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CFO INTERVIEW: GSX Says Its Technology & Teachers Keep Students Loyal

Belinda Zhou 2019-06-07 10:00 AM

Shares in GSX Techedu Inc. (NYSE: GSX) ended flat on its debut day Thursday in New York as the company raised $207.9 million in its initial public offering on the New York Stock Exchange.

The stock in GSX opened with a peak of $12.67 per American depositary share but quickly settled, trading near its offering price of $10.50 for most of the day and ending at $10.48 per share.

The Beijing-based provider of K-12 after-school tutoring sold 19.8 million American depositary shares at the midpoint of its expected price range of between $9.50 and $11.50.

Shannon Shen, the chief financial officer of GSX, said in an interview with CapitalWatch on IPO day that listing in New York has been its long-standing goal. She said this step would lead GSX to “globalize [its] vision.”

Aiming to use technology to improve K-12 education, GSX is "laser-focused on online live large-class tutoring" and was the third largest of its kind in China last year in terms of gross billings.

Offering tutoring in K-12 courses, as well as foreign language, professional, and interest courses, the company had 767,000 student enrollments last year, a surge from 80,000 in 2017, according to its filings with the U.S. Securities and Exchange Commission. In the first three months of this year, GSX said student enrollments tripled year-over-year to 211,000.

In the first quarter, traditionally slow in the industry, GSX was one of the few online education providers in China that achieved profitability. It reported $5.1 million in income on revenue of $40.1 million, an increase of 474 percent from the same period a year ago.

Shen attributed its above-average financial performance to its strategy of not taking external funding from institutions like private equity or venture capital.

Last time GSX received outside funding was in 2015 when it scored $50 million in its Series A round. Since then, the company has been self-sustainable.

“In the past two to three years, we focused on customer satisfaction and kept improving the teaching quality as well as the service quality,” Shen stated.

She added that GSX takes pride in its teaching services and believes that they provide the best marketing for the company.

Describing the work of its teachers, Shen said: “The interaction between teachers and students is very important. We built a system that makes our instructors into role models. They are entertaining. They are charming in the class. They help students get the confidence to learn. On the other side, our tutors have daily communication with parents with daily Q&A and homework grading.”

She also noted that the company uses big data to understand the demands of its students and leverage the learning process.

“We have really high customer satisfaction,” she said. “The students continue to enroll with us.”

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The chairman and CEO of GSX, Xiangdong Chen, previously served as the executive president of China's leading education provider, New Oriental Education & Technology Group Inc. (NYSE: EDU).

Shen said China’s online education is still at an early stage of development, with a market big enough for multiple players. The competitive advantage of GSX has been the combination of quality teaching and innovative technology, she added.

Asked for her opinion on the ongoing tensions between China and the United States, Shen said, “I think our investors understand that our business is 100 percent domestic. Maybe in the short term, the trade war may impact the investors’ decisions. They become more cautious about new companies. In the long run, however, the two nations can get along.”

Backing the IPO were Credit Suisse Group AG, Deutsche Bank AG, Barclays Plc, and CLSA Ltd.