TAL Education Group (TAL) on Q3 2021 Results - Earnings Call Transcript
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter Fiscal Year 2021 TAL Education Group Earnings conference call. At this time, all participants are in a listen-only mode. After the managements' prepared remarks, there will be a question-and-answer session. Today's conference call is being recorded. I would now like to turn the call over to your first speaker today. Ms. Echo Yan, IR Director of TAL. Thank you. Please go ahead. Echo Yan: Thanks, operator. Thank you all for joining us today for TAL Education Group's third fiscal quarter 2021 earnings conference call. The earnings release was distributed earlier today, and you may find a copy on the Company's IR website or through the newswires. Rong Luo: Thank you, Echo. Good evening and good morning to you all. Thank you for joining us today on this earnings call. In the third quarter, China's public health situations and economy continue to recover. We are pleased to see that our tutoring business as well as a capacity expansion progress in all cities has delivered on track performance. During this fiscal quarter, we further executed on our off-line and online strategy, which remain on track. Our learning center network expansion resume at pace after a brief lockdown in the second quarter. A quick overview of the key metrics is as follows: net revenue growth in the third quarter was 35% year-over-year in U.S. dollar terms to $1.1 billion and 28% in RMB terms. Total normal priced long-term courses student enrollment increased by 46.5% year-over-year, mostly driven by online as well Xueersi Peiyou small class enrollments. GAAP loss from operations was $127.4 million compared to income from operations of $69.4 million in the third quarter last fiscal year. Non-GAAP operating loss was $73.4 million compared to non-GAAP operating income of $99.6 million in the same year ago period. I will now turn the call over to Linda, our Vice President of Finance. Should give you an update on our operational progress in the third quarter, next Echo Yan, our IR Director, will review the third quarter financials. After that, I'll update you on our business strategy and discuss our business outlook. Linda Huo: Thank you. I will review the various revenue streams of our tutoring business for the third quarter. Let me start with small class and other business, which consists of Xueersi Peiyou small class, Firstleap, Mobby and some other education programs and services. These accounted for 66% of total net revenue compared to 75% in the third quarter last fiscal year. The revenue growth rate was 20% in U.S. dollar terms and 13% in R&D terms. Xueersi Peiyou small class, which remains our stable core business, represented 57% of total net revenue in the third quarter compared to 63% in the same year ago period. The lower revenue contribution from Xueersi Peiyou was mostly due to the faster growth of xueersi.com online courses, which accounted for 28% of total revenue in the quarter compared to 19% in the same period last year. Net revenue from Xueersi Peiyou small class was up by 21% in U.S. dollar terms and 15% in RMB terms, while our normal price long-term cost enrollments increased by 18% year-over-year. Our key operational metrics of Peiyou, such as retention rates, fulfillment REIT and job up rate remains once more very stable. In the third quarter, normal price long-term Xueersi Peiyou small class ASP was flattish in U.S. dollar terms and decreased by 5% in RMB terms year-over-year. The decline was mainly due to the mix change of Peiyou online and off-line business and more lower-tier cities coverage. Our third quarter performance in the various tiers of cities reflected the ongoing normalization trend after the earlier COVID-19 disruption. Xueersi Peiyou small class revenue from the top five cities, which are Beijing, Shanghai, Guangzhou, Shenzhen and Nanjing, increased by 19% year-over-year in U.S. dollar terms, and accounted for 56% of Xueersi Peiyou small class business. Revenue generated from cities other than the top five grew by24% in U.S. dollar terms. The other cities accounted for 44% of Xueersi Peiyou small class business. Next, I'd like to discuss our Quanzhou online business. This business sector achieved year-over-year revenue growth of 14% in U.S. dollar terms and 8% in R&D terms. Quanzhou online accounted for approximately 5% of total revenue in the third quarter of fiscal year 2021 compared to 6%in the same year ago period. In the third quarter, normal price long-term Quanzhou online courses ASP increased by 13% in U.S. dollar terms and 7% in RMB terms year-over-year. The increase was mainly due to regular increase of tuition fees in several cities in this fiscal year. Echo Yan: Thanks, Linda. Let me now go through some key financial points for the third quarter of fiscal year 2021. Gross profit increased by 29.2% to $603.6 million from $467.2 million in the same year ago period. Gross margin for the third quarter decreased to 53.9% compared to 56.4% for the same period of last year. Selling and marketing expenses increased by 120.3% to $420.7 million from $190.9 million in the third quarter of fiscal year 2020. Non-GAAP selling and marketing expenses which excluded share-based compensation expenses, increased by 118% to $406.4 million from $186.4 million in the same year ago period, the year-over-year increase of selling and marketing expenses in the third quarter of fiscal year 2021 was primarily a result of more marketing promotion activities to strengthen our customer base and brands as well as higher compensation to sales and marketing staff to support more programs and service