Group 1 - New Oriental Education & Technology Group (NYSE: EDU) released its Q3 FY2025 quarterly report on April 23, shortly after the stock reached a new 52-week low [1] Group 2 - The article emphasizes the importance of considering alternative views on investment opportunities and risks, particularly in the context of educational services in China [1]

Core Business Performance - New Oriental Education reported ongoing deceleration in its core education business for FY3Q25, with results for the three-month period ending March 31 indicating a continued decline [1] - The overseas business segment is beginning to show signs of growth, contrasting with the domestic education sector's performance [1] Investment Insights - Astrada Advisors emphasizes actionable recommendations that enhance portfolio performance and uncover alpha opportunities, leveraging a strong track record in investment research [1] - The firm specializes in identifying high-potential investments across technology, media, internet, and consumer sectors in North America and Asia [1] - The research integrates rigorous fundamental analysis with data-driven insights, providing a nuanced understanding of key trends and competitive landscapes [1]

Financial Data and Key Metrics Changes - The company's total net revenue decreased by 2% year over year, but net revenue excluding Eastbuy increased by 21.2% year over year [9] - Operating income increased by 9.8% year over year to $124.5 million, while non-GAAP income from operations decreased by 0.2% year over year to $142.1 million [26] - Net income attributable to the company was $87.3 million, a slight increase of 0.1% year over year [27] - Non-GAAP net income decreased by 14.3% year over year to $113.3 million [27] - Cash and cash equivalents totaled approximately $1.4 billion, with total cash and short-term investments around $4.7 billion [28][29] Business Line Data and Key Metrics Changes - The overseas test drive business recorded a revenue increase of 7% year over year [11] - The overseas study consulting business reported a revenue increase of about 21% year over year [11] - The adults and university students business recorded a revenue increase of 17% year over year [11] - New educational business initiatives recorded a revenue increase of 35% year over year [15] - The integrated tourism-related business line performed exceptionally with a revenue increase of 85% year over year [15] Market Data and Key Metrics Changes - The top ten cities contributed over 60% of the children business revenue, while the top ten cities contributed approximately 50% of the intelligent learning system and device business [12][13] - The company has expanded its reach to around 60 cities for its children business and has conducted study tours in around 55 cities [12][16] Company Strategy and Development Direction - The company is committed to long-term value creation and operational consistency, focusing on enhancing user experience and driving efficiency [8][17] - Investments in AI technologies are being integrated into the teaching ecosystem to improve learning outcomes and operational efficiency [19][20] - The board approved an extension of the share repurchase program, increasing the total value from $400 million to $700 million [23] Management's Comments on Operating Environment and Future Outlook - Management anticipates steady sustainable growth across business lines despite macroeconomic challenges [30] - The company expects total net revenue excluding Eastbuy for the next quarter to be in the range of $1,009.1 million to $1,036.6 million, representing a year-over-year increase of 10% to 13% [31] - Cost control initiatives are being implemented to enhance operating margins in the upcoming quarters [32] Other Important Information - The company has invested $29.7 million in improving its online merge offline teaching platform [18] - Deferred revenue increased by 15% year over year, indicating strong future revenue recognition [29] Q&A Session Summary Question: What are the major drivers of the slowdown in overseas-related businesses? - Management attributed the slowdown to macroeconomic conditions and changes in international relations, projecting growth in the range of 5% to 10% for the overseas-related business in Q4 [39] Question: Can you provide a breakdown of other business growth in Q4? - Management forecasted growth of approximately 19% for domestic university students, 16-17% for high school, and 30-35% for K-9 educational business [45] Question: What is the outlook for K-9 business growth? - Management expects K-9 business to grow by over 35% year over year in Q4, despite slower growth in enrollment due to timing differences [59] Question: How will the company manage cost control and efficiency? - Management indicated that cost control is an ongoing effort, focusing on improving utilization rates and operational efficiency [92] Question: What are the expectations for headquarters overhead costs in 2026? - Management aims to reduce headquarters expenses to around 5% of total revenue in fiscal year 2026 [95]

