Chalk technology has the disease of the Internet, but not the life of the Internet

Ren Jianxin

Under the double reduction policy, K12 education and training institutions collapsed everywhere and found their own way. New Oriental started live broadcasting, and Yuanfudao invested in selling down jackets. Chalk Technology chose to take food from the field of examination and editing training.

However, this money is not easy to make. After a huge loss of 2.37 billion yuan last year, Zhonggong Education, a leader in national examinations, lost nearly 900 million yuan in the first half of this year; Huatu Education, a veteran public examination training institution, has always coveted the capital market, but several IPOs have failed.

The chalk technology, which originated online, is no longer satisfied with online teaching, and has aggressively attacked offline, competing with Zhonggong and Huatu. And the consequence of this is huge losses and bloodshed.

Layoffs and pay cuts

Going ashore is the ultimate goal of many candidates. For the education and training platform Chalk Technology, getting rid of huge losses as soon as possible is what is needed in reality.

In February of this year, the company submitted a form to the Stock Exchange, and the prospectus was even more visible recently, allowing the outside world to see the business quality of the company.

From 2019 to the first half of 2022, the company achieved operating income of 1.160 billion yuan, 2.132 billion yuan, 3.429 billion yuan and 1.451 billion yuan, and net profit was 154 million yuan, -484 million yuan, -2.046 billion yuan and -392 million yuan respectively . After adjustment, the company recorded net profit of 175 million yuan, -363 million yuan, -822 million yuan and 95.6 million yuan respectively.

In May 2020, the company developed offline training business, which led to a surge in costs including employee expenses and operating expenses, which is one of the important reasons for the huge losses in 2020 and 2021.

According to the prospectus, in 2020, the number of employees of the company increased from 1,592 in the previous year to 12,803, and reached its peak at the end of March last year, rising to 16,800.

Therefore, expenses from employees have skyrocketed. In 2020 and 2021, 1.173 billion yuan and 2.719 billion yuan will be spent respectively, accounting for 55% and 79.3% of the company's revenue.

After a year of hard work, nearly 80% of the income is used to support employees, which is unbearable for any company, and layoffs have become the first choice to reduce operating pressure.

Chalk Tech layoffs are confirmed in the company's prospectus. Last year, the company greatly optimized the employee structure. At the end of the year, the number of employees was reduced to 8,964. In the first half of this year, the number of employees decreased by 1,576, leaving only 7,388.

Among them, the company's important teachers, lecturers and other teaching staff have dropped from about 10,000 in March 2021 to 4,100 at the end of June this year, a decrease of 60%.

At the same time, the company has implemented different levels of salary reduction measures for employees in various positions.

According to the prospectus, the average monthly salary of the company's lecturers and other teaching staff in 2019 was 13,300 yuan, compared with 8,900 yuan in the first half of this year. During the same period, employees in sales and marketing positions decreased from 12,300 yuan to 6,800 yuan; general administration and operation personnel decreased from 24,600 yuan to 11,900 yuan; content and technology development employees decreased from 23,300 yuan to 18,600 yuan; production of teaching materials and guidance The staff of the data dropped from 15,700 yuan to 8,900 yuan and so on.

In the first half of this year, the company's employee expenses fell to 771 million yuan, accounting for 53.2% of the company's revenue.

The implementation of layoffs and salary cuts has left enough room for the company's finances to move.

In addition, in the first half of this year, the company's cost of sales expenditure was 762 million yuan, a year-on-year decrease of 51.24%. Administrative expenses, sales and marketing expenses decreased by 54.31% and 34.46% respectively compared with the same period of the previous year.

Bleeding scramble offline

Chalk technology rises online. In 2013, Zhang Xiaolong, a former lecturer of Huatu Education, moved to Yuanfudao and was responsible for its Kao Gong training business segment. With the help of the booming Internet at that time, Kao Gong training course products were promoted online until 2015, when it was spun off from Yuanfudao and became an independent portal.

In 2013, the company's comprehensive online mobile phone application was launched, and in 2015, an online question bank was added. Coupled with the convenience of online learning, it attracted a large number of users. As of the end of June 2022, the company had accumulated 43.2 million registered users and 49.3 million online payers.

According to the Frost & Sullivan Report, the company's average monthly active users increased from approximately 2.9 million in 2019 to approximately 7.5 million at the end of June this year. At the end of the first half of this year, the company's peak monthly active users reached about 8.9 million, far exceeding the total number of applicants for the public examination of about 7 million last year.

Online business is one of the important sources of revenue for the company. From 2019 to the first half of 2022, the revenue was 657 million yuan, 986 million yuan, 1.396 billion yuan and 717 million yuan, accounting for 56.7%, 46.2%, 40.7% and 49.4% of the company's total revenue, respectively.

Online business maintained a high level of profitability. In 2020 and 2021, due to the increase in employee welfare expenses for opening boutique classes, the gross profit margin will drop to around 50%, and will remain above 60% in both 2019 and the first half of 2022.

The company has mastered a large number of users, and it has become a matter of course to expand offline. In the past, the offline public examination training market was dominated by Huatu Education and Zhonggong Education (002607.SZ).

Chalk Technology will launch its offline efforts in 2020, laying the groundwork for huge losses. The company's main advantage comes from online conversion. In 2021, about 67.5% of offline course students will be converted from online paying users. In the first half of this year, this proportion rose to 71%.

According to the prospectus, from 2019 to 2021, the revenue of offline training business will increase from 354 million yuan to 1.617 billion yuan, and the contribution to the company's revenue will increase from 30.5% to 47.2%. From January to June 2022, offline training revenue was 524 million yuan, accounting for 36.1%.

Although offline revenue and growth momentum are strong, the profitability level is inferior to online. From 2019 to the first half of 2022, gross profit margins were 25.4%, -11.1%-0.3% and 36.3%, respectively.

The gross profit margin of offline business in 2020 is as low as negative, mainly due to the huge cost to support offline training and the launch of multiple promotion courses priced at 500 yuan to attract traffic, resulting in the increase in sales costs related to offline training services that exceeds the increase in revenue.

The Kao Gong education and training market has already passed the rough period, and the education and training industry has higher requirements for the store management system and teacher system, which is undoubtedly a severe test for the Internet-born chalk technology.

At present, the company's offline market is still in the expansion period. From the old brands such as Huatu and Zhonggong, the smoke of gunpowder to compete for market share has been ignited.