Accelerated growth of digital segment, strategic investment in Junior ELT, and cost optimization in adult ELT driving changes to the revenue mix, improved operating efficiency and an expected return to pre-pandemic growth and profitability in 2021
SHENZHEN, China, Nov. 18, 2020 (GLOBE NEWSWIRE) -- Meten EdtechX Education Group Ltd. (NASDAQ:METX) (“Meten EdtechX” or the “Company”), a leading omnichannel English language training (“ELT”) service provider in China, provides an update on trading and guidance for 2021, ahead of the release of its unaudited financial results for the third quarter of 2020.
- Early signs of post-pandemic recovery. Q3 2020 revenue are expected to reach approximately RMB300 million, representing a 60% increase compared with Q2 2020. Revenue in Q3 2020 is expected to be approximately 29% down compared to Q3 2019 as a result of the mandatory closure of offline learning centers during the first half of 2020 and partial closure or reduced operating hours of certain number of offline learning centers in Q3 2020. To date, all of the Company’s 123 offline learning centers1 have reopened (compared with 103 at the end of August 2020).
- Strong growth in the Junior ELT/ K12 segment(s). Post-pandemic, the Company has observed customers re-enrolling in Junior ELT, both at offline learning centers and online, at a faster pace than adult customers whose disposable income has been adversely impacted by the pandemic. Junior ELT’s gross billings for Q3 2020 are up 89% compared to the previous quarter (Q2 2020).
- Streamlining of operations and reallocation of resources to Junior ELT and online ELT segments from adult learning centers. During the COVID-19 pandemic, the Company has made considerable efforts to reduce its operating costs, aiming to achieve approximately RMB180 million of annual savings. In addition, 70 lease agreements for the self-operated learning centers (nearly 40% of the total leases) were renegotiated and 22 learning centers for adult ELT were closed in order to redeploy the resources to the Junior ELT and online ELT segments. As a result, we estimate our net losses for Q3 2020 to be significantly reduced to approximately RMB40 million (compared with RMB93.4 million in Q2 2020). These cost reduction efforts will continue and are expected to result in a leaner cost structure and a more balanced revenue mix between the offline and online and adult and junior segments by the beginning of 2021.
- Online offering achieving high growth and profitability. Likeshuo, Meten EdtechX’s online ELT platform, continues to deliver a strong post-pandemic performance in terms of both growth and profitability, achieving a 54% increase in the number of registered users and a 22% increase in gross billings in Q3 2020 vs Q2 2020. The Company’s online ELT business targets approximately RMB340 million in revenues by the end of 2020, representing a 30% increase compared to full fiscal year of 2019 and approximately RMB16 million of net profit (vs RMB1.5 million for the previous year). Meten EdtechX’s omnichannel platform and rising Likeshuo brand awareness continue to provide the Company with a competitive advantage in terms of customer acquisition.
- Continued Product innovation. Meten EdtechX continues to invest in product development and has recently launched several new products across both its offline and online platforms. This includes two new language (Japanese and Spanish) products, K12 junior products and the “Bi Gao” exam preparatory product for middle schoolers.
1 Inclusive of the permanently closed 11 learning centers for adult ELT.
- “Return to normal” scenario expected by end of 2021: improved profitability and continued digital shift. Assuming no resurgence of the COVID-19 pandemic in China, and taking into account recent positive developments relating to a COVID-19 vaccine and the continuous recovery of China’s economy, Meten EdtechX expects its trading and profitability to gradually return to pre-pandemic levels over the course of 2021. While this remains partially dependent on the pace at which the adult ELT market recovers, the Company’s gross billing target for FY 2021 is expected to be within the range of RMB1.5-1.6 billion (representing a return to pre-pandemic level), approximately 40-50% of which are driven by Likeshuo. The Company is currently aiming for EBITDA of RMB200 million and net profit of RMB120 million for the FY 2021, respectively.
- Selective review of consolidation opportunities. Meten EdtechX continues to see a compelling case for consolidation in the language, K12 and future skills training in China and Asia more generally, and will continue to selectively consider merger and joint venture opportunities.