Core Viewpoint - New Oriental Education & Technology Group Inc. reported its financial results for the third fiscal quarter of 2025, highlighting a decrease in total net revenues but significant growth in specific educational segments and ongoing strategic initiatives aimed at long-term development and operational efficiency [1][4][9]. Financial Highlights - Total net revenues for the third fiscal quarter were US$1,183.1 million, a decrease of 2.0% year over year. Excluding revenues from East Buy private label products and livestreaming business, revenues increased by 21.2% to US$1,038.3 million [6][9]. - Operating income rose by 9.8% year over year to US$124.5 million. Excluding losses from East Buy, operating income increased by 5.0% to US$125.5 million [6][12]. - Net income attributable to New Oriental was US$87.3 million, reflecting a slight increase of 0.1% year over year [6][14]. Operating Performance - The company experienced a 21.2% year-over-year increase in revenues from its core educational services, with overseas test preparation and study consulting businesses growing by approximately 7.1% and 21.4%, respectively [4][9]. - New educational initiatives saw a revenue growth of 34.5% year over year, with non-academic tutoring courses attracting around 408,000 student enrollments [4][9]. - The operating margin for the quarter was 10.5%, compared to 9.4% in the same period of the prior fiscal year, while the non-GAAP operating margin was 12.0%, up from 11.8% [12][13]. Cash Flow and Balance Sheet - As of February 28, 2025, the company had cash and cash equivalents of US$1,418.8 million, along with US$1,411.7 million in term deposits and US$1,853.6 million in short-term investments [17]. - Net operating cash inflow for the quarter was approximately US$1.0 million, with capital expenditures amounting to US$52.4 million [16]. Share Repurchase Program - The board approved an extension of the Share Repurchase Program, increasing the total authorized repurchase amount from US$400 million to US$700 million, with approximately 14.4 million ADSs repurchased for about US$695.5 million as of April 22, 2025 [8]. Outlook - For the fourth quarter of fiscal year 2025, New Oriental expects total net revenues, excluding East Buy and livestreaming business, to be in the range of US$1,009.1 million to US$1,036.6 million, representing a year-over-year increase of 10% to 13% [25].

Core Viewpoint - New Oriental Education and Technology Group Inc. will report its financial results for the third quarter ended February 28, 2025, on April 23, 2025, before the U.S. market opens [1] Group 1: Financial Reporting - The earnings conference call is scheduled for 8 AM on April 23, 2025, U.S. Eastern Time [1] - Participants can register in advance for the conference call to receive dial-in numbers and a unique personal PIN [2] - A live and archived webcast of the conference call will be available on the company's investor relations website [4] Group 2: Company Overview - New Oriental is a provider of private educational services in China, offering a variety of educational programs, services, and products [5] - The company's offerings include educational services, test preparation courses, private label products, livestreaming e-commerce, and overseas study consulting services [5] - New Oriental is listed on both NYSE (NYSE: EDU) and SEHK (9901.SEHK), with its American Depositary Shares (ADSs) representing ten common shares [5]

Investment Rating - The investment rating for the company is "Buy" (maintained) [1] Core Views - The report highlights that the company's education business continues to grow, with non-core business impacts being limited [3] - The company has a strong cash flow position, with a net operating cash flow of $313.3 million for FY2025Q2 and a total cash reserve of approximately $4.813 billion [7][9] - The company is expected to achieve revenue growth of 25.0% and 20.0% for FY2025 and FY2026, respectively, with Non-GAAP net profit growth of 34.2% and 33.7% for the same periods [11] Financial Performance - For FY2024, the company reported revenue of $4.314 billion, with a year-on-year growth of 43.9%. Projections for FY2025 and FY2026 are $5.392 billion and $6.470 billion, respectively [4] - Non-GAAP net profit for FY2024 was $381 million, with expected growth to $512 million in FY2025 and $684 million in FY2026 [4] - The gross margin is projected to be stable, around 52.0% to 53.0% over the next few years [4] Business Segments - The education business segment showed a net revenue growth of 31.3% in FY2025Q2, with specific growth in overseas exam preparation and consulting services [9] - New educational initiatives are experiencing rapid growth, with a 42.6% increase in enrollment for non-subject tutoring services [9] Cash Flow and Share Buyback - The company has maintained a robust cash flow, with significant cash reserves and ongoing share buyback programs totaling $542.8 million [7][9]