offerings. Other income was $45.5 million for the third quarter of fiscal year 2021 compared to other expense of $3.7 million in the third quarter of fiscal year 2020. Other income in the third quarter of fiscal year 2021 was primarily due to the value-added tax and social security expense exemption offered by the government during the COVID-19 outbreak. Impairment loss on long-term investments was $11.5 million for the third quarter of fiscal year 2021 compared to $46.4 million for the third quarter of fiscal year 2020. Impairment loss on long-term investments was mainly due to decline in the value of long-term investments in several investees. Income tax benefit was $13.9 million in the third quarter of fiscal year 2021 compared to $16.6 million of income tax expenses in the same period of last year. Net loss attributable to P&L was $43.6 million in the third quarter of fiscal year 2021 compared to net income attributable to TAL of $19.6 million in the third quarter of fiscal year 2020. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, was $10.4 million compared to non-GAAP net income attributable to TAL of $49.7 million in the third quarter of fiscal year 2020. From the balance sheet, as of November 30, 2020, the Company had $4,233.2 million of cash and cash equivalents and $864.8 million of short-term investments compared to $1,873.9 million of cash and cash equivalents and $345.4 million of short-term investments as of February 29, 2020. Rong Luo: Thank you, Echo. Despite the unprecedented challenges this year, our business has managed and delivered 30% revenue growth year-to-date on par with our long-term growth spallation. Our investment strategies for the long-term remains unchanged regardless of the COVID-9 challenges and the growth in the competitive pressures. We aim to remain the top brand in quality education services through our long-term sustainable growth strategy. Innovative technology-based education, a comprehensive and cutting-edge product portfolios and with a strong and proven operational foundation, as China continued to recover from the pandemic, we have resumed expansions, our learning center networks and geographic coverage in Q3. We expand both our learning center coverage in the cities enter into more lower low-tier cities. We have seen that our off-line presence and localize content together have a clear advantage of more precisely meeting our customers' demand in different locations. And support us in building both offline and online brand and reputation in all cities that we have covered. So we have continuously developed and roll out more Peiyou education products to further build out our comprehensive OmO model. With this, we can better serve our customers by offering them more flexibility and efficiency. As always, we will conduct business in line with all relevant government policies and regulations, including those that regard national public health. Our off-line and online operations remains ready to deal with any public has contingencies brain needed. In this time of rapid sense and technology development and COVID-19 impact, online education, with its easy access and affordable price has been pervasively affective, and China's online market opportunity is attractive, yet the competition landscape is intensive. There are simply no shortcuts in building a sustainable big business, and I would like to reiterate that we have -- we will consistently pursue our long-term strategy regardless of what kind of the short challenges we are facing. Operator: Ladies and gentlemen, we will now begin the question-and-answer session. Your first question comes from the line of Mark Li from Citi. Please ask your question. Mark Li: Hi management. Thanks for the presentation. May I ask for your next quarter's guidance, how much have you baked in the latest impact from the unfortunate off-line tutoring lockdown in Beijing area? And how are we handling the Beijing latest policy? Rong Luo: Thank you, Mark. I think it's very important to recap the guidance and Q3 results again, because sometimes, if we only do into one quarter, sometimes it's misleading. For Q3, we have some numbers need to draw attention because I'm sure what we talk about in this grid, sometimes it's too long, and you guys don't capture that. Q3, our Peiyou small class business grows 21% compared to previous quarters is recovering. And here, one thing we need to mention is actually the Peiyou life growth. The Peiyou life revenue growth in the U.S. dollar terms this quarter is 148%. 148%. And second, I think our Xueersi online school growth in Q3 is 102% in U.S. dollar terms. And it has been around 28% of total revenue for the whole company. And more importantly, I think starting from maybe last quarter, the enrollment from Xueersi online school has already surpassed 50%of the total enrollments in the Company. And the third point, we need to recap the number is actually, if we consider Peiyou life together with us online schools online, which means the online total revenue, the growth in the third quarter is 114.2% -- 114.2%. And and they have been around 41% of the Company revenue and 64%of the total enrollments. So with all of these numbers in Q3, we go into next year -- next quarter Q4 I think current guidance, we have somethingto let you guys know. Number one, we all know it's very unfortunate to see we have seen some cases in Beijing and maybe in some other cities. And Beijing is a big city with more than 20 million populations. Today, we have seen around the tens of their confirmed cases there. And we 100% respect the government and follow the government requirements to take some reactions to make sure we always put students