First saw Rosetta Stone at the mall couple years ago (the kiosk). More recently saw its Ads on the TV. Today comes a monumental day for the company (bloomberg news, IPOHome, Yahoo Finance), the IPO (as old Warren says IPO stands for its probably overpriced).
Fun and emotion aside, I think this language thing may stick. Before Rosetta Stone, the other public company does language training I know of is New Oriental (NYSE: EDU). New Oriental has harnessed the Chinese market in a very unique way, and it’s now the un-disputed leader in English test training in China. The main reason? Basically without the training from New Oriental, normal Chinese students can not score high in the TOEFL and GRE (notice I said normal, certainly I understand there are some exceptional Chinese students, and I happened to meet a few back in college). At the time I took TOEFL and GRE, New Oriental school has not existed in my city, so I took training from the best alternative: Qianjing college. Anyway, they serve similar purposes.
I have not used Rosetta Stone service yet. Nor do I plan to learn another foreign language (English is hard enough for me). But I know there is huge demand in this area. Chinese (mandarin) and Spanish are two popular ones. As matter of fact, my wife has been teaching madarin to some college students and little kids, and she has been enthusiatically studying Spanish and Cantonese these days. I joked with her why not learn Cantonese while at Hongkong (she studied there for one year).
Some random thoughts on Chinese IPOs: Home Inns, New Oriental, Focus Media (Sina).
I stayed at Home Inns Zhongshan Park this time. This is a relatively new Home Inns hotel (it was operated as Shanghai Ningxia Hotel before joining the Home Inns family recently). One block away, I saw another Home Inns hotel: the 7 stars hotel which has been acquired by Home Inns this year.
A short while ago I decided not to short EDU. Today the EDU stock buy back program confirmed my reasoning. Here is their buy back plan (CNNMoney): New Oriental Education & Technology Group Inc. (NYSE:EDU) Thursday said its board had approved the buyback of 1 million American Depositary shares. The program is effective between Feb. 25 and Dec. 31, 2008.
According to Yahoo Finance, EDU has 37.54 million shares outstanding, and 3.55 million shares float. I verified it: those are ADR shares (note one ADR is equal to 4 ordinary shares for EDU).
No I haven’t got the stock buyback information from CEO Michael Yu in advance.
I remember in last conference call CFO Louis Hsieh said they would buy back stocks when they can not find other compelling opportunities (a.k.a, acquisition targets). It appears the competition landscape of China private education has been intensified in last few years.
I was excited about shorting EDU or APPL (buying puts) after Tuesday’s MacWorld keynote and New Oriental disappointing earning news. I hoped to cover some of my loss from LFT (and to a less content CROX) by shorting the stocks, now that the market appears controlled by the bears. So I went and told my wife about the drop of New Oriental stock, broken shoes (CROX) vs. broken school (EDU) analogy, my wife said this:
“so now you are going to Du Da Xiao (a form of gamble in China), huh?”
So much for my fundamental analysis. Seriously I decided not to short the EDU due to two things:
1) In order to short a stock, I need to have Margin account. I did send the margin applications on Tuesday. But I decided to pull the application today, as I read more about it, and the story about Berkshire Hathaway stock once dropped more than 50%. Hypothetically, a person who bought BRK.A in its earning days won’t get the huge gains of BRK.A because he/she got margin call. Here is the story in Chinese. Quote here:
Found the following video clip at Tudou, the China’s very own YouTube. The content pushed the envelop a little so don’t play it before your boss, coworker or kids. I haven’t verified whether this is indeed from a class break of New Oriental.
This (in a very small way) reflects the entertainment of China generation Y (young people born after 1980, or 80后).
I got to see Michael on CCTV Channel 2 yesterday. He was participating a show as a guest. The show is about the “entrepreneurs born after 1980s” (Michael was born in 1960s).
I noticed he said something interesting about New Oriental “listed in NYSE”: if I could regret, I wish we haven’t done that. On the surface it seems strange, who does not want to get rich? But I think he meant this: being listed in NYSE is a huge responsibility, if he had known all the pitfalls of “listing in the US” (not just Sabane-Oxly), he would re-consider.