Core Insights - New Oriental Education & Technology Group Inc. reported mixed results for Q2 fiscal 2025, with earnings missing estimates while net revenues exceeded expectations, leading to a 23.2% drop in stock price [1][3]. Financial Performance - Adjusted earnings were 22 cents per ADS, missing the consensus estimate of 47 cents by 53.2%, and decreased 24.1% year-over-year [3]. - Total revenues reached $1,038.6 million, slightly surpassing the consensus by 0.4% and growing 19.4% year-over-year. Excluding certain revenues, net revenues were $894.2 million, marking a 31.3% increase compared to the previous year [4]. - The overseas test preparation and study consulting segments grew by 21.1% and 31.0% year-over-year, while the domestic test preparation business saw a 34.9% increase [5]. Business Initiatives - New educational initiatives recorded a 42.6% revenue increase year-over-year, with non-academic tutoring courses offered in about 60 cities, attracting approximately 994,000 student enrollments [6]. - The company focused on aligning capacity expansion with revenue growth and enhancing its online-merge-offline teaching system [2]. Cost and Expenses - Cost of revenues increased by 17.9% year-over-year to $498.3 million, while non-GAAP operating costs rose 23.5% to $1,011.1 million, primarily due to accelerated capacity expansion and new business integrations [7]. - Selling and marketing expenses increased by 26.6%, and non-GAAP general and administrative expenses rose by 24.7% [8]. Operating Margins - Non-GAAP operating income was $27.6 million, down 45.8% year-over-year, with a non-GAAP operating margin of 2.7%, a decrease of 320 basis points from the previous year [8]. - The non-GAAP operating margin, excluding certain contributions, improved by 12 basis points year-over-year to 3.2%, indicating resilience in managing profitability [9]. Cash Position - As of November 30, 2024, the company had total cash and cash equivalents of approximately $1,418.2 million, up from $1,389.4 million at the end of fiscal 2024 [10]. Share Repurchase Program - The board approved a share repurchase program, increasing the authorization to $700 million, with approximately 11.2 million ADS repurchased for $542.8 million as of January 20, 2025 [11]. Future Guidance - For Q3 fiscal 2025, the company expects total revenues, excluding certain revenues, to be between $1,007.3 million and $1,032.5 million, indicating an 18-21% growth year-over-year [12].

