China cracks down on its private education sector now, and this leads to the fall of the share values of the Chinese Edutech giant, Gaotu Techedu.
A Bit about Gaotu Techedu
How did the share values of Gaotu Techedu drop?
Who else suffered the same fate?
Gaotu and Chen’s Numbers, as they stand now!
The Way Ahead
FAQ
A Bit about Gaotu Techedu
GSX Techedu Inc., which goes by the name of Gaotu Techedu Inc., was founded in 2014 by Larry Xiangdong Chen, a former school teacher, who holds a Ph.D. in economics from Renmin University, Beijing.
The company aims to offer online tutoring services for K-12 students, along with professional training courses and foreign language training for adults with the help of its primary product, the online education platform, Genshuixue.
Chen was appointed as the Vice-President at the U.S-listed New Oriental Education & Technology Group from 2010-2014 after which he founded Gaotu as an Edutech company.
Gaotu Techedu witnessed rapid growth and eventually helped the ex-school teacher achieve billionaire status. The company seemed prosperous, however, Gaotu’s share prices dropped all of a sudden, barely within a day, and now Larry seemed to also have lost his billionaire status.
How did the share values of Gaotu Techedu drop?
China announced some new regulations, which are traced to be behind the sudden fall of the share prices of Gaotu Edutech. According to these new regulations that China released on Saturday, July 24, 2021, it banned the companies from making profits, those that teach school curriculums by raising capital or going public.
This was certainly a swift and sharp blow from the blue that landed on Gaotu Edutech and its founder, Chen, who had witnessed Gaotu’s stock tumbling since late January and lost over $15 billion as a result.
Gaotu under scrutiny, followed by the rechristening of the brand
GSX or Gaotu Techedu’s shares started to fall in early 2020. This was accelerated by an array of allegations that came from Grizzly Research, Citron Research, Scorpio VC, and Muddy Waters.
Grizzly Research was one of the first such companies to bring allegations against Gaotu, then GSX, in February 2020, when it came out with a 59-page report, where the organization alleged that the management team behind GSX had filed a false SEC and thereby, committed securities fraud.
Furthermore, the company was also presumed to be offloading expenses in off-balance sheet arrangements and resorting to fake student enrollments to boost their figures.
Grizzly Research again released its third short-selling report on April 9, 2020, where the same highlighted the fake cash flows and fraudulent teacher certificates that GSX encouraged.
This was the 16th accusation faced by GSX after it went public in 2019.
The burden of all these accusations seemed to weigh too much on GSX Techedu. Therefore, the company decided to change its name to Gaotu, which it finally did on April 22, 2020, following the Grizzly Research that came out on April 9. It also changed the name of its educational platform to Gaotu Xueyuan, which was earlier called Genshuixue.
Though the company rechristened to the new name hoping that it would bring in its good old fortune back once again, it is yet to click in to date. Instead, the company is still under investigation by the U.S. Securities and Exchange Commission, following a good number of reports testifying Gaotu of the forged inflation of its revenue numbers.
All the previous reports and SEC continued to hamper the stock prices of the Chinese edutech tycoon, which came down to an all-time low of $3.51, as of July 23, 2021, from $149.05, which they were valued at on January 27, 2021.
Bill Hwang’s Misfortune Added to the Woes
Gaotu was surely surrounded by serious trouble from all sides, and as if they were not enough, Archegos Capital Management, on which Gaotu completely relied, offloaded their shares.
Archegos Capital Management was the family office that managed the personal assets of Bill Hwang, a New York-based investor, who also successfully held some highly leveraged positions in Gaotu.
However, the company witnessed its share values rapidly coming down, which directly affected Hwang, and being unable to provide for the collateral that the banks started asking for, he had to remove large amounts of shares from Gaotu. This made the company witness a massive plunge of around 56% in a single day.
Gaotu’s shares have lost 98% of their value since last year’s January.
Anik Banerjee
Who else suffered the same fate?
Though Gaotu Techedu is the company that is the most-talked-about company due to its recent reduction of share prices, there are a bunch of other Chinese education companies and their founders/CEOs that suffered similar fates.
For instance, Zhang Bangxin, CEO of TAL Education Group was also reported to be a victim of China’s new crackdown, where his fortune fell to $1.4 billion from $3.9 billion when the share values of the company were drowned by 71% on July 23, 2021.
Yu Minhong, the Chairman of New Oriental Education & Technology Group Inc, is another billionaire, who no longer stayed one after the share prices of his company was lowered by 54%. He is now left with a stake value of $579 million.
Gaotu and Chen’s Numbers, as they stand now!
Much like the other private educational and edutech companies, Gaotu head, Larry Xiangdong Chen also suffered the loss of his billionaire status and is presently worth $336 million. His online-tutoring firm is reported to have plunged by around two-thirds of their previous values in New York trading on July 23, 2021, Friday due to a regulatory overhaul.
The Way Ahead
Following the plunge of Gaotu’s shares, the company’s founder, chairman, CEO, Chen had reportedly stated on Weibo that the company would be completely complying with the new regulations and would attain all its social responsibilities.
Conclusion
China’s recent assault on the EdTech sector has not left the educational and EdTech companies and their founders in dismay but also had its repercussions felt by the investing giants like Tiger Global Management, Temasek Holdings Pte, and more, who are at the brink of losing their abilities to go public.
These new regulations from the Chinese government surely proved to be one of the strictest curbs in the history of its $100 billion industry of online education.
FAQ
What is Gaotu Techedu?
Gaotu Techedu is a Chinese education technology company that offers online tutoring services.
Who is the founder of Gaotu Techedu
Larry Chen is the founder and chairman of Gaotu Techedu.
What is the revenue of Gaotu Techedu?
The revenue of Gaotu Techedu was 125 billion in 2020.
Author: Anik Banerjee
Source : https://startuptalky.com/gaotu-techedu-share-value-fall-analysis/
Date : 2021-07-26T16:41:34.000Z