Nomura Downgrades GSX Techedu To Reduce, Cuts Target To 'Street-Low' $38

Nomura analyst Jessie Xu downgraded GSX Techedu (GSX) to Reduce from Neutral with a price target of $38, down from $40, that he identifies as a "Street-low."

The company is likely to struggle with sluggish revenue growth amid "fierce competition" in the crowded Chinese marketplace for online education, while its customer acquisition costs are set to surge, Xu tells investors.

Meanwhile, an aggressive growth emphasis and "star-teacher" model adds to its risk, argues Xu. Yuanfudao, Zuoyebang and Youdao (DAO) all have an edge in organic growth, while Koolearn and Youdao have better brand awareness, Xu said.