here interest priority. But the thing has changed. If we can still remember last year, I think still is the earning call, maybe almost a similar time in last year January, actually, we are very that's short to us. At that time, we don't know what is, the right way to do. So we move from off-line to online kind of in CLOs last year. But coming to this year with the 1-year experience dealing with this kind of new challenges, and we're also very happy to see the government has effective control a lot of situations in most cases in China. So we are more well prepared than last year. And our visibility to provide more offerings, maybe kind of more flexibility to the students and parents is also improving. I think part of the numbers like Xueersi Peiyou life gross numbers in its online gross numbers in Q3 or maybe in the past rolling 12 months can demonstrate actually this company has managing how to use the online technology to deal with all of these contingencies. So we are more than confident than last year to say we can deal with all of these challenges where we are. Especially in Beijing, we have followed the government requirements and move all of our off-line classes online. During this transition, we are also happy to see both the parents and students acceptance rates also much better than last year. And last year, we pulled students in first priority, and we sacrificed a little bit in the price and some other stuff. This year, we have to see that since it's getting better now. And online continues to be a very good way to as complementary to the students, and we believe we don't see any major or maybe material impact coming from this kind of move from off-line to online this month in Beijing. And my Q4 guidance, I think I probably can talk more about that. I think some key directions are almost similar as we will see in Q3. Number one, the Peiyou revenue is still recovering, and we can see that the Peiyou revenue growth even we're taking our the low base last year and the Peiyou's revenue growth in Q4 still faster than Q3, it's continue to do recovery. And secondly, I think the Xueersi online school growth -- the revenue growth in Q4 is also pretty much on track. But here, I have one thing to draw attention, if you guys can still remember, last year, the spring festival for China is around January 24. While this year, the time of spring festival is February 11, which means last year, if we consider Q4 numbers, actually, they have around one weekend of the spring term will fall in the last year, Q4. But this year, because the late timing of the spring festival, which means we will let one weekend from spring turns into Q4, which means we will let around 10% of revenue, lending less in Q4. That's kind of the timing differences due to the time of spring festival which happens, especially when the spring festival this year is much later than last year. So with around 10% scheduling means maybe if we can translate that back to Xueersi online school revenue growth will be around 20 points to 30 points in the grocery perspective. If we translate them into the Company overall level revenue of growth will be around 8% to 10%, so 8 to 10 points. So if we want to have apple-to-apple comparisons, all of the numbers need to be putting back to the situations. And so I think Q1 and we also need to be fully prepared. Maybe something what happened in Beijing will also happen within some other cities. So we will continue to leverage in the past one year, we have a lot of experiences and know-how, how to use the online technologies to help students and parents for them to get quality services, not only off-line but also online. So we'll continue to do so. And the whole team and the whole -- both the Xueersi Peiyou team and the Xueersi online school team they are also fully prepared for that. We have one year -- we have one year experience in the past 12 months, so we will get ready for that. And again, we fully believe with our government's very strong executions, we will control this kind of situations very quickly. And one example, probably in as you can see there, a lot of taxi drivers, they have already get a vaccine. So we believe this year, definitely grew better than last year. And next year, maybe will be better than this year. And we still will continue to in our growth strategy and made necessary changes where needed. But in general, we're still quite confident about our -- the growth in the Q4 in the coming one year. Operator: Your next question comes from the line of Alex Xie of Crédit Suisse. Please ask your question. Alex Xie: I would like to ask two questions about Peiyou, firstly for the Peiyou off-line business. Could you please share with us the reason for the sort of relatively slower growth compared with off-line peers? And when should we expect the acceleration after your more proactive extension of learning centers what will be your target for the CapEx expansion in the next fiscal year? And secondly, for Peiyou online, congratulations on the very strong results, is quite impressive for the 148% growth? And then how should we think about our OmO strategy in the next year? And what about the growth targets for next year? Rong Luo: Thank you, Alex. In the first place, I think when we're running our business in this market, the only one we need to compare ourselves. A different company will choose different strategies while a different company will have different maybe belief away as a company who promote education through sensor technology. We fully believe the online technology inherit us to reinforce our capability to serve the students and make our business more scalable. So if we go back to talk about