TAL Education Group (TAL) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Q4 and FY 2020 TAL Education Group Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

I would like to hand the conference over to your first speaker today, Echo Yan, IR Director of TAL.

Thank you.

Please go ahead.

Thanks, operator.

Thank you all for joining us today for TAL Education Group's Fourth Fiscal Quarter and Fiscal Year 2020 Earnings Conference Call.

The earnings release was distributed earlier today, and you may find a copy on the company's IR website or through the newswires.

During this call, you will hear from Chief Financial Officer, Mr. Rong Luo; Linda He, Vice President of Finance; and myself, IR of TAL.

Following the prepared remarks, Mr. Lou and Ms. He will be available to answer your questions.

Before we continue, please note that the discussions today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from other current expectations.

Potential risks and uncertainties include but are not limited to those outlined in the public filings with the SEC.

For more information about these risks and uncertainties, please refer to our filings with the SEC.

Also, our earnings release and this call includes discussions of certain non-GAAP financial measures.

Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures.

I would like now to turn the call over to Mr. Rong Luo.

Rong, please.

Thank you, Echo.

Good evening, and good morning to you all.

Thank you for joining us today on this earnings call.

Before I reflect on our company performance, please allow me to say a few words about the current extraordinary time in China and worldwide.

We would like to express our sincere sadness for the great loss of life and our sympathy to those who lost their loved one and to all the others who have directly suffered from this tragic pandemic.

We also extend our deep gratitude and appreciations to people from all walks of life, including our employees who have been working hard and doing absolutely everything to fighting against this epidemic.

Our fourth fiscal quarter revenue performance was impacted by the outbreak of COVID-19 in China and our precautionary measures with respect to off-line business.

The negative impact on our off-line business was partially offset by the growth in student enrollments in online classes and related revenues for the quarter.

Net revenue growth in the fourth quarter was 18% year-over-year in U.S. dollar terms to USD 857.7 million and 21% in RMB terms, which is in line with our forecast reflected in our pre-announcement on February 28, after the outbreak of COVID-19.

Total normal priced long-term courses student enrollments increased by 56.6% year-over-year, mostly driven by online enrollment as well as Xueersi Peiyou small classes.

GAAP loss from operations was USD 41.3 million compared to GAAP income from operations of USD 114.7 million in the same period of prior year.

Non-GAAP loss from operations was USD 8.4 million compared to non-GAAP income from operations of USD 137 million in the same year ago period.

As we previously announced on April 7, we discovered certain employee wrongdoing in relation to the Light Class business in our routine internal auditing process.

There was a total revenue impact of around USD 86.1 million or RMB 602.6 million in the first 3 quarters of fiscal 2020, as well as corresponding impact to some other financial metrics of each quarter of fiscal '20.

The details are available with our earnings release published a few hours ago.

I would like to reiterate that we will always follow the highest standards of corporate governance and always have 0 tolerance for any illegal conduct.

I will now turn the call over to Linda He, our Vice President of Finance.

She will give you an update on our operational progress in the fourth quarter.

Next, Echo Yan, our IR Director, will review the fourth quarter financials.

After that, I will update you on our business strategy and discuss our business outlook.

Linda, please.

Thanks, Rong.

I will review the various revenue streams of our tutoring business for the fourth quarter.

Let me start with small class and other business, which consists of Xueersi Peiyou small class, Firstleap, Mobby and some other education programs and services.

These accounted for 68% of total net revenue compared to 76% in the fourth quarter last year.

The revenue growth rate was 6% in U.S. dollar terms and 9% in RMB terms.

The lower than usual revenue growth rate was mainly due to 2 factors: first, the pricing gap refund we offered in February when we had to migrate Peiyou off-line small class students to online small class.

Second, the impact from spring term rescheduling.

In this period, during the winter semester, we have migrated all our off-line business to our online platform.

As you know, Peiyou online average selling price, or ASP, is lower than that of Peiyou off-line.

We have offered our customers the pricing gap refund as compensation for not providing a perfect service on account of the brief transition, preparation and teacher training time available.

Furthermore, we also changed the scheduling of our spring term classes to fully comply with relevant education policy.

As a result, Xueersi Peiyou small class fourth quarter revenue reflects the impact of these factors.

