New Oriental Education & Technology Group Inc. EDU reported mixed results in the second quarter of fiscal 2025 (ended Nov. 30, 2024). Earnings missed the Zacks Consensus Estimate, but net revenues surpassed the same. New Oriental stock plunged 23.2% yesterday during the trading session.

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In the fiscal second quarter, the company focused on aligning capacity expansion with revenue growth and operating efficiency. EDU also worked on enhancing its online-merge-offline teaching system and implemented new technologies to improve user experience and support the growth of the company’s educational offerings.

Delving Deeper Into EDU’s Q2 Results

During the fiscal second quarter, the company reported adjusted earnings of 22 cents per ADS, missing the consensus estimate of 47 cents by 53.2%. Also, the reported figure decreased 24.1% on a year-over-year basis.

Total revenues during the fiscal second quarter totaled $1,038.6 million, which surpassed the consensus mark marginally by 0.4% and grew 19.4% from the year-ago period. Excluding revenues from East Buy private label products and live streaming business, net revenues amounted to $894.2 million, marking a 31.3% increase compared with the prior year. This growth was largely driven by the company's new educational business initiatives.

The overseas test preparation and study consulting segments experienced year-over-year growth of 21.1% and 31.0%, respectively. Additionally, the domestic test preparation business, targeting adults and university students, achieved year-over-year growth of 34.9%.

EDU's new educational initiatives continued to gain traction during the fiscal second quarter, recording a 42.6% increase in revenues compared with the same period last year. Non-academic tutoring courses were offered in approximately 60 cities, attracting around 994,000 student enrollments. Additionally, the company’s intelligent learning systems and devices were adopted in about 60 cities, with approximately 261,000 active paid users. These efforts align with EDU’s strategy to achieve sustainable growth and improve profitability through better service quality and operational efficiency.

EDU’s Operating Highlights

Cost of revenues grew 17.9% year over year to $498.3 million. Non-GAAP operating costs and expenses for the fiscal second quarter totaled $1,011.1 million, indicating a 23.5% year-over-year increase. This increase was mainly due to costs associated with the accelerated capacity expansion of educational businesses and the newly integrated tourism-related business.

Selling and marketing expenses increased 26.6% from the prior-year quarter. Non-GAAP general and administrative expenses, which exclude share-based compensation costs, also rose 24.7% from the reported figure of the prior-year period.

Non-GAAP operating income during the fiscal quarter totaled $27.6 million, down 45.8% year over year. Non-GAAP operating margin decreased 320 basis points (bps) to 2.7% compared with 5.9% reported a year ago.

The non-GAAP operating margin, excluding contributions from East Buy private label products and live streaming business, improved 12 bps year over year by 3.2%. Despite the fiscal second quarter being seasonally slower, the company recorded a slight improvement in the operating margin for its core educational business compared with the previous year. This demonstrates resilience in managing profitability within its primary operations.

EDU’s Financials

As of Nov. 30, 2024, the company had total cash and cash equivalents of approximately $1,418.2 million compared with $1,389.4 million at the end of fiscal 2024.

In July 2022, the company’s board of directors approved a share repurchase program, initially authorizing up to $400 million for the repurchase of ADS or common shares within 12 months. The program was later extended to May 31, 2025, with the authorization increased to $700 million. As of Jan. 20, 2025, the company had repurchased about 11.2 million ADS from the open market, amounting to $542.8 million.

Third-Quarter Fiscal 2025 Guidance of EDU

The company expects total revenues, excluding revenues generated from East Buy private label products and live streaming business, between $1,007.3 million and $1,032.5 million, indicating 18-21% growth from a year ago. EDU remains confident to deliver continued margin expansion going forward and generate sustainable long-term value for its customers and shareholders.

EDU’s Zacks Rank

New Oriental currently carries a Zacks Rank #3 (Hold).

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