New Oriental (EDU) Q1 2027 earnings review
New Oriental sales rise 23%, but e-commerce trims its profit
New Oriental, the Chinese tutoring and livestreaming e-commerce group, kept revenue growing fast while its profit margin slipped. Revenue rose 23%, led by newer children's courses, adult exam classes, and East Buy's online retail business. Finance chief Stephen Zhihui Yang said margins rose in both education and e-commerce, yet East Buy's lower-margin sales pulled the combined margin down. Executive chairman Michael Yu left the full-year outlook unchanged, which by our math points to 13% growth for the rest of the year.
| Revenue | $1,874.5M +23.1% from a year ago |
|---|---|
| Operating margin, excluding one-offs | 21.7% -0.3 percentage points from a year ago |
| Prepaid tuition (deferred revenue) | $2,121.1M +11.2% from a year ago (vs +14.8% last quarter) |
| Full-year revenue outlook | Unchanged middle of the range: 16.0% growth |
⚖️ Verdict: ⚪ Neutral
The story is unchanged because strong top-line momentum offset softer forward indicators and a dip in margins. Overseas study courses accelerated and the New Oriental Home family app nearly doubled its users in three months. The bad news: summer enrollments in non-academic tutoring fell 10% from a year ago by our math, and growth in prepaid tuition slowed.
The question now is whether the unchanged annual plan reflects management's usual caution or a genuine slowdown after an easy summer comparison. If the plan is simply cautious, growth will stay near 20% even as comparisons get tougher; if demand is cooling, the slower prepaid tuition balance will pull revenue growth down toward 13%. Next quarter's revenue and deferred tuition balance will tell.
🐂 Bull Case
New Courses and Adult Test Prep Keep Revenue Growing at 23%
New Oriental, China's largest private tutoring and test-preparation group, matched last quarter's 23.1% revenue growth. Executive chairman Michael Yu noted that the result came in "above our current full year guidance range". Newer school courses and adult exam classes carried the quarter, while overseas study services also improved.
- New educational business initiatives (non-academic tutoring and learning tablets): up 24.7% from a year ago
- Domestic test preparation for university students and adults: up 22.3% from a year ago
- Overseas test preparation and study consulting: up 7.7% from a year ago, faster than last quarter's 3.6%
The overseas recovery matters because geopolitical tensions and a weaker economy had held that unit to 3.6% growth last quarter. However, overall sales compared against an easy period a year ago, when summer discounting held total growth to 6.1%.
What to watch: revenue growth for the new educational initiatives next quarter. That period compares against a 21.6% gain a year ago, so holding growth near 20% would prove demand is durable.
Family Service Platform Nearly Doubled Its Reach in Three Months
New Oriental Home is the group's unified customer service platform that links all of its teaching and retail departments. Yu said the platform has already begun to "enhance customer loyalty and retention and strengthen our cross-selling capabilities" while lowering the cost of finding new students.
By the end of August, New Oriental Home served more than 1,678,000 families across 69 cities. That is up 76.6% from 950,000 families three months ago by our math, and five times the 330,000 families it reached six months ago. In the same quarter, chief executive Chenggang Zhou said the company will use artificial intelligence to "enhance the competitiveness of our existing products, develop new AI-powered education products that can be commercialized efficiently, and apply AI more broadly to reduce labor costs".
What to watch: selling and marketing expenses as a share of revenue over the rest of the year. A falling share would show that New Oriental Home is cutting student acquisition costs.
🐻 Bear Case
East Buy E-Commerce Growth Pulled the Group Margin Down
Finance chief Stephen Zhihui Yang said that "both our core education business and East Buy recorded year over year expansion in their respective operating margins" and that the shift in sales mix "kept our consolidated operating margin at a stable level during this quarter". East Buy is the company's livestreaming e-commerce and private-label food subsidiary.
In fact, the group's operating margin slipped, because East Buy carries lower margins than tutoring and grew faster than the rest of the company. East Buy expanded its own-brand goods to over 1,000 products, opened four physical stores, and started "one-hour delivery trials in Beijing and Shanghai".
- Operating margin excluding one-offs: 21.7%, down 0.3 percentage points from 22.0% a year ago
- Cost of revenues (cost of goods sold and teaching): 43.6% of revenue, up 1.5 percentage points by our math
- Selling and marketing expenses: 14.0% of revenue, up 0.8 percentage points by our math
- General and administrative overhead: 22.4% of revenue, down 2.1 percentage points by our math
Administrative cost cuts saved 2.1 percentage points of revenue, but higher product and marketing costs at East Buy erased the gain. The company also did not publish standalone profit figures for either division.