Let me emphasize that we are impressed by the immediate flexibility that our teachers, students and parents have demonstrated in the light of this urgent transition.

Xueersi Peiyou small class, which remains our stable core business, represented 59% of total net revenue in the fourth quarter compared to 66% in the same year ago period.

The lower revenue contribution from Xueersi Peiyou was mostly due to the faster growth of xueersi.com online courses, which accounted for 24% of total revenue in the quarter compared to 17% in the same period last year.

Net revenue from Xueersi Peiyou small class was up by 6% in U.S. dollar terms and 8% in RMB terms while our normal priced long-term course enrollment increased by 37% year-over-year.

In Q4, normal priced long-term Xueersi Peiyou small class ASP decreased by 23% in RMB terms and 25% in U.S. dollar terms year-over-year, also mainly due to the pricing gap refund we offered when off-line small class moved to online small class in February 2020.

During these unusual circumstances, since we have all our business delivered by online platform, we will not separately disclose off-line and online Peiyou performance until the period is over and our off-line business will have been resumed.

Due to the impact of the COVID-19 outbreak, Xueersi Peiyou small class revenue from the top 5 cities, which are Beijing, Shanghai, Guangzhou, Shenzhen and Nanjing, decreased by 3% year-over-year in U.S. dollar terms and accounted for 54% of Xueersi Peiyou small class business.

Revenue generated from cities other than the top 5 grew by 18% in U.S. dollar terms.

The other cities accounted for 46% of the Xueersi Peiyou small class business.

Next, I'd like to briefly discuss our Zhikang one-on-one business.

This business sector achieved year-over-year revenue growth of 30% in U.S. dollar terms and 34% in RMB terms.

Zhikang one-on-one accounted for approximately 8% of total revenue in the fourth quarter of fiscal year 2020 compared to 7% in the same year ago period.

In Q4, normal priced long-term Zhikang one-on-one courses ASP increased by 8% in RMB terms and increased by 5% in U.S. dollar terms year-over-year.

Now let me update you on our current capacity expansion strategy.

For the purpose of better dealing with the COVID-19 near-term impact, we will temporarily slow down or suspend our current off-line capacity growth plan and mainly focus on improving the utilization rate and operational efficiency.

However, we are fully confident with regards to the outlook of China's progress in work and school resumption and China's education industry market potential.

We will closely follow the government instruction of off-line activity resumption and adjust our capacity expansion plan accordingly and based on the market demand after this special period.

In Q4, we added a net 77 learning centers mainly in December and January before the epidemic outbreak.

We opened a net of 73 new Peiyou small class learning centers and 7 one-on-one centers and closed a net of 3 new Firstleap-Mobby centers.

During the quarter, we added 963 Peiyou small class classrooms.

We did not enter any new cities in the fourth quarter.

In all, by the end of February 2020, we had 871 learning centers in 70 cities, of which 69 China cities and 1 Xueersi Peiyou learning center in the United States, of which 648 were Peiyou small class and international education centers, 95 were newly merged Firstleap and Mobby small class and 128 were Zhikang one-on-one.

As for Q1 of fiscal year 2021, till now, with the gradual work resumption in different cities and ongoing digital workplace practice, we have conditionally rented 44 Peiyou small class learning centers, and we expect to add a few more and close down some learning centers based on standard operations.

These estimates reflect our current expectation, which is subject to change.

Moving now to our online business.

Fourth quarter revenue from xueersi.com grew by 68% in U.S. dollar terms year-over-year and 72% in RMB terms while normal priced long-term courses enrollments grew by 96% year-over-year to over 2 million.

Online contributed 24% of total revenue and 44% of the total normal priced long-term enrollments this quarter compared to 17% of total revenue and 35% of total normal priced long-term courses enrollments in the same year ago period, respectively.

The rapid growth in online business was supported by the current circumstances driving the secular demand for online education as well as sales and marketing efforts and retentions of the previous quarters.

In addition, in Q4, normal priced long-term online courses ASP decreased by 15% in RMB terms and 17% in U.S. dollar terms year-over-year due to the mix change of our diversified online course offerings.

With that, I will now turn the call over to Echo Yan for the update on fourth fiscal quarter financial results.

Echo, please.

Thanks, Linda.

Let me now go through some key financial points for the fourth quarter of fiscal year 2020.