the Peiyou revenue growth, I think seeing us now just now, number one, the off-line is recovering so we will carefully to expand our new learning centers. Most of them still will be added in the current existing big cities. And some of them, we will go to in the new cities. You probably can see that in the last three quarters, we have entered around 31 new cities. But at the same time, I think most of the new classrooms we add actually is still in the current cities. So we need to balance all of them. And on the other side, I think as why I talked about it in last quarter, in the past few months, it's very important timing for the Company because we figure out actually the online merchant off-line models, some classes off-line, some classes online is already being buying by the parents and the students. So we need to leverage all of these efforts. So we'll continue to roll out the Peiyou life to more geography, more saves and more grades. And we also try to evolve the Peiyou ão life models maybe from big class, maybe to small class and even more than that. So we believe this kind of online or off-line strategy will help us to cover the cities much deeper than what we can do before. It will be much -- maybe we can penetrate more markets. And then if I only use the traditional off-line models, so that is the philosophy we believe in and all the numbers in the top tier cities, where we have stronger Peiyou life offerings they have proved the numbers. So I think the OmO, going forward, even in this quarter, we see some kind of new cases in Beijing or maybe in Shanghai, but we still believe if we put all the things in the longer term, maybe in one year or two years, three years' time, we still believe that OmO will be right for the strategy. On one side, we need to make the smaller learning centers closer to the parents and cooler to the living communities. And in the second place, we will continue to grow our more per offerings to serve more students and provide them more individual like kind of services like that. So all of this combined together with our local content, local teachers, local students and local services, we can leverage their time and improve efficiencies much better. So what happened this quarter will not change our long-term growth strategies. And what we need to do today is actually make sure delivering this transition time, we take care of the students and the parents very carefully. We need to collect more data from the parents and the students in their behaviors and figure out the best way to them. So if we look into next year, I think we don't change our outlook in the long run. We still believe the whole company in the long run in three years' time, can still maintain in the revenue growth around 30% to 50%. And the strategy at San and direction is also very clear. What we need to do is make sure execution is right on track. Thank you, Alex. Operator: Your next question comes from the line of Sheng Zhong of Morgan Stanley. Please ask your question. Sheng Zhong: My question is about the online education transom acquisition cuts. Now we see from the market that the cap is going up very quickly. So wondering, what is xueersi.com's economic model now considering different customer acquisition channels, and with that, with the Company's plan, sales and marketing plan for next year? Rong Luo: Thank you, Zhong Sheng. I think when most people talk about online education, the first thing -- first question kind of their mind is customer acquisition costs. Sometimes this kind of thinking will oversimplify the complexity of online education models. I think in our perspective, number one, online education is still education. They have a lot of advantages in online. For example, they can get rid of the constraints of the time on the education, but they are still education. So I personally, I agree with some of the opinions from the articles recently published in the news channels. Education, actually, we need to follow their over rules, we need to pull the quality services, how to teach the students better, how to make sure they're all kind is better as a first priority. We are now running a business like such as e-commerce, like e-commerce, they can promote their business very quickly by locations, acquire customers is only the first step of the loan process. Right after that, we have a lot of things we need to do. In the end, whether you can teach the students where, whether you can maximum their outcome from their limited time that will tell the differences. So to make sure we can do that, I think we will continue the investment, I think, in maybe four areas. Number one is the content development. Our Peiyou life is providing the localized content. But on the other side, the Xueersi online school is also trying to provide more tailor-made contents and services to the students. We try to understand the students more, and we're mapping the right level of difficulty. The right progress and the reversion of the products to the students, which require more investment over there; and for example, if in custom perspective, previously, all the contents will be 2D products, but in the future will be 3D product. So, all of this necessary investment in content will be our first priority. Secondly, the technology needs to be more and more important. I think because today, we are serving more and more students in our platform. We have serving millions of the normal priced long-term enrollments together with the other maybe millions of the maybe promotion enrollment students here, we offer them affordable price. But which means the more students coming in, but we need to make sure no matter how much they pay they