Potentially the best Chinese edtech company recently received $4 billion in funding. The investment shows extraordinary promise in the company, especially in the education provider’s ability to deliver services throughout China – and maybe beyond – without relying on in-school classrooms.
Yuanfudao: Birds Eye View
Yuanfudao was founded in 2012 to deliver live, online courses to students throughout China.
Most of its classes focused on the needs of primary school students. Basic mathematics, reading comprehension, and writing were common classes. It also offered primary school English classes, which many see as an attempt to build business long-term business relationships between China and the English-speaking world.
Yuanfudao and other online education platforms attracted significant attention during the 2020 pandemic restrictions. With students unable to attend most classes in person, they had to switch to online learning.
How Does Yuanfudao Make Money?
Yuanfudao has several revenue streams that help it make money. Some sources of revenue include:
- Selling live courses to students. (In 2020, the company had about 400 million paying students in China. That’s double the number of students from 2018.)
- Online tutoring services.
- A math problem-checking service.
The company has talked about using more artificial intelligence to streamline its services, which could lead to higher revenues and greater profits.
Yuanfudao Business Model
Yuanfudao’s business model operates in a few ways, all of which center on providing excellent online education to K-12 students in China.
The company’s business model has always emphasized selling live courses to students. Live courses make students responsible for attending class, interacting with teachers and classmates, and contributing to “classroom” discussions.
Plenty of other companies offer courses that students can complete at their leisure. That approach has some obvious appeals, especially to non-traditional students who have work and family obligations. Yuanfundao believes that it can get better results by focusing on students willing to attend live classes remotely.
Yuanfudao’s business model also lets it pull in extra revenue from additional services. Online tutoring services complement money earned from live classrooms. Similarly, a math problem-solving checker upgrade can help students identify gaps in knowledge and correct mistakes so they can succeed in class.
Yuanfudao Revenues Show Promise
Yuanfundao doesn’t have to share all of its revenue information yet because it has not filed to become a public company.
Obviously, though, the company has been sharing its numbers and plans with potential investors. Considering that Yuandudao has attracted billions of dollars from multiple sources over the last years, it’s fair to say that its revenues show promise.
The company may not have turned a significant profit yet, but it must show a promising trajectory to financial success.
Why Did Yuanfudao Get $4Bn in Funding
First, it’s important to acknowledge that Yuanfudao has been getting funding from multiple sources for years. In 2017, Yuanfudao received venture funding from Magic Ears.
In March 2020, Oda Class invested in the company. In October 2020, it received funding from Huohua Siwei.
Other Lead investors include:
- YF Capital
- DST Global
Smaller investors include:
- Temasek Holdings
- Danhe Capital
- Ocean Link
- Greenwoods Investment
- Trustbridge Partners
With so many reputable investment firms throwing money at Yuanfudao, it makes sense that its funding would continue to grow as the company scales.
$4 billion in funding doesn’t even seem outrageous to many of the investors betting on the company’s success. According to expert estimates, the education company probably has a valuation between $7.8 billion and $15.5 billion.
It’s impossible to overlook the role that COVID-19 played in Yuanfudao’s growth. As people feared social interaction, those who could afford alternative educational options for their children chose to stay home. Yuanfudao was one of the only options that seemed capable of replacing the traditional classroom.
Will Yuanfudao Go Public Soon?
There are rumors that Yuanfudao will go public soon. Doing so would likely help it collect the massive amount of additional capital that it needs to grow its infrastructure, develop new programs, and perhaps even start serving students outside of China.
At the moment, these are just rumors. When it does go public what’s certain is insiders will be able to liquidate and cash in on enormous gains. At this point, it almost seems inevitable that some aspects of education will go online.
Then again, the current management might not have the desire to go public until absolutely necessary. Right now, they have significant control over the company’s operations. They probably see that as a good thing as they face the challenges of growing a business.
Is Yuanfudao A Good Stock To Buy?
If Yuanfudao becomes a public traded company, it’s probably a good stock to buy given the quality of venture capitalists backing it as a private company.
Of course, there are some caveats to that statement, including:
- What IPO price will the company set?
- Mark the date when the lock up period ends at which time insiders can sell
- Can Yuanfudao follow through with its promise to make education easier for everyone to access?
You could jump on the IPO as quickly as possible. Doing so could mean that you get shares at the lowest prices. In general, however, it’s best to wait until the lockup period ends and insiders have liquidated and sold their holdings to institutions. After spending years building a company, insiders often like to liquidate and diversify their newfound wealth to a wide variety of stocks rather than holding all of them in a single basket.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.