New Oriental (EDU) Q2 2026 earnings review
Profitability Explodes as Growth Accelerates
New Oriental delivered a decisive quarter, shaking off the sluggishness of Q1. Revenue growth accelerated to 14.7% YoY (beating the 9-12% guidance range), but the real story is profitability. Operating income surged 244%, and Non-GAAP operating margins expanded by a massive 470 basis points to 7.5%. The turnaround at subsidiary East Buy—swinging from loss to profit—combined with operational leverage in the core education business, drove this performance. Management raised full-year revenue guidance, signaling confidence that the momentum is sustainable.
🐂 Bull Case
The e-commerce subsidiary East Buy recorded a net profit of RMB 239M ($33.4M) for the six months ended Nov 30, swinging from a RMB 96.5M loss a year ago. This removal of a significant earnings drag is directly accretive to the group's bottom line.
Core operational efficiency is rapidly improving. Non-GAAP operating margin hit 7.5% (up from 2.8% YoY). Management explicitly cited 'enhanced operational efficiency and improved utilization' as key drivers, proving the business model scales well.
🐻 Bear Case
While overall revenue accelerated, the Overseas Test Prep segment grew only 4.1%. This remains a weak spot compared to historical double-digit growth rates, reflecting persistent macro headwinds and geopolitical hesitation among students.
SBC expenses jumped 156.8% YoY to $21.4M. While this is a non-cash charge, the steep increase weighs heavily on GAAP profitability and indicates rising costs to retain talent in a competitive market.
⚖️ Verdict: 🟢🟢
Strong Buy. The company successfully executed a 'growth plus margin' pivot. Accelerating revenue, a raised full-year guide, and a subsidiary (East Buy) that has turned profitable create a powerful setup for the second half of FY26.
Key Themes
New Educational Initiatives Firing on All Cylinders
Accelerating. This segment remains the primary growth engine, up 21.6% YoY (accelerating from +15.3% in Q1). Non-academic tutoring has scaled to ~60 cities with over 1 million enrollments this quarter alone. The intelligent learning system now has 352,000 active paid users. This diversification away from pure test prep is proving durable.
East Buy Turnaround
Reversing. East Buy (subsidiary) has successfully stabilized. Revenue grew 5.7% to RMB 2.3B, but more importantly, it delivered a massive swing to profitability (RMB 239M Profit vs RMB 96.5M Loss). The strategy to diversify into private label goods (801 SKUs) and new categories like seafood and home goods is paying off.
Rising Corporate Overhead
Accelerating costs. General and Administrative (G&A) expenses rose 15.2% to $374.3M. While revenue grew 14.7%, G&A outpaced it slightly. Within this, share-based compensation surged 157%. If G&A continues to grow faster than the top line, it could cap future margin expansion potential.
Offline Expansion for Online Brand
East Buy is initiating an 'offline channel expansion' including smart vending machines. This marks a strategic shift from a pure livestreaming/e-commerce model to an OMO (Online-Merge-Offline) retail strategy, leveraging New Oriental's physical network.
Overseas Segment Structural Weakness
Decelerating/Stagnant. Overseas Test Prep grew only 4.1%, a slight improvement from Q1 (+1%) but far below the Domestic Adult segment (+12.8%). This confirms that the macro 'adverse environment' mentioned in previous quarters is a structural drag, not just a blip.
Other KPIs
Accelerating. Up 10.2% YoY. As a leading indicator for future revenue recognition, this double-digit growth supports the management's decision to raise full-year guidance. It confirms healthy enrollment pipelines.
Stable/Positive. Operating cash flow remains robust, exceeding Net Income ($45.5M) significantly. This indicates high quality of earnings and strong cash conversion, supporting the ongoing share repurchase program ($86.3M bought back recently).
Accelerating. A massive improvement from 2.8% in the prior year period. This +470bps expansion validates the 'efficiency' narrative management has been pushing for the last two quarters.
Guidance
Accelerating vs Q1, Stable vs Q2. Implies 11% to 14% YoY growth. This is consistent with the 14.7% achieved in Q2 and significantly better than the 6.1% in Q1, confirming the growth dip is in the rear-view mirror.
Accelerating. Management raised guidance to 8-12% growth (previously 5-10%). This upgrade mid-year is a strong signal that the second half of the fiscal year is expected to outperform original conservative estimates.
Key Questions
Sustainability of East Buy Margins
East Buy swung dramatically to profitability this half. Was this driven by one-time cost cuts, or is the 36.4% gross margin and current net margin sustainable as you expand into lower-margin offline channels?
Overseas Business Recovery
Overseas test prep growth remains low single digits (4.1%). Do you see this as the new normal given geopolitical tensions, or are there leading indicators in your consulting pipeline suggesting a rebound in FY27?
Share-Based Compensation Spike
SBC increased over 150% YoY. Can you provide a trajectory for these expenses for the remainder of FY26 and FY27? Should we expect this drag on GAAP earnings to persist?
G&A Leverage
While operating margins expanded, G&A expenses (+15.2%) grew faster than revenue (+14.7%). When do you expect G&A growth to moderate below the rate of revenue growth?