deserve worry quality technology solutions. So we need to continue to invest over here to make sure we have a much stable platform. We can do more interactions and/or broadcasting quality and all of that will be -- continue to be improved. I think all of the technology investments are very important. Number three is we need to continue invest in teachers and teacher systems. I think online education, they have a lot of advantages, but still, it's one way of education. And right before, we have the AI products, maybe in three or five years' time later today's product still is a people-intensive products. For the people-intensive products, the strategy is very important. So we need to make sure we do right training to the teachers and teacher systems. We give them good compensation to make sure and we also encourage all of teachers stance to serve the studs were I think all the necessary investments in the teacher are very necessary. One last point, the marketing is also very important. And frankly speaking, we are an off-line company sometimes people ask me the masses as may compared to the other contrast what's your strengths and what's your weakness? In general, I think our company will be stronger in the teaching. We teach the students, we use the right content to serve the students. We make sure they can have more kind of all kinds come from us. But in marketing side, in the front end, actually compared to other companies who are waiting to bring a lot of money, actually, we are way below. So we are catching a little bit, but still, in our philosophy, we strongly believe the investment in content, technology and teachers will matter in the long run. And the necessary investment in marketing maybe is very important, but we need to make sure, we need to balance all the great turns and investments in this perspective. We cannot sacrifice the lifetime values only for marketing. So we need to have a good balance, be more healthy and controlling investments, the level of investments to make sure that I work I think CAC, in general, yes, is increasing, but we need to separate them in two parts. The online education company can always acquire customers through two kind of channels. Number one, as the non-branding channels, for example, WeChat, maybe and some other platforms. In these platforms, the CAC is increasing definitely. They will have some maybe fluctuations from time to time in different quarters, but in general, that's increasing. So what we need to do is actually make sure our investments in that channel is in a balanced field, both healthy -- and considering both healthy and market share. But on the other side, it's the branding channels, and we prefer to invest more money on our branding channels. We prefer to invest more money to our current students and parents encourage them to refer the other parents into our platform. If you ask me, we have maybe $100, where you want to put the monies where more than to put the money in our teachers and the parents and the students more than the purely marketing. So I think in the long run, we're always managing the companies in a more balanced view, and we need to pull the -- managing healthy growth in front of the purely numbers. And the coming maybe one or two quarters, sometimes it also have a lot of changes because, for example, the case is in Beijing, if they are doing back to their off line, maybe they're doing good to online, so we have no idea. So we need to -- we as a company, we need to be have more flat able, and we can manage a different kind of surprises on the situation of challenges in front of us. By the end, no matter what we are, both offline educations and online educations, we always pull the managing healthy growth and students and parents in first priority instead of purely marketing. Operator: Your next question comes from the line of Felix Liu of UBS. Please ask your question. Felix Liu: So just a follow-up on the previous comment. You mentioned that you are investing in content development, especially on the Xueersi online school to do more tailor-made content. It sounds like it is moving closer towards the product or content of our Peiyou side of business is there any opportunity to build more synergy between the two business lines, maybe in terms of content and even in terms of tuck in acquisition? And my second question is that I recall you previously mentioned you still want to keep the level of IPO investment and protect the number one position of Xueersi online school. But I think you sounded more balanced on the comment on sales and marketing. So I just want to double check whether we still intend to invest enough to keep our number one position? Rong Luo: Thank you, Felix. I think both our Peiyou small class business and Xueersi online school business still -- both of them are running under the branding off-shores. So we have a lot of synergies between these two business teams. Number one is the content. I think, of course, we are not perfect. We have a long way to go to be perfect. But we have starting -- I think from a starting point, we have tried to leverage the contents not only for one business, but also can be beneficial to other businesses. So we don't want to build maybe the content gain in the gain or we do a lot of rapidly cars. So we leverage the content demand we have in Peiyou and made some -- and we try to share the investments throughout there. So this kind of synergy in the content space, especially in the localized quantum perspective, that will have our first online school business in the future. Because sometimes doing localized content is very -- that takes some time. You need to know maybe more than 100 