Gaorong-backed GSX Techedu loses ground after $208m US IPO

Gaorong Capital is the company’s principal venture capital backer with a 6% stake post-offering. GSX sold 19.8 million American Depository Shares (ADS) at $10.50 apiece, while granting underwriters the option to buy up to 2.97 million additional shares, according to a filing. The stock opened at $10.71 on June 6 and closed at $10.48. It dropped as low at $8.48 on June 7 before recovering to $10.00.

GSX – it was known as Baijiahulian until earlier this year – provides after-school tutoring services for primary and secondary school students. It 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.

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.

It is the seventh US listing by a PE-backed Chinese online education business since the start of 2018 and the fourth focused on K12 after-school tuition. This area has received the bulk of private capital in recent years, with the likes of Zhangmen, Zuoyebang, 17zuoye, Yunfudao, and Gaosi Education raising sizeable rounds.

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• Topics
• Greater China
• IPO
• Technology
• Consumer
• China
• Banyan Capital
• Education