China Online Education Group (COE) Tops Q4 EPS by 12c, Revenues Beat

China Online Education Group (NYSE: COE) reported Q4 EPS of $0.21, $0.12 better than the analyst estimate of $0.09. Revenue for the quarter came in at $82 million versus the consensus estimate of $81.15 million.

Fourth Quarter 2020 Financial and Operating Highlights

• Net revenues were RMB535.1 million (US$82.0 million), a 34.7% increase from RMB397.2 million for the fourth quarter of 2019.
• Gross margin was 72.7%, compared with 72.1% for the fourth quarter of 2019.
• GAAP net income was RMB31.8 million, compared with GAAP net income RMB0.8 million for the fourth quarter of 2019.
• Non-GAAP net income[1] was RMB38.6 million, compared with non-GAAP net income RMB4.5 million for the fourth quarter of 2019.
• Operating cash inflow was RMB188.5 million (US$28.9 million), compared with RMB167.1 million cash inflow for the fourth quarter of 2019.
• Cash, cash equivalents, time deposits and short-term investments balance reached RMB1,727.7 million (US$264.8 million) as of December 31, 2020.
• Gross billings[2] were RMB720.9 million (US$110.5 million), a 23.8% increase from RMB582.3 million for the fourth quarter of 2019.

"The growth momentum from the beginning of 2020 continued into the fourth quarter," said Mr. Jack Jiajia Huang, Founder, Chairman and Chief Executive Officer of 51Talk. "Reflecting solid strategic execution in our online K-12 English mass-market offerings, fourth quarter net revenues grew 34.7% year-over-year to reach RMB535.1 million. We also recorded historically high operating cash flow of RMB188.5 million. In addition, the number of new paying students grew over 70.0% year-over-year driven by our effective curriculum and improving service quality, while our active students reached 353,800, up 37.6% compared with the same period in 2019.

"Despite 2020 presenting an array of unforeseen challenges, our strong pre-established foundational groundwork allowed us to not only manage this tumultuous period but in fact benefit from the shifting environment as we took advantage of new opportunities. Full year net revenues grew 38.9% to RMB2.1 billion. 2020 operating cash flow rose 80.8% to reach a historical high of RMB719.3 million, compared with RMB397.9 million in 2019, further strengthening our financial position for future growth. We also witnessed remarkable growth in new paying students which increased 60.0% year-over-year.

"We are also very excited about our recent acquisition of GKid's product portfolio and industry-leading AI technologies. GKid offers innovative AI-driven online English courses through highly interactive animation and picture books for children. With product offerings intended for those between the ages of three and eight, this acquisition both extends our addressable market and broadens our product and curriculum portfolio. We foresee many potential collaboration and integration opportunities between our platform and GKid's products and industry-leading AI technologies, leading to both new products and product improvements which will better serve our students.

"As we head further into 2021, we are focusing on user growth and enhanced brand promotions to drive market share expansion. To better attract and retain users, we will continue optimizing learning experiences through upgraded product offerings and an enriched curriculum mix. We are developing innovative AI-powered robotic tutors to help students review core knowledge points with the aim of enhancing overall learning efficiency. To make our courses more interesting and engaging to young children, we are also integrating more interactive features into our textbooks. Additionally, we are diversifying our curriculum portfolio in order to provide a holistic learning experience, through investing in R&D, upgrading services to students, and expanding our teacher operations. Finally, we target to further increase our branding and marketing efforts to heighten brand awareness as we enter the next phase of growth.

"We are also delighted to have successfully delivered over 50 million one-on-one online English lessons, including free trials, between November 2019 and December 2020 - a rapid increase that took our cumulative deliveries since our inception in 2011 to more than 150 million, and a strong testament to our accelerating growth trajectory. As 51Talk continues to grow, we are confident our balanced growth strategy will continue to yield solid value for our stakeholders," concluded Mr. Huang.

"I'm extremely proud that we concluded a turbulent 2020 with solid operating and financial results, evidenced by sustained revenue growth and the first profitable year in our company history," said Mr. Min Xu, Chief Financial Officer of 51Talk. "We recorded Non-GAAP net income of RMB173.7 million for 2020, compared to a Non-GAAP net loss of RMB87.7 million in 2019. In 2021, investment will be channeled towards the development of our curriculum, technology and brand as we look to capitalize on market dynamics, drive user growth and achieve the leading market position."

Outlook

For the first quarter of 2021, the Company currently expects net revenues to be between RMB595 million and RMB600 million, which would represent an increase of approximately 22.2% to 23.2% from RMB487.1 million for the same quarter last year.

The above outlook is based on current market conditions and reflects the Company's current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

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

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