cities. What's happening right over there? And what is their special requirement on studies and why is maybe the features in that city and all of that? So that takes some time to build a network. So we have the Peiyou small class over there, and we can leverage the beneficials. Second, I think the students, the student data is also very important areas we have synergies. Because today, we have seen more and more clearly, actually, the students can move from online and off-line. We have seen, maybe, for example, in Shanghai, some students, they started in Xueersi online school in the beginning, and then they moved to the Xueersi Peiyou live, the localized online class platform. And some of -- they also move to Xueersi offline. And we're also seeing the other directions is happening in our platforms. I think no matter Xueersi offline, Peiyou online. So online to actually get different products to the students, the students can choose based on their own conditions. Some students may prefer the quality. Some stores may prefer maybe the convenience. So I think with all this kind of the rich product offerings, we can serve the students and the parents much better. And we also have a lot of synergies in the technology perspective, especially when -- I think you guys can still remember how Peiyou come up. I think the Peiyou small class in the past is purely off-line business. But today, around 22% of the revenue coming from Peiyou life now and that's because the Peiyou life is leveraging a lot of technologies from Xueersi online school, and they have some -- even more synergies in the future. And for the online, I think online is a very important market opportunity because online offer us an opportunity to leverage the high-quality quality services to waste affordable price to serve more students. You probably can see that if we combine online and off-line together, the ASP is decreasing quarter-over-quarter because more and more contribution coming from online. Online today is around 41%. So I don't -- so online, they offer us a new way to be more scalable in the newly emerging markets. So what we need to do is we wish we can leverage all of our advantages to be leaders in that market. But to be leaders in that market, it doesn't mean we will maybe burn all the money to be number one. So we always need to deliver or manage healthy growth. So we still stick to our plan to become a very important maybe leading platform, online platform to serve the students. But we care more about the quality of the services, and we care more whether the parents and students are satisfied with our products. And we also believe online education is still education. If we can continue to deliver our high-quality student, the parents will buy-in. So saying as what we see in the retention rate in our platform, our retention of online is also maybe one of highest in this industry, so which is very important metrics to say whether the services really media needs. So looking forward, we continue to be leading in this space, but we will invest more in our product content and the teachers. And we wish we can leverage our advantages, both in the Peiyou small class and other areas to make sure we can be more successful in the future. Operator: Your next question comes from the line of D. S. Kim of JP Morgan. Please ask your question. D. S. Kim: Perhaps to continue on the similar vein, our big picture strategy for online. Are we becoming more aggressive, trying to diversify our traffic sources, given rising channel cost from those waiting and go in and all that? I noticed that we are pushing at more aggressively recently and wondering how we think about growing in proprietary traffic here? Or as you just mentioned, you'd rather focus more on synergy between offline channel and online rather than developing our own . Rong Luo: Thank you. That's a very good question. As number one, we are investing some money to do the pipeline, which is true for the parents can help their students if they have some difficulty in the homework. That is the major natural parents' needs in a family. That is not a so-called traffic pool for the K-12 online business. So that's a separate definition. I know some of the companies may say this kind of the tools can be a traffic pool for the K-12 students in the online school par. I think based on what we see in this industry, maybe that's not the case. The original intention for us, we want to leverage this kind of tool to make the work of parents easier. So when they have some difficulty, they can use a tool to make their life easier. So that becomes part of the mix in the family education side. So we have millions of students in my platform. We make -- we need to help them reduce their burdens in this area. So that's our key attention to do that. And we don't believe that is a very kind of becoming a so-called traffic pool and convert students from Peiyou to the Xueersi online school, that's not the case for us today. And secondly is, yes, you're right. I think the branding channel or maybe the students and parents who buy our branding or maybe who study our platform today. As a very important source for us to acquire more new customers because the branding channel, I think for education companies, branding obviously has to level of the minings. Number one is branding awareness, how many people know you. I think awareness sometimes can be delivered through maybe advertisements. But the second level of the branding actually is how good you bring is the reputation of your brand I think for education, the only way to gain reputation is make sure you deliver the good quality services and you teach students were and which takes some