Gross profit increased by 7.5% to USD 451.8 million from USD 420.4 million in the same year ago period.

Gross margin for the fourth quarter decreased to 52.7% as compared to 57.9% for the same period of last year.

Loss from operations was USD 41.3 million in the fourth quarter of fiscal year 2020 compared to income from operations of USD 114.7 million in the fourth quarter of fiscal year 2019.

Non-GAAP loss from operations, which excluded share-based compensation expenses, was USD 8.4 million compared to non-GAAP income from operations of USD 137 million in the fourth quarter of fiscal year 2019.

Net loss attributable to TAL was USD 90.1 million in the fourth quarter of fiscal year 2020 compared to net income attributable to TAL of USD 99.6 million in the fourth quarter of fiscal year 2019.

Non-GAAP net loss attributable to TAL, which excluded share-based compensation expenses, was USD 57.2 million in the fourth quarter of fiscal year 2020 compared to non-GAAP net income attributable to TAL of USD 121.9 million in the same year ago period.

From the balance sheet, as of February 29, 2020, the company had USD 1,873.9 million of cash and cash equivalents and USD 345.4 million of short-term investment compared to USD 1,247.1 million of cash and cash equivalents and USD 268.4 million of short-term investment of February [28, 2019] (corrected by company after the call).

As of February 29, 2020, the company's deferred revenue balance was USD 781 million compared to USD 436.1 million as of February 28, 2019, representing a year-over-year increase of 79.1%.

Deferred revenue primarily consisted of the tuition collected in advance of Xueersi Peiyou small class as well as deferred revenue related to other businesses.

Now I will hand the call back to Mr. Luo to briefly update you on our strategy execution and provide the business outlook of the next quarter, Rong.

Thank you, Echo.

Let me update you our current business development strategy.

First off, I would like to express my deep appreciation for the quick adaptation that our students, parents, teachers, technology staff and other employees demonstrating in this difficult time.

This enabled us to bring all of our content services online and remain in business as much as possible.

In fiscal year 2020, despite of the impact of COVID-19 outbreak, we have realized a total net revenue growth of 27.7% in U.S. dollar terms and 32.4% in RMB terms.

Breaking down by different business, total net revenue of Peiyou increased by 23% in RMB terms, Xueersi.com, our online business, increased by 88% in RMB terms while Zhikang one-on-one increased by 39% in RMB terms year-over-year.

Our overall business as well as the major business sectors have met our full year expectations.

On January 26, TAL announced the [establishment] (corrected by company after the call) of a RMB 100 million special fund for the purpose of doing our bit in the whole of China's efforts to fight against COVID-19.

Of this RMB 100 million, RMB 20 million is a direct donation to Wuhan Charity Federation and RMB 80 million is for education-related investment to provide free technology, teaching and training and some other necessary support for the students and the sector-wide partners in the industry in Hubei province in all over China to continue daily studies during this special time.

Xueersi.com, our online education platform, has offered free online courses to the students all over China.

In addition, we have opened our smart education and open platform systems to public schools and other small and medium-sized training companies.

In this circumstance, some of our near-term visibility may still be less clarity than in the normal times.

But no matter what, we believe this has short-term impact on our business and industry, and we are encouraged to see the situation in China is getting materially improved, and the positive trend is continuing day by day.

We will abide by all government policies and regulations regarding the protection of the national public health.

We will always treat safety of our students and employees as our first priority and operate our business based on these priorities.

Despite a difficult current environment, I would like to emphasize that for the long term, our business growth strategy remains unchanged.

We will continuously invest to improve our all-around online and off-line education technologies, further diversify our products and services offerings as well as key optimizing all related promotional and operational efficiencies.

All in all, as one of the leading companies in China's education market with a long track record in the education technology and services, we have full confidence in our future development.

On April 26 -- April 28, TAL Board of Directors has authorized the repurchase of up to USD 500 million of the company's common shares over the next 12 months.

In addition, the company's management informed the company of their intention to repurchase up to a total USD 100 million of the company's common shares, subject to applicable rules under Exchange Act.

We will disclose further information on the share repurchases in accordance with the rules.

Let me turn finally to our business outlook.

Based on our current estimates, total net revenue for the first quarter of fiscal 2021 is expected to be between USD 875.4 million and USD 895.6 million, representing an increase of 30% to 33% on a year-over-year basis.

