Earnings of China's e-learning platform Koolearn Technology Holdings has soared alongside its rivals since the coronavirus outbreak. The online education industry in China is valued at $36 billion where stocks of Koolearn Technology Holdings are the priciest.
It is also one of the quickest to reach its current position among its contenders as it has, Covid-19, the new coronavirus, to thank mostly for its 83 percent rise this year.
A unit of New York-listed New Oriental Education & Technology Group Inc, Koolearn has to help support the country's 200 million-plus school students online after the epidemic shut schools.
The company hosts free classroom live-streaming and other activities for its more than two million K-12 and college learners, hoping to snag new users and quicken growth. The stock is now trading at 17 times blended forward 12-month sales, roughly quadruple the 4.4 average of 46 Chinese education companies, according to a report by Bloomberg.
But some investors question the extent to which the loss-making company -- of which Tencent Holdings Ltd owns almost 10 percent -- can convert users pushed online by necessity into longer-term paying customers. As of February 25, about 14.2 percent of Koolearn's free-floating stock had been shorted by investors, not far off a historic high of 15.7 percent set on February 18, according to Markit data. And at HK$33.75, Koolearn is already trading 26 percent above its average target price.
"This model is not necessarily sustainable," said Jacky Choi, chief investment officer at Zeal Asset Management. "The conversion rate of online education is actually very low, which is the risk these companies will face in the future."
Investors remain sanguine about Koolearn's industry over the longer term. It has taken off over past decades: In 2018, revenue from Chinese e-learning climbed 26 percent to 252 billion yuan ($36 billion) and paying users reached 135 million, according to a report by iResearch. Revenue will double by 2022, the research house estimates.
But there're a lot of competitors to take the profit away. Koolearn is spending at a furious pace to expand and attract users, keeping it in the red, said Ye Le, a China Securities analyst. It is expected to remain loss-making till at least 2022 though those losses will shrink, according to projections.