Nothing will stop the Chinese education revolution, even the coronavirus. Although, its impact could drive a shift in the Chinese education landscape.
In a previous article, we discussed in detail the drivers behind China’s education boom. A growing middle class and rapid urbanization are key factors helping increase demand for online and higher education.
With the coronavirus outbreak causing most people to avoid excessive time outdoors, close interaction with people, and gatherings, the light begins to shine on China’s digital education industry.
Companies that are positioned within the online Chinese education landscape have a significant opportunity to capitalize on this trend. People’s desire to go into classrooms will likely diminish over the short-to-intermediate term once schools to eventually reopen, which could see a rapid shift to digital education opportunities.
One company well-positioned to capitalize is EdtechX Holdings (NASDAQ: EDTX), after its merger with Meten Education (China).
EDTX: Meten Education’s (China) Digital Platform Likeshuo a Market Leader in ELT
EdtechX’s merger with Meten Education (China) in December 2019 was a game-changer for EDTX. “Meten and its digital platform Likeshuo are a market leader in English Learning Training (ELT) in China,” according to the company.
On top of being the top company in the adult ELT market, Meten is based out of Shenzhen, China, which is often referred to as the “Chinese Silicon Valley.” This is a key location to continue to take advantage of the ELT market growth.
In 2018, Meten reported revenues of $200 million (RMB 1,424m) and $20.1 million (RMB 144m) in EBITDA. This is a strong increase from Meten’s 2016 results of $113.9 million (RMB 802m) in revenue and $2.4 million (RMB 17.1m) in EBITDA. Overall, this represents a two-year revenue CAGR of 33% and EBITDA CAGR of 190%.
Citibank estimates the Chinese ELT market to reach $43 billion in 2022, which represents an impressive compound annual growth rate (CAGR) of 21%. Furthermore, Morgan Stanley sees online-based opportunities as accounting for over 30% of the Chinese education market by 2030.
In the wake of mandated quarantines to nearly half of China’s population, millions of people are said to be converting to online in order to not fall behind. This is a windfall for platforms like Likeshuo but could cause devastation to companies solely reliant on offline education.
JMDedu: “Coronavirus Crisis Put the Spotlight on China’s Online Education Market”
In the wake of the coronavirus outbreak, China’s ministry of education announced extended school closures to help combat the virus’s spread. Exams, after-school tutoring, offline school gatherings, and more have been temporarily suspended.
“To ensure that the teaching activities will normally proceed before schools’ official reopen, the government issued a statement to encouraging schools to convert to online class, which sparks more possibilities to online education industry amid the pneumonia epidemic,” according to JMDedu.
According to MobTech, the number of Chinese online students was around 400 million people in 2019. With the mandated school closures and shift to a temporary online education environment, a good portion will likely continue with the online format even once schools reopen in the future. This could cause the online Chinese education market to surpass the growth estimates from Citibank or Morgan Stanley.
Overall, Meten EdtechX continues to look compelling in the Chinese education market, despite the coronavirus outbreak. The Likeshuo digital platform is a key growth area for the company, which could see even stronger returns, as the government announces an extended shut down of offline school and related gatherings. Meten is the number one company in the adult ELT market, which is forecasted to see strong growth over the next several years. Revenue and EBITDA growth has been strong for Meten and it looks like it could see even further growth over the coming years.
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