Zhangmen Education Lists on NYSE Amid Heightened Scrutiny of China’s Online Tutoring Market

(Source: Caixin)

Zhangmen Education on Tuesday officially went public on the New York Stock Exchange under the ticker symbol “ZME” in the face of tightening restrictions on e-learning platforms from Chinese market regulators, following complaints about improper business practices.

The lead underwriters for the deal include Morgan Stanley, Credit Suisse, Citigroup, CICC and Macquarie Group, the filings showed. Earlier this year, Bloomberg reported that the company aims to raise about $300 million in the planned US listing.

Founded in 2005, Zhangmen began by offering offline after-school tutoring services before shifting its focus to provide online one-on-one tutoring services for primary and secondary school students. At present, its business line consists of one-on-one tutoring, large class service, small class tutoring and interactive classes with the support of artificial intelligence.

According to the prospectus, more than 45,000 teachers worked for the Shanghai-based company as of March this year, including about 25,000 full-time teachers and 20,000 part-time teachers.

Zhangmen’s net income reached 2,668.7 million yuan ($417 million) in 2019, followed by 4,018.4 million yuan ($628 million) in 2020. The edtech firm netted 1,344.5 million yuan ($210 million) in the first quarter this year, representing a year-on-year increase of 19.9%.

In 2020, the number of students paying for one-on-one courses – which contribute 93.1% of the company’s net income – reached about 545,000 for a year-on-year increase of 43.2%. In January 2020, the online tutoring platform launched an advanced one-on-one course which costs twice as much as the normal course.

The total operating expenses of Zhangmen in 2019 and 2020 amounted to 2,602.9 million yuan ($407 million) and 3,102.7 million yuan ($485 million), respectively. Among them, the sales and marketing expenses in 2019 and 2020 were 2,171.9 million yuan ($340 million) and 2,577.3 million yuan ($403 million), respectively.

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“The significant increase in sales and marketing expenses in the fourth quarter of 2020 and the first quarter of this year is mainly because we began to invest more in promoting our small courses by online channels,” Zhangmen said in the prospectus.

Against the backdrop of intensifying supervision of China’s education industry, Zhangmen’s public listing has attracted special attention. On June 1, the Shanghai Market Supervision Administration imposed a penalty on a range of off-campus training companies, including Zhangmen’s sub-brand “Zhangmen One-on-One,” with a severe fine of 10 million yuan ($1.6 million). The sub-brand was found to have exaggerated the number of course applicants and fabricated teachers’ teaching experience. In May, its two major rivals Zuoyebang and Yuanfudao were also fined for engaging in unfair competitive practices and misleading consumers.

Zhangmen said it will direct the profits towards expanding existing products and services, improving technical infrastructure, marketing and brand promotion and other general enterprise purposes.