If not taking into consideration of the impact of potential change in the exchange rate between RMB and the U.S. dollars, the projected revenue growth rate is expected to be in the range of 35% to 38% for the first quarter of fiscal 2021.

That concludes my prepared remarks.

Operator, we are now ready to take questions.

(Operator Instructions) Your first question comes from the line of Alex Xie from Crédit Suisse.

Firstly, could you please share more details about your guidance for the first quarter of FY '21 in terms of outlook in different business lines?

And secondly, what will be our expectations for the margins in the first quarter of FY '21?

And since we have seen massive investments in online, I think, in the fourth quarter, what the plan for the first quarter of FY '21 for online investment plan?

Thank you, Alex.

Just as we know, Q4 is a very difficult time.

And even coming to Q3 -- Q1, like March and April to today, still, that's not a good time for us.

I think all our current business is under high pressure, same as our counterparts in this industry.

Let me try to give you more clarity on my Q1 guidance.

I think I tried to split into 3 segments.

Number one, the Peiyou small class business, I think right after Q4, Q4 in February, we are -- the off-line is totally out.

That's a surprise to us.

So we have very few time to move the students from off-line to online.

But coming to Q1, we do a much better job than what we did in Q4.

So we probably can see that in Q1 that Peiyou small class business still will maintain a very healthy growth in the range of 20% to 30%.

In the one-on-one business, which is also quite impacted by the outbreak of COVID-19, so we also moved them to -- off-line to online.

But the growth outlook in the one-on-one is they have is less than before.

I think Q1, in general, they can only grow maybe high single digit.

And the number three segment is our Xueersi online school.

Xueersi online school, actually, their growth has been accelerated by this kind of tough situation because the online becomes only available offering to the students if they want to continue to study.

So xueersi.com, the online school business, will continue to grow.

I think in Q1, we can grow maybe in triple digit, so which can provide us some of the upsides over there.

And so our Q1 guidance today have reflected all of these key information from the mainstream business.

And this guidance does not include anything from acquisition or other activities.

I think the reason we give guidance is still based on our mainstream business.

Number two, I think about your question about my margin, same as our counterparts, what they have experienced in this quarter, our Q1 margin were also under pressure.

And let me try to give you more clarity over there.

Number one, in the Xueersi online -- for the Xueersi online school business, I think we are continuously offering the free course to the K-12 students all over China, and this has started from February and will continue maybe in March and April and even today, so this is free classes to all students.

And we believe that's a very important move for education company.

That's something we should do.

But of course, this will cost some money.

And in the second place, I think when we see more and more students moving from off-line to online and the numbers of online students has expanded today, they also require a certain level of investments from different perspective.

Number one, we need to invest more money and more energy on the teaching quality.

We need to invest more on our teachers.

We need to train our teachers.

We need to hire enough teacher assistants.

And we need to make sure we spend enough time on the teaching qualities to make sure this can satisfy the parents and students.

The teaching quality is always the key and the first priority, no matters for off-line business or online business.

Secondly, we also need to optimize our online teaching technologies and enrich the products and the content.

I think a few years ago, when we only have less than 100,000 students, the pressure is much less.

But today, when we have millions of students studying on our platform, I think the difficulty and the technical challenges will hugely improve.

So we have to make investment to make sure the quality of the platform and the interactions of the platform can meet the needs.

We can't rely on what we invested before.

We need to continue to invest to make sure our technologies and platforms can be one of the best in this industry.

And in the third case, we also need to invest some money on selling and the promotion and marketing expenses.

Because right before this period, most of my students actually for the Xueersi online school actually they are coming from the Tier 1 and Tier 2 cities.

But today, we probably can see there are more and more students coming from the low-tier geographies and even from some places they don't know us before.

So we still require a certain level of sales and marketing invested over there to make sure we can capture the market share.

And lastly, xueersi.com, the Xueersi online school business in Q4 is already 24% of my total business.

While the margin I think in Q1 more or less, we have some chance to make sure that we can run the online sectors almost breakeven, but still compared to our Xueersi Peiyou business, I think the profitability is much less.

And even today, we believe the Xueersi online, the most important priority for them is to get more market share to have more students, to teach more students and even can offer our paid services, our free services to the students all over China.

