Online study firms brace for future shocks

China’s online education sector may face long-term challenges in maintaining cash flows and sustaining user numbers, despite the rapid advances achieved during the novel coronavirus outbreak, industry experts said on Monday.

“The outbreak has accelerated industry development and market prospects,” said Zhang Lijun, an education veteran and partner of Sinovation Ventures, a venture capital firm founded by noted investor Kai-fu Lee.

Zhang said that it has become easier for companies to acquire users at comparatively lower costs than before and the penetration rate of online education is set to grow by around 10 percent during the epidemic.

“Meanwhile, competition is also accelerating. Leading education companies in the field will stand out while those with poor money flow and ordinary financial modeling may face a shakeout,” said Zhang.

Though the epidemic has affected many industries, surging demand for online study from hundreds of millions of students in China has helped the online education sector save advertising expenses of nearly 240 billion yuan ($34.5 billion).

Yu Dachuan, co-founder and president of VIPThink, an online mathematics and logic tutoring startup, said that the firm has been adjusting strategies to “broaden sources of income and reduce operation costs” as part of the overall efforts to maintain cash flows.

“We have cut all the unnecessary expenses to maintain low operating costs. At the same time, we have also managed to tap potential income sources like livestreaming and group buying,” said Yu.

Huang Ren, founder of Ivydad, a baby and children online education firm, said the company is focusing on research and development of quality courses, a focus that has brought dividends for the company.

“We are focusing on quality rather than the amount. Users taking quality classes are very likely to repurchase courses, thereby bringing us profits,” he said.

Though industry experts are concerned that a large number of users will opt out of online classes after the epidemic eases, Zhang from Sinovation Ventures believes that companies will not be affected by the short-term user traffic changes.

“Online education companies with good quality will be able to deal with the challenges naturally. This is evident in the increase in revenue and user numbers during March,” he said.