17 Edu & Tech (YQ.US) – Note (4Q20ER)

[March 9th, 2021]

YQ reported 4Q20 results.

Line items & margins

  • Topline was inline with my guess
  • Gross margin showed some economics of scale compared to last quarter but it only had marginal improvement from last year. The reason is that services provided by instructors and tutors are not scalable as codes or digital content.
  • S&M exp. ratio improved dramatically from previous quarter and last year. If marketing resource is heavy allocated to third quarter, it would not be surprising to see reduced marketing spend and improved expense ratio. That said, YQ also demonstrated margin improvement from 4Q19 indicating that it might enjoy some operating leverage in 4Q20.
  • R&D exp. ratio was slightly higher than my guess due to increased head counts and compensation and benefit.
  • G&A exp. ratio was 48.7% primary due to SBC recognition before completion of IPO. I have missed those one-time large SBC expense for IPO names when guessing their first result after debut for several times. Let’s see if I make the same mistake on Roblox or Coupang.

Metrics

Business outlook

Guidance: 1Q21 Total net revenue of RMB 458M-470M. (down mid-single digit QoQ or up 100%-105% YoY)

I guess the thesis is surrounding conversion/adoption with low cac on existing user base.

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