GSX Techedu Reports Mixed 4Q Results; Street Sees 30% Downside


GSX Techedu closed 8.9% higher on Friday after the China-based educational services provider surprised investors with 4Q revenues that came in above the Street’s estimates. However, it reported a wider-than-expected loss.

GSX (GSX) reported 4Q revenue growth of 136.5% year-over-year to $338.9 million, driven by 155.6% growth in online K-12 courses. Analysts were expecting revenues of $329.4 million. Gross billings grew 99.3% year-over-year.

GSX’s CEO, Larry Xiangdong Chen, said, “Our quarterly net revenues hit an all-time high of RMB2.2 billion…We attribute such outstanding growth and upsized scale to our highly efficient operations, as demonstrated by our net operating cash inflow of RMB636.4 million in the fourth quarter.”

However, the company made an adjusted loss per ADS (American Depository Share) of $0.39, wider than analysts’ expectations of a loss of $0.38 per ADS.

As for 1Q, GSX expects to report revenues in the range of 1.816 – 1.856 billion yuan, representing year-over-year growth of 40% to 43%. (See GSX Techedu stock analysis on TipRanks)

On Jan. 28, Goldman Sachs analyst Christine Cho downgraded GSX Techedu to Sell from Hold as she believes that the valuation “looks stretched.” Cho, however, lifted GSX’s price target to $70 (23% downside potential) from $61, due to higher demand for online tutoring in China amid the resurgence of COVID-19.

Overall, the Street has a Moderate Sell consensus rating based on 2 Holds and 1 Sell. The average analyst price target of $64.33 implies downside potential of about 30% to current levels. Shares have gained over 113% over the past year.

On TipRanks’ Smart Score ranking, GSX Techedu gets a 3 out of 10, suggesting that the stock is likely to underperform market expectations.

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