17 Education & Technology Group Inc.

YQ Details

17 Education & Technology Group Inc. (NASDAQ: YQ) provides data-driven technological learning solutions with online tutoring courses and in-school classroom solutions catered to teachers, students and parents. The company serves its customers in China. YQ completed the listing of its American Depositary Shares (ADS) in the NASDAQ exchange on December 4, 2020, offering 27.4 million shares at a price of US $10.50 per ADS.

Financial Highlights for Q1 FY21:

• Net Revenues – YQ posted record revenues of RMB474.2 million, exceeding the upper guidance of RMB4.2 million and represents YoY growth of 107.1%. It had witnessed enrollments of 543k for paid courses, an increase of 105.7% over the previous year comparable quarter. Net revenues from K-12 tutoring posted a phenomenal growth of 118.0% over pcp.
• Margin and Profit - Gross Margin declined from 64.1% in Q1 FY20 to 60.4%. YQ operated in a net loss of RMB659.7 millon in Q1 FY21 as compared to a loss of RMB224.2 million last year. Increase in share-based compensation and surge in promotional courses offered as well as marketing spend resulted in losses.
• Balance Sheet – Cash balance plunged to RMB2,240.3 million as of March 2021 as compared to RMB2,835.0 million as of December 2020.
• Business Updates – YQ to partner with China Media Group’s Shanghai Bureau and PEP Digital Publishing Corporation Limited to render high-quality educational resources. As of April 2021, YQ sought three patents with respect to computer vision technologies. It has 33 patents in the pipeline in vision technologies and automatic speech recognition.

Financial Performance (Source: Company Reports)

Key Risks:

The company is exposed to foreign currency risk with operations in China. Due to limited operating history, YQ is ramping up businesses with higher promotional offers, which continue to dilute its margins.

Outlook:

YQ is expecting FY21 revenues to reach in the range of RMB640.0-660.0 million. The company booked deferred revenues of RMB723.1 million as of March 2021, which indicates a 20.9% growth from December 2020.

Stock Recommendation:

The stock of YQ gave a return of ~-60.58% in the last three months and a return of ~-78.87% in the last six months. The stock is trading below the average of the 52-week low price of $2.51 and the 52-week high price of $23.93. On a TTM basis, the stock of YQ is trading at an EV/Sales multiple of 0.2x compared to the Industry Median of 2.0x (Consumer Non-Cyclicals). On the technical front, the stock has a support level of $2.41 and a resistance level of $3.33. Considering the robust revenue growth, expansion in businesses, healthy cash balance, and the current trading levels, we recommend a “Hold” on the stock at the closing price of $2.59, down by 0.77% as on July 15, 2021.

YQ Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

• Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

• Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.