But in reality he couldn’t. Because he is not the sole owner of the company. Both VC (refer to Shao’s blog about VC’s timeline) and his colleagues (many are minority stock holders) wanted to cash out. The company could use the IPO proceeds to expand; note the competition has also heated up too. The “listed in NYSE” will also help them build the brand, globally.
Back to Michael’s reponsibility. As soon as he took money from the Wall Street, he was expected to deliver the financial results to meet the street. He and his team did very well in first two Qs, but they missed the lastest Q. I bet he did not get much good sleep lately, because he needs to make sure next Q will come out OK.
in its fiscal Q4 2007 earning. The analysts were expecting 1 cent, while EDU reports loss of 4 cents. Ouch, that’s even worse than last week’s Google’s miss (3 cents).
Seriously, I don’t think missing a few pennies is not big deal for long term investors. But the reason behind the miss is more important. In EDU’s case, on the surface it’s the seasonality: the late arrival of Chinese New Year this time push sales from fiscal Q4 to Q3.
I did listen to its conference call (7 AM!), here are a few highlights:
1) The English training still is the main revenue source and growth driver, that includes: oversea test preparation (students enrollment increased from 35,000 in fiscal 2006 to 58,000 in 2007) ; kids English; middle school students English.
2) New growth area: other subjects (math, physics, chemstry etc.) for middle school students; pre-school kids education (not limit to English).
3) Tier one, tier two: plan to add more learning centers in tier one cities (Beijing, Shanghai), note Shanghai is the fastest growth city; it won’t open many schools in tier 2 cities (mostly kids English) where it did not get good name recognition (this strategy is opposite to Home Inns’).
The stock got punished today as people were expecting a block buster number. I don’t bet on earnings these days, nor will I try to catch the falling knife here. I think a 30% growth is good if they can sustain the growth for a while, but the street obviously expects more.
(Update June 19) The stock (FFHL) got a big lift (18%) today. Major’s rule No. 2: stock moves when Major mentions it at stlplace, e.g., EDU (mentioned in June 9) and FFHL. Some speculative Chinese stocks got big move too, e.g. EFUT is up 30% today.
Seriously I am not saying Fuwei is a bad company. Its previous owner got big problems though. Do your own research before jumping in.
(Original June 18) I’ve paid attention to Fuwei Film Holding Limited (FFHL) since its IPO, as you may notice I’ve mentioned it couple times in my blog. Obviously things have take a turn lately, if you checked its stock price. I did not follow all the details until read this Chinese news. Let me summarize it because the aricle is in Chinese and it’s a bit long. In simple words: the owners and founders of Fuwei are suspected in “transfer state owned assets to personal pockets” through a bunch of “financial engineering activities”; they are under “Shuang Gui” (arrest in a better name) right now.
I received an email from a friend asking me whether New Oriental Eudcation (EDU) will be a good investment or not. I was not warm to it initially, changed my mind and bought it in Jan., sold it in Feb., because I did not know how to evaluate it.
First I want to say EDU is in a very sweet spot in Chinese private education market: English and test preparation. A little background, English is a very important skill in finding good jobs in China these days: from multinational companies to domestic companies, from private sector to goverment, and non-for-profit, all because the increasing interactions between China and the west in last 20 years.
This is a too big question. But I have thought this thing for quite a while, and want to share my thoughts. A few weeks ago I was watching the “Boss Town” program at China-CBN, the host posed this exact question to the founder of Qiao Xing (Nasdaq: XING), Mr. Wu Ruiling: why do you go to Nasdaq considering the overhead of compliance (Sarbane-Oxly etc.)?
Fair question. Mr. Wu shared one reason: when a company grows to a certain stage, it’s better to have more than one boss (owner): other minority owners can contribute to the development of the company.
I think besides “better corporate governance/management”, there are at least two reasons: 1) To raise the money (capital), 2) To raise the company profile. These two reasons fit well with the recent Chinese IPOs in last Fall: New Oriental (EDU), Home Inns (HMIN), and Mindray (MR). Let’s explain one by one.