Gaotu Techedu, a Chinese provider of online large-class tutoring services, on Thursday issued business updates following the release of regulatory requirements by the Beijing local government. The company will cease offering academic tutoring services to students in senior high schools before the end of February. It expects this to have a substantial adverse impact on its revenue.
Affected by the news, Gaotu’s share price fell by 11.94% to $2.175 per share yesterday, with a total market value of $558 million.
Gaotu mentioned in the announcement that its after-school tutoring service for senior high school students needs to strictly follow China’s so-called “Double Reduction” policy published in July 2021, which is aimed at reducing academic pressure.
Gaotu will leverage the resources and knowhow accumulated through its past K-12 academic subject tutoring services, turning its focus on professional education services, vocational education services and digital products. The company has seen a promising start to its non-K12 businesses, and it is confident that it will see profitability and positive operating cash flow as early as the fourth quarter of 2021.
Gaotu, previously known as Gensheixue, was founded in June 2014 and successfully listed on the New York Stock Exchange in June 2019. Gaotu’s main business and core income source is online K12 extracurricular tutoring. According to Gaotu’s financial report in the second quarter of 2021, its revenue was 2.232 billion yuan, 94% of which come from K12 courses.
However, with the sudden introduction of the Double Reduction policy, Gaotu has suffered a greater blow than other private tutoring companies. Like New Oriental Education, its K9 business has stopped completely, and it is now facing the cessation of its high school education business as well.