Investment Rating - Maintain BUY rating with a revised target price of US$80 0 (previous US$87 0) [1] Core Views - New Oriental's 2QFY25 net revenue grew 19% YoY to US$1 039mn (+31% YoY excluding East Buy revenue) in line with estimates but non-GAAP net income declined 29% YoY to US$36mn below estimates due to East Buy adjustment and tourism business investments [1] - Management guided 3QFY25E net revenue (excluding East Buy) to grow 18-21% YoY to US$1 01-1 03bn below expectations due to macro uncertainty and intensifying competition [1] - FY25-27E total revenue forecasts trimmed by 2-3% due to softer-than-expected revenue guidance [1] Earnings Summary - FY25E revenue forecast at US$5 081mn with adjusted net profit of US$439 4mn and EPS of US$2 65 [2] - FY27E revenue forecast at US$6 725mn with adjusted net profit of US$829 8mn and EPS of US$5 01 [2] - P/E ratio expected to decline from 25 4x in FY25E to 13 8x in FY27E [2] Business Segments - Overseas test prep and study consulting revenue grew 21% and 31% YoY respectively in 2QFY25 accounting for 24% of total revenue [5] - Domestic test prep revenue grew 35% YoY accounting for 9% of total revenue in 2QFY25 [5] - New educational initiatives revenue grew 43% YoY in 2QFY25 driven by non-academic tutoring (student enrolment +26% YoY) and intelligent learning systems (active paid users +44% YoY) [5] - East Buy revenue declined 9% YoY with a net loss of US$13 5mn in 1HFY25 but would have recorded US$4 6mn net income excluding the impact of Time with Yuhui disposal [5] - Tourism business revenue grew 233% YoY in 2QFY25 [5] Financial Forecasts - FY25E revenue revised down 2 6% to US$5 080 9mn with gross profit revised down 3 8% to US$2 721 0mn [6] - FY25E non-GAAP net income revised down 15 0% to US$439 4mn with EPS revised down 15 0% to US$2 7 [6] - Gross margin expected to be 53 6% in FY25E down 0 7ppt from previous forecast [6] Valuation - Educational and consulting business valued at US$77 1 (96% of total valuation) based on 28x FY25E PE [8] - East Buy valued at US$1 6 (2% of total valuation) based on 8x FY25E PE [8] - Tourism and others business valued at US$1 3 (2% of total valuation) based on 10x FY25E PE [8] - Sum-of-the-parts valuation of US$14 773 7mn with a 10% holdco discount resulting in a total valuation of US$13 296 3mn [9] Peer Comparison - Education sector average PE of 28 4x for FY25E and 16 1x for FY26E [11] - E-commerce sector average PE of 8 0x for FY25E and 7 0x for FY26E [11]

Financial Data and Key Metrics - The company released its financial results for the second fiscal quarter of 2025, which are available on the company's website and Newswire services [3] Business Updates and Strategy - The company's Executive President and Chief Financial Officer, Stephen Yang, along with Investor Relations Director, Sisi Zhao, will provide detailed updates on the latest earnings results and business developments [3] Forward-Looking Statements - The discussion during the conference call will include forward-looking statements made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995 [4] - These statements involve inherent risks and uncertainties, and actual results may differ materially from those expressed [4] - The company has outlined potential risks and uncertainties in its public filings with the SEC and does not undertake any obligation to update any forward-looking statements [4] Q&A Session - The management will be available to answer questions after the prepared remarks [3]

Core Insights - New Oriental Education & Technology Group reported strong revenue growth of 19.4% year-over-year, reaching $1.04 billion, surpassing analyst expectations of $1.01 billion [2][4] - The company faced challenges in adjusted earnings per share (EPS), reporting $0.22, which was below the forecasted $0.30, indicating a 24% decline from the previous year [4][8] - The operating margin decreased from 2.5% to 1.9%, attributed to increased operational costs related to business expansion and regulatory adaptations [4][8] Financial Performance - Revenue for Q2 FY2025 was $1.04 billion, a 19.4% increase from $869.6 million in Q2 FY2024 [4] - Adjusted EPS was $0.22, down from $0.29 in the same quarter last year [4] - Net income rose to $31.9 million, a 6.2% increase from $30.1 million in Q2 FY2024 [4] Operational Developments - The revenue growth was primarily driven by the expansion of non-academic tutoring services and intelligent learning systems, with a notable 31.3% growth when excluding contributions from East Buy [7] - Key segments such as overseas test preparation and study consulting saw growth rates of 21% and 31%, respectively, demonstrating the company's adaptability to regulatory changes [8] Regulatory Environment - The company continues to navigate challenges from China's "double reduction" policy, which aims to reduce student workloads and private tutoring hours, necessitating a pivot towards diversification and strategic cost management [9] - Operational costs increased by 20% year-over-year, reflecting the impact of regulatory adaptations [9] Strategic Outlook - Looking ahead, New Oriental projects a revenue increase of 18% to 21% for Q3 FY2025, excluding East Buy contributions, with a focus on expanding private label products and enhancing digital outreach [12] - Management is committed to strategic growth and profitability, emphasizing diversification and leveraging technology to capture new revenue opportunities [10][12]