So the market share is still key.

In the second place, we also have some challenge coming from the Peiyou part.

Even we move all the Peiyou off-line students to online, we're still -- we also keep some of the promotions of coupons to the Peiyou off-line students when they move from off-line to online.

So this will lead to our Peiyou ASP will drop a little bit.

I think in Q4, you probably can see that because we moved students from off-line to online, the Peiyou ASP dropped 23%.

And Q1 will be better than Q4, but still the trend of Peiyou ASP is still dropping.

And this kind of dropping will lead to the reducing our revenue and will also lead to the pressure to our bottom line.

And I also want to talk about our pre-K business.

Because when the students moving from off-line to online, especially for the pre-K business, for the students age from 3 to 6, it's very tough.

It's very tough.

I think they -- our pre-K, they spend more time than our normal K-12 sectors to persuade students moving from off-line to online.

In Q1, they're making huge progress.

But compared to the other sectors, they still is a little bit behind, which will also create some kind of pressures to our bottom line.

This is not only for us.

If you're going to see some other companies in this area, they also share the same pain.

Lastly, we're also doing the smart education and open platform business.

We are willing to open our platforms and support more public schools and the small and medium-sized training companies to make sure we can help them moving to off-line to online.

And we also -- this is also cost some money.

Today, we are supporting many more times of the customer today than the number we have right before the virus.

So this is also a kind of challenge in the cost side to our total P&L.

And so all in all, I think we have some challenges coming from Xueersi online and Peiyou small classes, pre-K business and To-B business.

And this -- all of this will lead to some pressures on my bottom line in Q1.

But again, we still believe there's very good -- there's some necessary costs and necessary money we have to spend, and that's also the short-term impact.

If we put them in 1 year or maybe 3 years' time, we will be beneficial from there.

Just a quick follow-up.

So do you think the online investments in the recent 2 quarters front loaded?

Or do you think the online investment in the whole year of FY '21 just increased?

Can I clarify your question?

Do you mean that my investment in Q1 will lead...

Yes.

Yes.

Because I think in this year, the promotion schedule of Xueersi online school was earlier than before.

So is this front-loaded schedule spending or the whole budget is more than before?

Okay.

Number one, I think if we can recap story last year, last year, actually, if you can go back and check my script, maybe last year Q1 and Q2, with me at that time, actually, we are very rush mode to do the kind of promotions on the -- to go into the war.

But this year, I think we are much more prepared than before.

Because of this special time and even today, a lot of schools are still closed in China, online becomes only offering for the students.

So we spend some money accordingly to make sure we can capture opportunity.

But today, I think it's a little bit too early to judge what the full year number will be because the situations change every day, and we are seeing China is getting materially better and better, so today, I don't have kind of a full year view on this.

What I can say is we believe Q1 is the right timing to invest, and we believe Q1 can help us to grow our online much better than before.

I think last year, in January, it's 88%.

Now Q1 is triple-digit growth.

So we will try to capture the market share and all the new opportunities we have today.

But we will very cautiously look into my investment on marketing quarter-over-quarter.

So I can give you some kind of colors for next quarter, but I can't give you for the full year.

And let's keep eyes open.

I will keep you guys posted if we have seen anything material or anything will impact full year numbers.

Your next question comes from the line of Mark Li from Citi.

I want to ask, actually, I think for this quarter, the online revenue growth is a little bit slow.

Could you share any reason for that?

And I noticed for the upcoming quarter, there seems to be some price adjustment or higher prices for Xueersi online school.

So what is your strategy?

And how much does it help do you think going forward?

Okay.

I think Q4, Q4 the Xueersi online school growth is around 70% plus/minus, and that's part of -- that's because last year Q4 actually is also a big year -- a big quarter for us, if we put them into maybe eight quarters' view.

And coming to Q1 and Xueersi online growth was accelerated because of special time, which is also quite normal across the broad if you go into some counterparts in this area for companies.

And so we believe for the whole year, we have chance to grow our Xueersi online school in kind of very healthy growth a little bit, which is very good opportunity for us to gain more market share.

And your question about Xueersi online schools price, let me give you more color over this.

Number one, the reason why we want to do Xueersi online school is because we wish to use the online offering to serve more people, more students.

