CEO of Education Firm Gaotu Responds to Reports of Staff-Cutting Under Regulatory Pressure

(Source: Weibo)

On the evening of June 27, Larry Chen, CEO of Gaotu Techedu, issued a document in response to recent public suspicions about the company. In the statement, Chen revealed that they have integrated some education units and undergone personnel optimization for different departments, but by continuously recruiting outstanding talent, the number of employees has been steadily increasing over the past month.

“It’s the best time for our company’s development. Now, our cash reserves are very abundant, and the operating efficiency is steadily improving. Our goal is to make a healthy profit in the fourth quarter of this year on the premise of sustained growth,” Chen said.

Founded in June 2014 by Chen himself, the former CEO of New Oriental Education, the company focuses on the K-12 online education business. In 2019, the company raised $208 million in its IPO in the United States. Previously called GSX, changed its name to Gaotu Group on April 22 this year, with its ticker symbol on the New York Stock Exchange switching from “GSX” to “GOTU”.

On May 28, Chen held an internal staff meeting and announced that the company would dismiss 30% of its staff, while its news feed and live-streaming businesses would also be shut down, multiple media outlets reported.

SEE ALSO: Chinese Education Company GSX to Close Pre-school Education Business and Cut 30% of Staff amid Increased Regulatory Pressure

Before the staff meeting, Gaotu released its first financial report after changing its name. The Beijing-based firm’s net losses in the first quarter of this year reached 1.426 billion yuan, exceeding its losses for the whole of last year, the report showed.

Gaotu revealed plans to close its pre-school education business for children aged 3 to 8, meaning that hundreds of employees would be laid off.

The company maintained that the decision had been made to adhere to a new law regarding the protection of minors, which was officially implemented on June 1.

On June 6, addressing rumors that the firm would be cutting off new graduates, Gaotu affirmed that “new graduates who signed agreements with our company will join the team as scheduled.” The recruitment period for tutors in the education industry is normally two to three months, so enterprises tend to finish recruiting by the end of May.

In January, China’s Central Commission for Discipline Inspection published a commentary criticizing the intensified competition among online education enterprises. Chinese President Xi Jinping said in March that after-school tutoring has caused children great stress and education should not be heavily focused on test scores.

“Based on the new law on the protection of minors and the government’s increased regulation, layoffs of pre-school teachers will be a major trend,” one industry insider said.  

Gaotu faces a cohort of rival upstarts including New Oriental Education, NetEase-owned Youdao and Tencent-backed VIPKid.

In May, Chinese media outlets reported that many businesses of VIPKid either contracted or shut down, and more than 50% of staff would be dismissed. The company said its businesses are running normally, and students and parents will not be affected in any way.