Product and Service
Companies included in online learning- high school students sector in education industry primarily provide materials and tutoring service for students to improve performance in courses work and college admission tests and as well recruiting service for colleges.
Demand for Product and Service
As our sales data indicates, demand for improvement in course work and test preparation of high school students in US market is strong. Business and revenue have been shifting to online-based service for content and materials from traditional textbooks and materials probably due to the lower costs of online mode.
The Sector
Sector’s current, trend, causes behind trend, and future
Current and Trend
- The demand for improvement in performance of high school students in course work and college admission tests in US market has been strong as indicated by the increase in companies’ revenue in tutoring service.
- Business and thus revenue have been shifting to online-based service for content and materials from traditional textbooks and materials.
Causes behind the trend
- Increasing disposable income of household determine the base of the upward trend in private education business.
- The increasing competition for better education resources among students may be the major driver behind more and more parents looking to private tutoring to improve the academic performance of their kids.
- Online learning platform helps make access to learning resources more affordable and thus becomes positive factor to drive the market to go bigger.
Industry Future
There is a reason to believe that the upward trend will continue since the drivers behind the booming may still exist. K-12 focused private education and tutoring presents brighter future considering the base size of business.
Numbers
General Financial Performance of Companies In the Sector
It seems that demand for traditional textbook rental and sales is not strong and profitability has been shrinking in the past several years. Companies in this sector increasingly turned to service-related business to generate revenue and profit due to its high margin.
In the process of spinning off textbooks rental business, companies improved the gross margin (a typical gross margin is currently 72% up from 37%). Therefore, when SG&A as percentage of sales was also improved due to the increase in sales from online subscription while increased spending on general administration and technology-related staff’s expenses, the typical operating margin among those companies has gone down to about -4 from -22% about four years ago. Correspondingly, the income and cash flow gained growth significantly benefiting from improved margin and increase in sales of online service.
According to our analysis, the current companies’ enterprise price/sales ratio is 13 with an interest/EBITDA ratio of 47%.