What to watch: East Buy's standalone revenue and profit in its half-year report after November. That disclosure will show whether core education margins actually rose.
Tutoring Enrollments Shrank and Device User Growth Slowed
New Oriental's fastest-growing education line sells non-academic tutoring courses (such as coding, art, and science for younger children) and paid subscriptions for its intelligent learning tablets. Revenue for this combined line rose 24.7% from a year ago, matching last quarter's 24.8% pace.
Beneath that revenue growth, student headcount weakened. Non-academic tutoring courses recorded about 476,000 enrollments across 60 cities, down 10.2% from 530,000 in the same summer quarter last year by our math. Active paid users on the learning tablets rose 13.9% from a year ago to 515,000 by our math, slowing from 27.8% growth in the fourth quarter and 39.9% a year ago.
Revenue grew 24.7% while student counts slowed or fell, so higher prices and device spending per student carried the quarter. Relying on price increases is harder to sustain in China's shrinking school-age population.
What to watch: non-academic tutoring enrollments in the second quarter against last year's 1,058,000 figure. A second straight decline would show that student volume in the new courses has peaked.
Prepaid Tuition Slowed and the Plan Points to 13% Growth Ahead
Deferred revenue is cash collected up front from parents for tuition that New Oriental recognizes as classes take place over the next one to two quarters. At the end of August, the balance stood at $2,121.1 million, up 11.2% from a year ago. That is slower than the 14.8% growth recorded at the end of May.
During the quarter, the prepaid balance fell by $121.8 million as summer classes ran, more than double the $47.8 million seasonal drop in the same quarter last year by our math. At the same time, New Oriental kept its full-year revenue outlook unchanged at 14% to 18% growth and again gave no quarterly forecast. By our math, the middle of the annual range leaves 13.4% growth for the rest of the year.
What to watch: whether New Oriental raises its full-year revenue outlook next quarter, when the easy summer comparison is behind it.
Risks this quarter didn't answer
One standing policy risk received no update in the quarterly release.
- Government inspections of learning centers: the release gave no update on local regulatory checks or compliance costs; analyst questions on the conference call or the annual filing will test whether rules have tightened.
👓 Other Themes
Capital Returns Shift From Buybacks to Cash Dividends
New Oriental completed its $300 million share buyback program from last year, repurchasing 56.2 million common shares. For fiscal 2027, the board approved a $300 million ordinary cash dividend ($2.00 per American Depositary Share, paid in December and June) and a smaller $200 million buyback plan, with no shares bought under the new plan by October 27.
💲 Other KPIs
Free cash flow (operating cash flow minus capital spending) fell 5.4% from a year ago by our math, even as revenue rose 23.1%. Operating cash flow edged up 1.6% to $195.4 million, while capital spending on learning centers and facilities rose 18.8% to $65.8 million, or 3.5% of revenue.
Weighted average diluted common shares fell 1.9% from a year ago (and 0.9% from last quarter) as the company finished its $300 million buyback authorization. The lower share count lifted diluted earnings per share growth by about 2 percentage points above net income growth.
Total cash, restricted cash, bank term deposits, and short-term investments stood at $5.82 billion on August 31 by our math, almost unchanged from $5.84 billion at the end of May. The education group holds no financial debt, giving it ample cash to fund its $500 million capital return plan.
🔮 Guidance
Unchanged. The plan still calls for full-year revenue to grow 14% to 18% (16.0% at the middle of the range). By our math, after 23.1% growth in the first quarter, the middle of the plan leaves 13.4% growth for the rest of the year. Last year, New Oriental raised its annual revenue outlook twice before beating the top of the final range.
❓ Key Questions
What were the standalone margins for education and East Buy?
Management said both core education and East Buy expanded their operating margins, yet the combined margin excluding one-offs fell 0.3 percentage points to 21.7%. Without standalone revenue and profit figures, investors cannot verify how much core tutoring margins improved.
Why did non-academic tutoring enrollments fall 10% from last summer?
Non-academic tutoring enrollments dropped to 476,000 from 530,000 a year ago, even as revenue for the new initiatives unit grew 24.7%. Management did not explain whether class schedule changes, higher prices, or weaker demand caused the drop.
Why did the company leave its full-year outlook unchanged?
First-quarter revenue grew 23.1%, well above the 14% to 18% full-year target range. Holding the annual target implies growth slows to 13.4% over the next three quarters, and the company no longer gives a next-quarter forecast to clarify the pace.
How much did phase two of cost cuts save?
General and administrative overhead fell by 2.1 percentage points of revenue, but total operating costs still grew faster than sales. Management has not given a dollar savings target for the second phase of its cost program.