Warm congratulations to Gaotu Techedu on its successful NYSE listing

Gaotu Techedu's NYSE bell-ringing ceremony

On June 6 U.S. Eastern Time, Gaotu Techedu successfully listed on the New York Stock Exchange under the ticker symbol "GSX." The company priced its IPO at $10.50 per ADS, issuing 19,800,000 American Depositary Shares. Assuming the underwriters do not exercise their over-allotment option, total proceeds from the offering amount to approximately $207.9 million.

In 2015, Gaorong Ventures led Gaotu Techedu's Series A round. Gaotu Techedu is also an internet education company that went public after only a single funding round.

As a leading K12 online education provider in China, Gaotu Techedu offers tutoring courses covering all subjects for primary, middle, and high school students, as well as language training, vocational certification, and lifestyle interest courses. K12 business accounted for 75.9% of revenue in the first fiscal quarter of 2019. The company employs a "star teacher lectures + dual-teacher tutoring" model, selecting experienced instructors with an average of over 11 years of teaching experience. Through "live streaming + tutoring" large-class format and its "7+6 Efficient Learning Method," students can access quality educational resources anytime, anywhere.

Larry Chen, Gaotu Techedu's founder, chairman, and CEO, noted that the listing represents a major milestone for the company. Going forward, it will fulfill its vision of technology making education better — "returning online education to its educational essence, continuing to improve teaching quality, and enhancing the learning experience for customers."

Chang Chen, founding partner of Gaorong Ventures, said: "We warmly congratulate Gaotu Techedu on its successful NYSE listing! We feel very fortunate to have accompanied Gaotu Techedu in returning to the essence of the education industry, identifying a promising business model, driving innovation through technology, and delivering high-quality educational resources to more regions via the internet to meet the needs of students and parents."

From left to right: Xin Wang, executive director at Gaorong Ventures; Larry Chen, founder of Gaotu Techedu; Chang Chen, founding partner of Gaorong Ventures

As the first K12 online education company to achieve profitability, Gaotu Techedu has seen explosive growth in revenue and profit. The company's net revenue compound growth rate reached 345% over seven consecutive quarters. Net revenue in Q1 2019 rose to 269 million yuan.

After shifting focus to B2C in 2017, Gaotu Techedu's gross margin continued to climb, reaching 70% in Q1 2019. Non-GAAP operating profit in the first fiscal quarter of 2019 rose to 46.55 million yuan, an increase of 50.40 million yuan year-over-year.

According to its prospectus, Gaotu Techedu is a technology-driven education company whose self-developed live streaming technology can support over 100,000 students attending class simultaneously — demonstrating the advantages of its large live-streaming classes in quality, efficiency, and affordability.

Gaotu Techedu has maintained high R&D investment for five consecutive years, using AI technology to improve industry chain efficiency and continuously strengthening its "moat." Half of the founding team came from Baidu. In July 2014, Gaotu Techedu assembled an industry-leading video live streaming technology team. In 2015, it had nearly 300 technology and product staff; by the end of 2019, it expects to have nearly 1,000 technology R&D and content R&D personnel.

Looking at paid enrollments, total paid enrollments grew from 79,632 in 2017 to 767,102 in 2018, and from 70,845 in Q1 2018 to 211,002 in Q1 2019. Larry Chen believes: "The value of online education depends largely on user scale. Once user scale reaches a critical point, network effects will trigger a geometric leap in commercial value."

It is reported that Gaotu Techedu's selection rate for lead teachers is below 2%, and candidates who make it to the interview stage must be in the top 5% of offline institution instructors. Going forward, Gaotu Techedu will continue to increase investment in tutoring teachers.

At the same time, Gaotu Techedu will continue to strategically invest in its dual-teacher model and new online K12 products, stimulating demand in third- and fourth-tier cities and remote areas to further expand market share.

The proceeds from this offering will be used primarily to recruit more and better teachers and R&D staff, increase investment in teaching research, and improve technology levels — making Gaotu Techedu's courses better, its learning systems more complete, its services more efficient, and student learning more effective.

Looking back on Gaotu Techedu's development, Chang Chen said, "We admire the entrepreneurial spirit of the Gaotu Techedu team and its founder Larry Chen, and were moved by their passion for and commitment to education."

China's online education industry is still in its early stages. As technology upgrades and infrastructure continues to improve, there remains tremendous potential for Gaotu Techedu to realize its vision of "technology making education better."