Sunlands Online Education (STG) Misses Q2 EPS by 16c, Revenues Beat

Sunlands Online Education (NYSE: STG) reported Q2 EPS of ($0.27), $0.16 worse than the analyst estimate of ($0.11). Revenue for the quarter came in at $80.5 million versus the consensus estimate of $79.55 million.

Second Quarter 2019 Financial and Operational Highlights

• Net revenues were RMB552.7 million (US$80.5 million), representing a 14.7% increase year-over-year.
• Gross billings (non-GAAP) were RMB438.2 million (US$63.8 million), representing a 43.1% decrease year-over-year.
• Gross profit was RMB457.0 million (US$66.6 million), representing a 16.2% increase year-over-year.
• Net loss was RMB12.9 million (US$1.9 million), representing a 95.3% decrease year-over-year. Net loss margin, defined as net loss as a percentage of net revenues, decreased to 2.3% from 56.4% in the second quarter of 2018.
• New student enrollments were 74,958, representing a 44.0% decrease year-over-year.
• As of June 30, 2019, the Company's deferred revenue balance was RMB3,227.9 million (US$470.2 million).

"During the second quarter, we continued to focus on student acquisitions through diversified channels, which broadly included our recently launched mobile applications, our upgraded trial programs, our unique learning community where students, teachers and mentors interact with one another, and expanded offering of master's-oriented products and professional certificate courses. Through these initiatives, we are building a solid and multi-faceted foundation to reach a high-quality customer base and attract more students to our online platform," said Mr. Tongbo Liu, Chief Executive Officer of Sunlands. "While we believe these initiatives will benefit our gross billings and new student enrollment growth in the long run, we are also aware of the impact of China's slowing macroeconomy and the challenges and uncertainties facing the industry where we operate, particularly those relating to student acquisition costs. To address these challenges, we have adopted a more prudent marketing strategy, with a view to investing marketing dollars more effectively while maintaining risks at acceptable levels. As a result of our disciplined spending, our net loss during the quarter narrowed significantly to RMB12.9 million, decreasing by 95.3% from RMB271.8 million for the same period in 2018.

"We continue to seek balanced growth as we execute our five-pronged expansion and retention plan for 2019, as announced in the last quarter. With our industry-leading technology, high-quality educational content and one-to-many business model, we are confident in our ability to continue to grow as the leader in China's online post-secondary and professional education industry." Mr. Liu concluded.

Mr. Steven Yipeng Li, Chief Financial Officer of Sunlands, said, "In the second quarter, our net revenues increased by 14.7% year-over-year, which is in line with our guidance. Our gross billings and new student enrollment declined by 43.1% and 44.0%, respectively, year-over-year, primarily due to the slowing macroeconomy and the short-term impact of our adjustment of marketing campaigns in view of uncertainties in student acquisition costs. We responded to the macroeconomic headwinds by reducing our sales and marketing expenses, and as a result our second quarter net loss narrowed significantly to RMB12.9 million from RMB112.9 million in first quarter of 2019 and RMB271.8 million in the second quarter of last year. We are confident that with our steady and focused execution of our five-pronged strategy to expansion and retention, we will improve average gross billings, conversion rates and sales efficiency over the long term."

Outlook

For the third quarter of 2019, Sunlands currently expects net revenues to be between RMB510 million to RMB530 million, which would represent a decrease of 1.4% to an increase of 2.5% year-over-year.

For earnings history and earnings-related data on Sunlands Online Education (STG) click here.

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