Will GSX Shares Rally With The Re-Emergence Of COVID-19?

  • Re-emergence of COVID-19 to boost investors' trust in online education companies.

  • GSX Techedu (GOTU) imitated the double-teacher model, which TAL (Xueersi) and New Oriental applied into their teaching methods a long time ago.

  • The amount of losses in 3Q 2020 far exceeded all accumulated net profits that GSX reported in the past. 

  • The firm has been shorted at least 12 times and is under internal investigation. Delisting would be inevitable if found guilty.

Founded in 2014, GSX Techedu raised millions of dollars in an angel round from QF Capital. Before it went public in June 2019, the company also raised USD 50 million in a Series A funding from Gaorong Capital, QF Capital, GP Capital and more in 2015. 

The firm is an online K-12 education service provider in China.

According to the prospectus submitted to the US Stock Exchange Commission, GSX stands out as an unconventional e-learning company with a fast-growing addressable market, scaling net revenue, and positive operating income.

Re-emergence of COVID-19 and the ever-growing K-12 market

Similar to the beginning of 2020, the recent re-emergence of COVID-19 has boosted GSX’s stock price once again. New COVID-19 cases are leading to situational lockdowns in some tier-1 cities such as Beijing and Shanghai. 

K-12 online education is a new type of learning and teaching method, which integrates with the Internet and the latest information technologies. China’s K-12 online education industry has developed rapidly in recent years due to strong support from the government and favorable policies. According to Chyzxx.com, the market size of K-12 online education in China was approximately CNY 64.88 billion (link in Chinese) in 2019, with a year-on-year increase of 46.4%. The growth rate remains double-digit. 

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GSX’s competitive advantage

Similar to other online education companies, GSX listed focuses on its "high teaching quality."

GSX stands out among its competitors because the firm has very strict standards in its recruiting process. Specifically, its instructors must satisfy the requirements such as having a postsecondary degree in education from a top-tier university. Moreover, the candidates should have extensive teaching experience in the education sector.

According to reports published on the firm's website, the interview process is very selective as only less than 5% of candidates can be employed as an instructor. This process ensures that only the best education professionals can join the company.

As per the company’s prospectus, it has established a three-sided teaching system: lecturer, tutor and AI teacher. GSX currently has around 200 lecturers, each with an average of more than 11 years of teaching experience in well-known educational institutions. The tutors are mostly new graduates from top Chinese universities with relevant academic backgrounds.

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