And the same as what I said before in the earnings calls, I think the key purpose for Xueersi online school is to provide affordable solutions to the students as many as possible.

Affordable means, we don't have any intention to say we want to make Xueersi online offering as a kind of a very high-priced product?

No.

We want to give them fair price and to an affordable price to all students.

So we have some product in the price, maybe a few thousands per year.

We also have some product in the price few hundred a year.

So specific to the maybe particular products, the price up and down, I don't have too much comment about that.

But what I can say is, actually, in Q4, you probably can see that my online ASP is dropping.

And in my Q1 and even in the coming year, what we want to do is we cover more students.

So all in all, we believe for the online offering, the key is to take care of more students in affordable way.

We don't have any intentions to make high-priced product or high-profit products.

We wish we can serve more people as many as possible.

Your next question comes from the line of Yuzhong Gao from CICC.

So my question is on your off-line business.

So given that 73 Peiyou online center were added during the quarter, which was a meaningful acceleration, so how should we think about your off-line strategy in fiscal year '21, particularly on your capacity expansion plan, I wonder if you are being more optimistic about this, given there seems to be a bigger off-line market consolidation opportunity?

Thank you, Yuzhong.

As for the capacity plan, as we have just mentioned a bit that during the current special period, we will temporarily slow down or suspend some of our current learning centers as well as classroom expansion plan.

Our team will be focusing more on optimization work of internal operational efficiencies and controlling of the unnecessary off-line cost during the COVID-19 impact period.

Our company has many years of execution experience of capacity expansion.

We have the capacities and we have the capabilities to make in time adjustment of our near-term and long-term capacity expansion rate based on the actual market needs and seek the best balance of online and off-line investment.

And I believe now we all share the same belief that this pandemic can be completely controlled worldwide and the normal life can be completely resumed.

China has achieved great progress, and we will closely follow the government instructions of off-line activity resumption and take our actions accordingly.

Yes.

And let me try to add more color about that.

In the first place, frankly speaking, we don't want to be optimistic or maybe pessimistic on when we can go back to our normal off-line business.

We have no idea.

What we need to do is we 100% abide the government's policy and regulations and make free -- make full cooperations.

And in the second place, I think right after this kind of the virus, a lot of students, they are forced to study online.

And right after that, some of the students, they will choose to stay in the online environment.

And some of the students, they will decide to go back to off-line.

But no matter what, I think a certain percentage of the students who get used to the online offerings will get into use online more often than before.

So in our perspective today, in the short term, we will lower down the kind of the new learning center expansion pace.

And we also will look into more spaces to optimize the network.

For some learning centers with low efficiency, we will follow our standard operation procedures to close them or maybe in some area we will try to optimize and improve the efficiencies.

So when the things become more clear, maybe next quarter or maybe the next 2 quarters, when things become more clear, we're in the same market, whatever you can see, that's same thing we can see.

So when things are more clear, we'll decide to -- we're also fully prepared how we can leverage our advantages in the off-line operations in the past 17 years to do our right business.

So today, what we can say is we prefer to take a relatively conservative approach in the network development temporarily, and we'll wait and see what will happen in coming 1 or 2 quarters.

When things get better, we will react quickly.

Thank you, Yuzhong.

Your next question comes from the line of Sheng Zhong from Morgan Stanley.

I want to follow up about the xueersi.com pricing question.

So yes, you mentioned that you have more diversified courses.

So can I confirm whether it includes your pre-K new program in Monkey?

And if so, can you provide us some color on how big is the program now?

And if we look at the Xueersi courses on the website, it's in the -- from the summer, it still go -- the price up about 10% for primary school and middle school and up a little bit more for high school courses.

So wondering if you -- if this a price trend, so do you still think that the -- for the overall blended ASP, how should we look at this?

And after -- actually, if we look at the summer course price, it looks like xueersi.com price is very close to Peiyou online price already.

So also wondering if management can give some strategy on how the company position xueersi.com and Peiyou online.

Thank you, Zhong Sheng.

Let me try to capture your 3 questions.

Number one, I think we have very huge maybe the normal priced student enrollments in the Xueersi online in main subjects like maths and Chinese and English.

So we're able to develop some other offerings on top of that.

I think the shareholders mentioned just now, that's actually -- it's a very early stage product.

And we still -- we need to be patient about all of these products develop into a meaningful business.

