New Oriental's Mixed Q2 Earnings: A Closer Look

New Oriental Education & Technology Group (NYSE: EDU) reported its fiscal Q2 2025 earnings on January 21, 2025, presenting a mixed picture of growth and profitability. The company's total net revenues increased by 19.4% year-over-year (YoY) to US$1,038.6 million, with core educational revenues excluding East Buy business and livestreaming growing even stronger at 31.3% to US$894.2 million. However, profitability metrics showed some pressure points, with operating income decreasing by 9.8% to US$19.3 million and non-GAAP operating income falling more significantly by 45.8% to US$27.6 million. The operating margin contracted to 1.9% from 2.5% last year, indicating increased cost pressures from expansion initiatives.



New Oriental's key business segments showed strong growth in Q2 FY2025:

1. Overseas test preparation: Grew by 21.1% YoY, surpassing the historical average growth rate of 15%.
2. Overseas study consulting: Increased by 31.0% YoY, exceeding the historical average growth rate of 25%.
3. Domestic test preparation for adults and university students: Grew by 34.9% YoY, exceeding the historical average growth rate of 20%.

Factors contributing to these trends include strong recovery in international education services, successful market penetration in the adult education space, strategic expansion across multiple business segments, and promising traction in new educational business initiatives such as non-academic tutoring courses and intelligent learning systems.



Despite the strong growth in key business segments, New Oriental's operating margin contraction may impact its competitive position in the education sector. To improve profitability, the company can consider cost optimization, diversification, investment in high-growth areas, improved operational efficiency, review of pricing strategy, and monitoring of East Buy performance.

New Oriental's balance sheet strength and cash flow generation ability position the company to weather potential economic downturns and invest in growth opportunities. With US$4.8 billion in cash, cash equivalents, term deposits, and short-term investments, and an operating cash flow of US$313.3 million in Q2 FY2025, the company has ample liquidity and cash generation ability to navigate challenging economic conditions and invest in strategic growth initiatives.

In conclusion, New Oriental's mixed Q2 earnings present both opportunities and challenges for the company. While the strong growth in key business segments is encouraging, the contraction in operating margin highlights the need for the company to address cost pressures and improve profitability. With a strong balance sheet and cash flow generation ability, New Oriental is well-positioned to weather potential economic downturns and invest in growth opportunities. As the company continues to expand and diversify its business segments, investors should monitor its progress and assess its ability to maintain a competitive edge in the education sector.