China Online Education Group (COE) Tops Q3 EPS by 12c

China Online Education Group (NYSE: COE) reported Q3 EPS of $0.20, $0.12 better than the analyst estimate of $0.08. Revenue for the quarter came in at $79.3 million versus the consensus estimate of $79.57 million.

Third Quarter 2020 Financial and Operating Highlights

• Net revenues were RMB538.5 million (US$79.3 million), a 31.8% increase from RMB408.7 million for the third quarter of 2019.
• Gross margin was 72.8%, compared with 71.6% for the third quarter of 2019.
• GAAP net income was RMB31.6 million, representing GAAP net margin of 5.9%, compared with GAAP net loss RMB5.8 million and GAAP net margin of negative 1.4% for the third quarter of 2019.
• Non-GAAP net income[1], which is a non-GAAP measure that excludes share-based compensation, was RMB38.5million, representing non-GAAP net margin of 7.1% compared with non-GAAP net loss RMB2.3 million and non-GAAP net margin of negative 0.6% for the third quarter of 2019.
• Operating cash inflow was RMB186.1 million (US$27.4 million), compared with RMB123.2 million operating cash inflow for the third quarter of 2019.
• Cash, cash equivalents, time deposits and short-term investments balance reached RMB1,592.5 million (US$234.5 million) as of September 30, 2020.
• Gross billings[2] were RMB728.4 million (US$107.3 million), a 33.1% increase from RMB547.3 million for the third quarter of 2019.

"We are pleased to deliver another robust quarter of solid financial and operating results. Our third quarter performance proves the merits of our strategy focused on the K-12 one-on-one mass market offering in non-tier-one cities[4] and showcases our ability to execute our initiatives," said Mr. Jack Jiajia Huang, Founder, Chairman and Chief Executive Officer of 51Talk. "Highlights of the quarter included net revenues reaching RMB538.5 million, up 31.8% year-over-year, surpassing the top end of our guidance, with contribution from our K-12 one-on-one mass market offering growing by 46.0% year-over-year to hit RMB471.8 million. Moreover, the number of active students on our platform in the third quarter grew to 338,000, up 30.9% compared to the third quarter in 2019.

"Clearly families across China are gaining greater familiarity and comfort with online learning channels and recognizing the strong value we provide. As they do, they are sharing their positive experiences with their friends and our high-quality brand reputation is spreading.

"In October, we were honored to be invited as the only online education enterprise to join the 2020 China Annual Conference for International Education and provide key inputs for future guidelines and requirements for online foreign teachers in China. At the conference, we signed a framework agreement with the China Education Association for International Exchange to jointly create recruiting and training standards for online foreign teachers. These standards will become part of China Ministry of Education's policies regulating online foreign teachers. We are excited to be part of this national level working group. We look forward to sharing our experience working with thousands of online foreign teachers, and helping shape the future of our industry."

Mr. Huang further added, "Also in October, we hosted our 2020 Sino-Philippines Educational Exchanges Seminar attended by education and government leaders, including the ambassadors from China and the Philippines. Through live streaming, we engaged over 5,000 people from China and the Philippines to celebrate 45th anniversary of the establishment of diplomatic relations between the two countries, showing mutual cooperation and our positive role in cross-border relations. This video received the Guinness World Records award for 'the largest online video album of people waving.'

"In conclusion, our K-12 one-on-one mass market non-tier-one city strategy is working, our teams are executing and the ground work we've laid is allowing us to take advantage of more and more market opportunities. With these pieces in place, we will continue to drive sustained long-term growth and maintain balanced bottom line profitability." concluded Mr. Huang.

"As COVID-19 was under control in China and people's lives were getting back to normal, we continued our growth momentum in the third quarter, achieving strong topline increment coupled with another quarter of profitability, our fourth consecutive profitable quarter. As the demand for online education continues to accelerate, our strategy to pursue balanced growth is delivering as planned," said Mr. Min Xu, Chief Financial Officer of 51Talk. "During the quarter, we increased non-GAAP sales and marketing expenses by 30.6% year-over-year to capture more market opportunities and increased non-GAAP product development expenses by 12.8% year-over-year to further improve our technology platform and curriculum. Despite the increase in expenses, we still recorded quarterly profitability, with non-GAAP net income coming in at RMB38.5 million. Excluding the RMB15.0 million favorable impact of coronavirus relief policies in the third quarter, our non-GAAP net profit margin would have been 4.4%. Additionally, our operating cash inflow reached another historical high of RMB186.1 million. Looking ahead, we will continue on our pathway of sustained growth in this rapidly developing market and executing our strategies to bring strong value proposition to our students."

Outlook

We cannot predict whether the incremental revenue boost from students spending more time at home amidst the COVID-19 outbreak will continue during the remainder of 2020. However, based on latest information available at the time of this release, for the fourth quarter of 2020, the Company currently expects net revenues to be between RMB525 million to RMB530 million, which would represent an increase of approximately 32.2% to 33.4% from RMB397.2 million for the same quarter last year;

For earnings history and earnings-related data on China Online Education Group (COE) click here.

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