Today, it's still in a very early stage, and they have a lot of space they need to improve.

And besides that, I think previously, we're also adding, for example, the online coding products and some other products.

And yes, you mentioned it's quite right.

We're also adding some pre-K products on top of our Xueersi online platforms.

So -- and with all of these products in place, we -- our purpose is very simple.

We try to leverage online technology to serve more people in a more affordable way.

The price for all of these products are quite different.

We decided pricing not because of we want to charge high price.

That is because of we want to serve more people.

So the pricing strategy of online will serve our purpose to getting more market share, to serve more people and to make people more satisfy.

And the second question about your -- the price increase in specific products.

I think on one side, we tailored price a little bit up, but on the other side, we also give promotions in the coupons and kind of an incentive for the parents and students if they can finish the work.

So all in all, actually, in ASP perspective -- in Q4, you probably see that we dropped by around 10%.

In Q1, more or less, we will continue to see the trend may continue.

So in general, we believe the online, the price is not the key priority we want to pursue.

We try to -- what we try to do is we make sure the products -- the product portfolio is getting better more and more and we can serve more people.

That still is a market share gain.

Number three, you're asking the question about the Peiyou online, how to position the Peiyou online and Xueersi online school.

Let's see as to what I said before.

The Xueersi online school is actually kind of the breadth strategy.

We try to use these products cover students from all over China, and their level of difficulty will relatively lower than the Peiyou products.

And we wish they can cover more people and to -- not only from Tier 1, Tier 2 places, but also coming from low-tier cities.

We're also very happy to see when we started to offer the free classes to students in China in the past 2 months, we have seen more and more people coming from the low-tier geographies in the countryside have come to register in our platforms.

That's good things we want to see.

We want to help more people.

And the Peiyou online actually is highly connected to the Peiyou mainstream business, and they will -- more localized content.

They were running in a kind of depth strategy.

They were more localized, and they try to provide more tailor-made products to the students in that local city.

Even today, we don't make it perfect, but we still -- that's our key directions.

So online school is a broad strategy, where Peiyou online is highly connected to the local content depth strategy.

So that's kind of the positioning for our products in this market.

Your next question comes from the line of Felix Liu from UBS.

My question is a follow-up on the online strategy.

First, you previously mentioned several areas of investments, such as teaching quality, technology and selling and marketing.

I'm wondering between those three, what are your priorities in Q1?

And maybe for the rest of the year, how should we rank in terms of the amount of the spending?

And secondly, I think there -- as you mentioned, there is a shift in our user base in terms of xueersi.com.

So I'm just wondering, will that mean any shift in our selling and marketing strategy going forward?

And thirdly, I'm wondering if you could share the size of the teaching staff for xueersi.com, such as the instructors and tutors?

Okay.

So let me try to recap your question first before I answer anything.

Number one is what is my priority of investment in different areas for my Xueersi online school, right?

Yes.

Number -- what's number two question?

Number two is any change in selling and marketing strategy, given we now have more customers in lower Tier cities.

Okay.

And number three is...

What's number three question?

Size of our teaching staff in terms of number of instructors and tutors.

Okay.

Great.

Great.

Okay.

I think for the Xueersi online school, actually, it's not -- sometimes people will say that online is a new animal in this space.

But frankly speaking, when we're running this model for a few years, we treated Xueersi online school as kind of a normal business already.

I think last Q4, it's around 24% of revenue and 44% of enrollments already.

So almost half of my enrollments coming from the online space.

So on the investment, our priority will be same.

Number one is investment in the teaching quality.

That's always the key.

We need to make sure our content and services we deliver to the students can meet their needs.

Especially when the number of students has quickly increased from a few hundred thousand to few millions, the challenge will total differ.

So we need to make sure our content development team and our teacher team all of them can work together to make sure we deliver high quality.

Quality is everything.

Secondly is the product and technology, especially technology.

I think probably you guys can remember the story in the very beginning right after this outbreak of the COVID-19, some of the online platforms actually they crash because they can't bear the high pressure from the traffic.

So we are one of the platforms who are doing a little bit better than the other one.

We are not perfect, but we are a little bit better than the other one.

And this kind of level of quality requires a significant level of investment all the time.

