NEW YORK, June 10, 2024 (GLOBE NEWSWIRE) -- Diamond Equity Research, a leading equity research firm with a focus on small capitalization public companies has released an Update Note on QuantaSing Group Limited (NASDAQ: QSG). The update note includes information on QuantaSing’s financial results, management commentary, recent developments, outlook, risks, and our revised valuation estimates.
The update note is available here. Highlights from the report include:
- Revenue Growth in Q3 FY 2024 at QuantaSing Tempered by Lower Earnings: QuantaSing Group Limited experienced modest financial performance in the third quarter of FY 2024, characterized by marginal revenue growth and challenged by lower-than-expected earnings:
- Revenues: For the quarter ending March 31, 2024, the company recorded total revenues of RMB 945.6 million (US$131.0 million), a 17.1% increase from the same period last year and a 3.6% rise compared to Q2 FY 2024. This growth was primarily driven by a 14.3% rise in revenues from individual online learning services, which amounted to RMB 828.1 million. The revenue from skills upgrading courses totalled RMB 464.4 million, while recreation and leisure courses showed an increase to RMB 95.3 million. However, enterprise services experienced a decline, dropping 19.8% to RMB 65.1 million. Other revenues increased to RMB 52.4 million (US$7.3 million), predominantly from new business initiatives in live e-commerce.
- Profitability: QuantaSing experienced a downturn from the previous quarter, recording a net income of RMB 14.6 million (US$2.0 million) in the third quarter of FY 2024, down from RMB 107.6 million (US$ 14.9 million) in the second quarter of FY 2024. Similarly, adjusted net income decreased to RMB 31.9 million (US$4.4 million), compared with RMB 103.9 million (US$ 14.3 million) in the second quarter. This decline in profitability can be attributed to lower gross margins and escalated costs across several operational areas. The cost of revenues increased notably by 44.3% year-over-year to RMB 145.8 million (US$20.2 million), driven by higher labor outsourcing costs of RMB 23.3 million (US$3.2 million) and increased procurement expenses of RMB 27.1 million (US$3.7 million). Sales and marketing expenses also increased to RMB 729.6 million (US$101.1 million), a 15.6% increase, reflecting higher expenditures on marketing and promotional activities. Furthermore, while the company managed to convert a year-over-year net loss into a gain, the quarter-over-quarter drop highlights underlying short-term challenges in maintaining consistent profitability amidst aggressive expansion and investment activities.
- Liquidity: The company's liquidity position remains strong, with cash and cash equivalents reaching RMB 1,149.9 million (US$159.3 million), up from RMB 930.6 million as of June 30, 2023. As part of its capital management strategy, QuantaSing repurchased approximately 2.6 million ADSs for about US$11.5 million under its ongoing share repurchase program.
- Outlook and Forward Guidance: Looking ahead to the fourth quarter of FY 2024, QuantaSing projects its revenues to range between RMB 900.0 million and RMB 930.0 million. This projection reflects an anticipated year-over-year increase of 8.7% to 12.3%. The company's revenue forecast is based on its current analysis of market conditions and its ongoing strategic initiatives, which are designed to adapt to and capitalize on evolving industry dynamics.
- Valuation: QuantaSing's recent strategic initiatives have significantly expanded its user base while continuing to enrich its course offerings. The strong market demand is also evident from the enthusiastic responses to new initiatives, including educational tours and mini lectures. Moreover, the opening of Kelly’s Education's first offline school in Hong Kong marks a pivotal step in its international growth strategy. While these initiatives are expected to enhance QuantaSing's market penetration and support its revenue expansion, the recent quarterly results indicate a greater focus on growth over immediate profitability, influencing our assessment of the company’s valuation. Our updated valuation model, incorporating the latest financials and revised revenue and margin estimates, along with a re-evaluation of comparable company analysis, yielded a valuation of $8.20 per share, assuming successful execution by the company.
- Substantial User Growth and Strategic Expansion at QuantaSing in Q3 FY 2024: The company has made substantial progress in its corporate developments and strategic initiatives during the third quarter of FY 2024, which have played a pivotal role in its ongoing success and future growth prospects.
- The company's commitment to expanding its user base and enhancing its educational offerings was evident as the total number of registered users surged by 40.3% to 121.0 million, with paying learners increasing by an impressive 48.4%.
- The company introduced new educational programs and launched mini lectures that have received enthusiastic feedback, especially from the middle-aged and elderly demographic. These initiatives are part of QuantaSing's focus on lifelong learning and its dedication to providing educational solutions that cater to the diverse needs of its users.
- On the international front, QuantaSing made a significant stride in its global outreach by establishing Kelly’s Education's first offline school in Hong Kong in May 2024. This move marks a critical step in the company's international expansion efforts and underscores its intent to tap into new geographic markets and audiences.
Furthermore, QuantaSing has demonstrated its foresight in leveraging technology to augment its educational services. On March 20, 2024, the company entered into a partnership to form a new enterprise focused on equity investments in technology. This strategic investment is geared towards integrating advanced technology with QuantaSing's core educational services, enhancing both the quality and accessibility of its offerings
About QuantaSing Group Limited
QuantaSing Group Limited, founded in 2019 and based in Beijing, offers a variety of online courses for adult learners and enterprises services in China. Their educational brands include QiNiu, JiangZhen and, QianChi. For more information, visit https://ir.quantasing.com/
About Diamond Equity Research
Diamond Equity Research is a leading equity research and corporate access firm focused on small capitalization companies. Diamond Equity Research is an approved sell-side provider on major institutional investor platforms.
For more information, visit https://www.diamondequityresearch.com.
Disclosures:
Diamond Equity Research LLC is being compensated by QuantaSing Group Limited for producing research materials regarding QuantaSing Group Limited, and its securities, which is meant to subsidize the high cost of creating the report and monitoring the security, however, the views in the report reflect that of Diamond Equity Research. All payments are received upfront and are billed for an annual or semi-annual research engagement. As of 06/10/2024, the issuer had paid us $60,000 for our company sponsored research services for coverage in English and Mandarin, which commenced 08/09/2023 and is billed annually. Diamond Equity Research LLC may be compensated for non-research related services, including presenting at Diamond Equity Research investment conferences, press releases and other additional services. The non-research related service cost is dependent on the company, but usually do not exceed $5,000. The issuer has paid us for non-research related services as of 06/10/2024 consisting of $3,000 for presenting at virtual investor conference. Issuers are not required to engage us for these additional services. Additional fees may have accrued since then. Although Diamond Equity Research company sponsored reports are based on publicly available information and although no investment recommendations are made within our company sponsored research reports, given the small capitalization nature of the companies we cover we have adopted an internal trading procedure around the public companies by whom we are engaged, with investors able to find such policy on our website public disclosures page. This report and press release do not consider individual circumstances and does not take into consideration individual investor preferences. Statements within this report may constitute forward-looking statements, these statements involve many risk factors and general uncertainties around the business, industry, and macroeconomic environment. Investors need to be aware of the high degree of risk in small capitalization equities including the complete loss of their investment. Investors can find various risk factors in the initiation report and in the respective financial filings for QuantaSing Group Limited.
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