Chinese online education player Baijiahulian files for US IPO

Baijiahulian, which was renamed GSX Techedu earlier this year, claims to be China’s third-largest player in the K12 large-class after-school tuition space by gross billings. It covers mathematics, English, Chinese, physics, chemistry, biology, history, geography and political science. Foreign language, vocational training, and general interest courses are also offered for post-secondary and adult students.

The company believes that focusing on large-class education – there is an average of 600-980 enrollments per K12 course and each class is led by a single instructor with multiple tutors overseeing smaller groups – differentiates it from the competition. The model is also seen as more scalable. Total enrollments across all business segments came to 767,102 in 2018, up from 79,632 a year earlier. As of March, Baijiahulian had 169 instructors and 522 tutors. Instructors have an average of 11 years of teaching experience.

China’s online education market was worth RMB143.2 billion ($20.8 billion) in 2018 and is expected to reach RMB696.3 billion by 2023, according to Frost & Sullivan. Gross billings for online K12 after-school tutoring are projected to grow from RMB30.2 billion to RMB367.2 billion over the same period, while the billings for the large-class space specifically will rise from RMB15.1 billion to RMB202 billion.

Baijiahulian’s revenue came to RMB397.3 million in 2018, up from RMB97.6 million the previous year as average enrollments for K12 courses rose from 400 to 600. Over the same period, the company moved from a net loss of RMB87 million to a net profit of RMB19.7 million.

Gaorong holds a 6.5% stake in Baijiahulian, having invested out of its second fund, which closed at $362 million in 2015. The company is controlled by Larry Chen, who founded the business in 2014. He previously held several senior positions at New Oriental Education & Technology, a US-listed Chinese offline education provider. The size and pricing of the offering have yet to be finalized, a filing shows.

A lot of capital has been drawn into Chinese online education, with the likes of Zhangmen, Zuoyebang, 17zuoye, Yunfudao, and Gaosi Education raising sizeable rounds. More specialized language learning platforms such as VIPKid and Dada ABC are also well-backed.

Some concerns have been expressed about the sustainability of B2C business models, especially those that involve one-to-one tuition. Companies are said to be spending large sums of money acquiring market share by giving away free lessons.

The last PE-backed Chinese online education business to go public in the US was Liulishuo last September, which raised $71.9 million. The company, which was not profitable at the time of listing, operates an English-learning app that targets adults.

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• Banyan Capital