With over 100 billion yuan of market cap evaporated in one day, the off-campus education and training industry of China might end its “capital era” – #stocks chatter

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With over 100 billion yuan of market cap evaporated in one day, the off-campus education and training industry of China might end its “capital era”
In the afternoon of July 23, the State Council of China released the 16-page "Opinions on Further Reducing Compulsory Education Students’ Burden of Homework and Off-campus Training" (hereinafter referred to as "Opinions"). This document is called the “Double Reduction” policy by the Chinese education industry.

That afternoon, the capital market gave a fierce response, and the education stocks collectively entered a plunge mode. As of the close of the Hong Kong stock market that day, Hong Kong stock New Oriental (New Oriental-S) fell 40.61%, New Oriental Online fell 28.07%, Scholar Education fell 28.53%, and Zhuoyue Education Group fell more than 21.48%. New Oriental's decline once expanded to 50%, which refreshed the historical low of its share price.

It has affected the general Chinese education stocks in the US stock market as well, which suffered a severe setback at the opening of the market. Due to excessive fluctuations, TAL(Tomorrow Advancing Life)once triggered circuit breaker. In the US stock market yesterday, TAL finally closed down 70.76%, Gatu Group closed down 63.26%, and New Oriental closed down 54.22%.

On that day, the above-mentioned relevant Hong Kong stocks and U.S. stocks education companies fell by more than 100 billion yuan in market value.

**Unprecedented standards for off-campus education and training**

According to insiders' interpretation of “Double Reduction” policy, in the future, off-campus educational and training institutions are likely to face adjustments in three dimensions: qualification level, capital level and business level.

**On qualification level**, teachers of off-campus organizations must have relevant teacher’s license and qualifications, which has to be publicized. Meanwhile, some organizations need to transform into non-profit.

**On capital level**:

In the financing link, the financing of training institutions may be "restricted", and capital invested in training institutions will be strictly controlled. In the listing link, training institutions’ IPO may be restricted. It is worth noting that most of the current leading off-campus educational organizations in China are already listed, and these companies may undergo substantial adjustments at the level of business or listing status.

**On business level:**

According to the "Opinions", 15 changes need to take place as following:

1. Existing training institutions will be uniformly registered as non-profit institutions
2. Re-examine and register existing training institutions
3. Excessive training and advanced training will be prohibited
4. No extra training in statutory holidays, winter and summer vacations
5. Training institutions shall not poach school teachers with high salaries
6. Personnel engaged in subject training must have teacher qualifications, and the teacher qualification information must be announced in a prominent place on the training institution’s premises and on the website
7. Disclosure of personal information of parents and students will not be allowed
8. Strictly control the excessive influx of capital into training institutions
9. Unfair competition by means of false original prices, false discounts and false publicity for the purpose of promoting business shall be resolutely prohibited, and monopoly activities in industries shall be resolutely investigated and dealt with according to law and regulations
10. Online training should pay attention to protecting students' eyesight. Each class hour should not exceed 30 minutes, the interval of the course should not be less than 10 minutes, and the training should end no later than 21:00
11. Online training institutions shall not provide and disseminate unhealthy learning methods such as "taking photos to search for questions" that lazy students' thinking ability, affect students' independent thinking and violate the laws of education and teaching
12. No online training for preschoolers
13. Discipline training institutions shall not be allowed to go public for financing
14. Market regulatory departments shall focus on the registration of non-disciplinary training institutions and the supervision of fees, advertising and anti-monopoly of off-campus training institutions, and intensify law enforcement and inspection
15. The mainstream media, new media, billboards and online platforms in public places and residential areas shall not publish or broadcast advertisements for off-campus training

In an industry research report by CITIC Securities on July 23, Feng Chongguang, an analyst in the education industry, suggested that training institutions should transform as soon as possible. In his opinion, high school training and quality training are relatively easy areas to enter. In fact, the transformation of the online education industry has already begun in 2020.

The fierce and saturated market has caused major companies to face the difficulty of "customer acquisition costs". According to statistics, since 2019, the average customer acquisition cost of the online education market has nearly doubled. At the beginning of 2021, the average customer acquisition cost of some companies has been close to 4,000 yuan per person. Under the influence of the 2020 pandemic, although the online education market is booming, many related companies have finally delivered loss-making performance. Around the end of 2020, some companies have begun to reduce marketing investment and even start to lay off employees. At the end of May, some companies experienced a wave of layoffs. Many giants have exposed layoffs. Even the layoff ratio of a listed company is as high as 30%.

The greater change stems from the changes in supervision after April this year. With the strengthening of the macro-level supervision of K12 products, various companies have begun to adjust their business lines. Some companies simply shut down product lines related to the K12 business, and some enlightenment products for children aged 3 to 8 are generally called off by various companies.

An obvious trend is that some discipline education and training institutions begin to transform into literacy education products. Such as calligraphy, art, pottery, dance and other unrelated to the entrance examination, became the focus of some educational institutions. In addition to literacy education products, vocational education has also become the direction of transformation for these companies. Goto has recently upgraded its new official website domain name, and the new official website page aggregates vocational education services such as language training, medical treatment, teacher qualification certificate and so on.

With the gradual implementation of the "Opinions", education in the compulsory education stage (primary education and middle school education) will be further returned to campus. K12 education is no longer a fertile ground for unicorns, and K12 will return to education itself.
https://www.reddit.com/r/StockMarket/comments/orvfct/with_over_100_billion_yuan_of_market_cap/

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