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Summary

  • Leading provider of professional IT education services in China.
  • In 2013, was recognized as the Outstanding Training Institute by China’s Ministry of Industry and Information Technology, or MIIT.
  • Market growth from US$8.1 billion in 2010 to US$11.1 billion in 2013, representing a CAGR of 11.4%.

Based in Beijing, China, Tarena International (NASDAQ:TEDU) scheduled a $138 million IPO on the Nasdaq with a market capitalization of $408 million at a price range midpoint of $9 for Thursday, April 3, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: Goldman Sachs (Asia), Credit Suisse
Co-Managers: Jefferies & Co., Oppenheimer & Co.

End of lockup (180 days): Tuesday, September 30, 2014

End of 25-day quiet period: Monday, April 28, 2014

Summary
TEDU is a leading provider of professional education services in China. In 2013, TEDU was recognized as the Outstanding Training Institute by China's Ministry of Industry and Information Technology, or MIIT.

Valuation
Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Dec qtr

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Tarena International

$456

4.0

18.7

2.9

2.9

30%

Conclusion
The rating on TEDU is buy. 25% of the IPO is selling to shareholders.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Market growth
According to IDC, the market size of professional education services in China, which includes industries with high employment demand such as IT, computer graphics, online marketing, finance and accounting and management, grew from RMB48.8 billion (US$8.1 billion) in 2010 to RMB67.5 billion (US$11.1 billion) in 2013, representing a CAGR of 11.4%.

The market is projected to grow to RMB89.0 billion (US$14.7 billion) in 2017, representing a CAGR of 7.2% from 2013 to 2017.

Core strength
TEDU's core strength is in IT professional education services, where TEDU is the largest provider in China with a market share of 8.3% as measured by revenues in 2013 according to IDC, a third-party research firm.

TEDU currently offer courses in nine IT subjects and two non-IT subjects. TEDU's courses provide students with practical education to prepare them for jobs in industries with significant growth potential and strong hiring demand.

TEDU has an innovative education platform combining live distance instruction, classroom-based tutoring and online learning modules.

For each class, instructors deliver lectures from one classroom in Beijing to both students in the same classroom as well as to students at TEDU's learning centers across China via simultaneous webcast.

To facilitate a disciplined and focused learning environment, TEDU staffs each classroom at its learning centers with one or two on-site teaching assistants to tutor and supervise students. TEDU complements live instruction and tutoring with its proprietary learning management system TTS.

Education platform
TTS has five core functions, featuring course content, self-assessment exams, student and teaching staff interaction tools, student management tools and an online student community.

Through this education platform, TEDU provides job-oriented education with measurable outcomes, as demonstrated by its high job placement rates and students' academic performance.

Capitalizing on its innovative education platform, TEDU has built a highly scalable business that it can expand and replicate rapidly with consistent quality.

Learning centers
TEDU delivers high quality lectures through a group of experienced and passionate instructors based in Beijing to a nationwide network of 92 directly operated learning centers in 33 cities in China as of December 31, 2013.

Compared to traditional classroom-based teaching, which requires hiring and training of instructors for local sites, TEDU is able to expand its geographic footprint and class sizes without impacting the quality of its course offerings because TEDU is generally able to provide its students across China with equal access to the same group of instructors.

For its most established Java course, TEDU's student-to-instructor ratio increased from 1,624-to-1 in 2011 to 3,276-to-1 in 2013, and the average net revenues per instructor for its Java course increased from US$2.7 million in 2011 to US$6.9 million in 2013.

Seasonality
Historically, TEDU's courses tend to have the largest student enrollment, cash collection and net revenues in the third and fourth quarters.

TEDU generally generates less tuition fees in the first quarter of each year due to the Chinese New Year holiday.

For example, TEDU expects net revenues in the quarter ended March 31, 2014, to be lower than that in the quarter ended December 31, 2013, primarily due to the Chinese New Year holiday consistent with prior years.

Dividend Policy
No dividends are planned.

Intellectual Property
TEDU has registered 13 software copyrights for its proprietary TTS with the National Copyright Administration of the PRC. TEDU has also registered two trademarks with the China Trademark Office.

As of December 31, 2013, TEDU had registered 40 domain names relating to its business, including its tarena.com.cn and it211.com.cn websites, with the Internet Corporation for Assigned Names and Numbers and China Internet Network Information Center. Tarena Tech holds 13 registered software copyrights, two trademarks and 39 registered domain names including tarena.com.cn. Beijing Tarena holds one domain name, namely, www.it211.com.cn.

Competition
TEDU faces competition in its offered courses and in many of the geographic markets in which TEDU operates.

TEDU may also face competition from IT professional education providers that offer specialized training programs targeting certain niche job markets in the IT industry.

In the future, TEDU may also face competition from new entrants into the Chinese IT professional education market.

As TEDU expands beyond IT education into other fields of professional education, it faces competition for student enrollment from existing large online and offline providers of professional education services, as well as smaller regional professional education services providers in China.

5% stockholders
Shaoyun Han 32.4%
Ying Sun 32.4%
Goldman Sachs funds 29%
IDG funds 23.6%
JAFCO Asia Technology Fund IV 15%
Connion Capital Limited 6.9%

Use of proceeds
Shareholders are selling 25% on the IPO. TEDU itself expects to net $107 million from its IPO. Proceeds are allocated as follows:

Primarily for general corporate purposes, which may include investing in course development, expanding its learning center network, sales and marketing activities, technology infrastructure and capital expenditures, upgrading facilities and other general and administrative matters.

Disclaimer: This TEDU IPO report is based on a reading and analysis of TEDU's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Tarena International