Leading Chinese education firm New Oriental’s (NYSE: EDU) latest results show a company heading into a new stage of slower growth, proving that no one is immune to a slowdown once it becomes big enough and that demand for even a hot product like education is limited. In reporting results for its latest fiscal quarter, New Oriental said it expects revenue for the upcoming quarter to grow by 30-35 percent, a bit of a slowdown from the 40 percent growth in the most recent quarter but a sharp drop from the last 2 years when profit and revenue were growing in the high double-digits and even triple digit percentages. (company announcement) This kind of slowdown is inevitable for nearly any company, although it’s been surprising to see how quickly it’s come for New Oriental, which just two quarters ago was reporting revenue that rose by 60 percent and net profit that doubled. (previous post) The company’s shares shed more than 10 percent after the results came out, even as Wall Street saw a broader rally, as investors realized that all good things must end, and no one is immune to growth slowdowns. Growing competition from foreign players like Disney (NYSE: DIS) and DeVry (NYSE: DV) are also making life more difficult, and Beijing’s recent efforts to cool China’s economy probably aren’t helping either. New Oriental didn’t provide any color for its guidance, but in reality this kind of slowdown is natural for any company in the industry and I suspect the Wall Street sell-off represents some profit taking from investors who have still seen strong returns on New Oriental’s shares over the last 2 years. Shares of one of New Oriental’s biggest rivals, TAL Education (NYSE: XRS) were also down more than 10 percent on Tuesday, signaling China’s education boom has probably reached its peak, and growth will enter a new slower phase.
Bottom line: New Oriental’s latest results and outlook show that boom times for education services firms have come to an end, to be replaced by slower growth in the next 2 years.
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China’s education services firms may not be as high-profile as big names like Baidu (Nasdaq: BIDU) or Geely (HKEx: 165), but industry leader New Oriental Education (NYSE: EDU) is showing it can be equally profitable and notch enviable growth that would make many of the big boys jealous. While high inflation may be eroding Chinese consumer appetite for many discretionary items, education for themselves and their children is clearly not one of those, as evidenced by New Oriental’s latest results which saw its revenue rise nearly 60 percent and net income more than double for its fiscal quarter through the end of May. (
