of the high-profile crackdown of 2021. As that happens, adult learning-focused companies like QuantaSing, which takes lifelong education as a means to develop personal interest as well as a tool to improve a person’s competitiveness in the workforce, could emerge as an interesting investment alternative with strong growth potential.

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