So I think in the third priority is definitely we need to spend relative level of sales and marketing to make sure our product can reach more people, can improve our brand awareness let more people know us same as we see the other counterparts in these sectors what they did in the past and most recently.

So we need to maintain we are still competitive to this market in selling and marketing perspective.

And the second question, you're asking about what's the kind of policy change for sales and marketing.

What we can say is, actually, we have running some promotions in the past maybe 2, 3 years, we get a lot of lesson learnings.

This year, we'll have some kind of new opportunities, and we provide a lot of free courses to online students which lead to more students come to register on my platform.

This is something new.

Even today, we cannot figure out what's the maybe significant difference from this approach to the traditional investment approach.

So what we are doing today is carefully go into every channel and use a very cautious model to look into their efficiency.

And we also will go through the channels we have, the new channels, who just happened in the past few months to make sure our investment philosophy is similar.

Even today, if you ask me what is the best way to spend the money, I don't have perfect answers, but what we can say is we try very cautiously to every channel, including the maybe CPS channel or maybe the branding channels.

And we closely look into the results and make adjustments -- make necessary adjustments accordingly.

And number three, the size of our instructors, the teacher assistants.

One reason we reemphasize is it's very important that we have the qualified and good quality teacher assistants in this model.

The teacher assistants cannot be treated only part of the machine in the business model.

They are real people, and they are real teachers.

So they have received good enough training, and they're also taking care of the students very carefully.

When they talk to the parents and talk to students, they are giving a lot of knowledge and a lot of care to the students.

We, as management, will cherish all of their efforts very much.

So we will continue to increase the size of the teacher assistants in our Xueersi online platform based on the needs from the students.

So if you ask me the detailed numbers of how many teacher assistants we need, what I can say is we need to balance between the efficiency and balance, and the final result is satisfaction from parents.

If you ask me to pick one side, one is efficiency, the other one is the student satisfaction rate, I pick the latter one.

We treat the parent and student satisfaction more than efficiencies.

So we need to run the company because today, we have served more than millions of students, we need to run this platform in a much more balanced view.

Your next question comes from the line of Alex Liu from China Renaissance.

I have 2 questions.

So the first one is on the Peiyou online.

So obviously, right now, everybody is studying online right now.

But as things go normalize, how should we think about the stand-alone margin for Peiyou online?

And as Peiyou online grow bigger and bigger, how does this business impact our long-term Peiyou small class business margin target?

This is the first question.

And the second question is for the xueersi.com business, how important does maintaining the #1 in the market mean to us if everybody in the market is losing money?

Okay.

I think the Peiyou online, because most of our Peiyou online students actually they're coming from off-line before.

So they don't need to spend that much money on marketing strategy to acquire new students.

So the margin outlook for the Peiyou online is much better than the other one.

And with the contribution from Peiyou online is bigger and bigger, more or less, we'll have some kind of leverage in margin perspective coming from there.

But most recently, we moved all the Peiyou off-line business to Peiyou online.

So we have running the Peiyou small class business and the Peiyou online business now.

So all of this, we need to -- based on the reaction of the students and the parents and made necessary adjustments over there.

So I can't comment what is the direction for that.

What I can say is we are seeing more and more students and parents they're buying these offers much more than before.

So we're also seeing healthy growth coming from Peiyou online.

We are confident about that.

And your second question is asking me, is it important to maintain #1 in this -- in the online education sector, right?

Is it important to be the first player in this market?

Yes.

Frankly speaking, I think in our company, we have very important kind of values called being stronger is much more important than being bigger.

So we personally, we don't have any kind of intention to say, we need to maintain #1 in this market.

Because #1, when you say #1 means the size, the volume.

But what we care more is the quality.

We strongly believe if we can serve the students where we can let all the parents feel satisfied and if we can use our online products and offerings with more kind of automation and even more impacting products to fit the needs, we can win in the end.

For the short term or maybe long term, rather the volume or the actual size is #1 or no, I think that care less to us.

And so far, because we are the first mover in this market, so we still have some advantages, even we are still bigger than the other one in this market.

But again, being bigger is not our priority, being stronger and being more competitive and being better to the students and the parents, that's our key priority.

Thank you.

Thank you, ladies and gentlemen.

Unfortunately, we have run out of time for any further questions.

This concludes today's conference call.

Thank you for participating.

You may all disconnect.