time so when we want to make sure our branding channel is bigger than before, I think the first thing we need to do is now to marketing. The first thing we need to do is invest in content teachers and technology, make sure the students they bid our offers, they like our platforms and they feel happy our platforms and they made progress in our platforms. So, only when they are being told and have making progress as the only way the branding will come. So here, we will invest more energies and times ever here. Well you serve your students much better and then the branding will become much better. And more and more people will come to your platform directly because of your brand. So, that is the circle we're strongly believed. Operator: Your next question comes from the line of Alex Liu of China Renaissance. Please ask your question. Alex Liu: I noticed TAL entered 11 new cities this quarter. Most of these cities are actually Tier 2 or Tier 3 cities. So would the business ramp up strategy is different in these cities from our existing seats in terms of speed of the ramp-up, scale of the off-line capacity as well as the mix of the Peiyou online and off-line business eventually? Rong Luo: Thank you, Alex. I think when we go into low-tier cities, I think in general, we will still maintain our practice in the past over maybe 17 years. With first enter the new cities may be only in single grade, single subject. And we teach students where and we try to gain the reputations in the local cities. And right after that, we will try to promote our Peiyou life offerings on top of that. So because the maybe lesson learned in the past few quarters, we merged both online and offline in the Beijing, Shanghai, we have a lot of kind of experiences. So we are more confident that maybe when we can make our reputations of branding established in the low-tier cities. It may be faster for us to promote maybe the life offerings. But today, all the 31 new cities we enter, we don't need to hurry to promote life offerings. We still stick to our own approach step-by-step, build the strong reputations there look, I think the longer time you invest in the city and the better reputations you have built, maybe bigger potential you will get coming from that place. So we don't have to do anything. We still remain calm and patient in the lower tier cities. And of course, thanks to the PLIF offerings, some mass easier. So we will -- also based on what students need to make necessary changes when we offer them different types of products rate there. Alex Liu: Sorry, just a very quick follow-up because I think a few years ago, we were previously targeting about, I think, 70 to 80 cities where we think makes sense probably for offline operations. But right now, we're already at 100 cities. So just wondering how many cities will the Company eventually enter with off-line presence? Rong Luo: Yes. I think that's a very good question. I think several years ago, when I first became service companies that a poster, I think we can only enter around 30 to 35 cities at that time. That's considering the traditional off-line operating models. If the more we enter, they will sacrifice in the profits and margins. And then I think that since that's changed, especially the technology has evolved very quickly. So waste, the empowerment of the technologies, we gradually develop the traditional models. And now we develop the new comprehensive OmO model. We leverage both on the off-line advantages. So which means the Company -- the business models will be more flexible and scalable. So we also made more confident to penetrate more cities. Today, we have around 102 cities, 101 in China and the other one -- the only one in the U.S. and maybe looking forward, we still have possibilities. Maybe we can enter maybe the other 100 new cities in the longer term. But that will not happen in one or two years. That will happen in a onetime. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect your lines.TAL Ratings Summary
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TAL International Upgraded to Overweight at JPMorgan Following Q4 Beat
JPMorgan analysts upgraded TAL International (NYSE:TAL) from Neutral to Overweight and increased their price target from $10.00 to $15.00 following the company’s reported strong Q4 results.
The upgrade is influenced by the strong performance and outlook of New Oriental Education (EDU), which they believe indicates a favorable environment in the post-policy tutoring business, characterized by advantageous supply/demand dynamics and a stable policy setting. The analysts suggest that TAL International may be experiencing a shift to what they term 'supernormal' growth, as evidenced by the company's recent performance.
Consequently, the analysts revised TAL's revenue forecasts upwards for the next three years by over 30%, positioning these estimates at the highest among Street forecasts. They anticipate that TAL's earning potential will continue to surprise the market in the coming years.
TAL International Started With Buy Rating at Goldman Sachs
Goldman Sachs analysts started covering TAL International (NYSE:TAL) with an optimistic outlook, assigning it a Buy rating and setting a price target of $11.70. The analysts highlighted TAL's strengths as a K-12 focused company with competitive edges in educational content and technology. They noted TAL's rapid capacity growth, revitalization of its main offline business, and ventures into new educational areas.
The analysts anticipate a 28% sales compound annual growth rate (CAGR) from fiscal 2023 to fiscal 2026 and expect the net profit margin (NPM) to rise to 10-11% by 2026, up from -3% in 2023.
