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Summary

  • New Oriental Education is experiencing a drop in enrollments at its POP Kids children's ESL classes that may be due to more than just a program revamp.
  • Several cities' New Oriental POPKids websites appear not to have been updated in years.
  • According to our research, a substantial online presence is important in getting new enrollments.

New Oriental Education & Technology Group (NYSE:EDU) is a Chinese company that provides test prep and English education courses for children and adults. Several years ago, New Oriental was mired in controversy, when Muddy Waters, a short-selling-focused research firm, released several scathing reports on the company.

Since that time, not much has changed. New Oriental is still under investigation by the SEC (see page 7 of the latest 20-F), and Muddy Waters has moved on to investigating other companies. We decided to take a fresh look at New Oriental.

We investigated the recent enrollment decline at New Oriental's POP Kids program and the program's online presence.

For presentation in this article, we selected five cities where New Oriental had a large campus presence. According to the latest 20-F, New Oriental maintained 3 schools and 34 learning centers in Changchun; 1 school and 26 learning centers in Shenyang; 1 school and 26 learning centers in Kunming; 1 school and 29 learning centers in Zhengzhou; and 1 school and 21 learning centers in Jinan.

We accessed the main POP Kids website at pop.xdf.cn (www.popkids.com.cn also forwards to pop.xdf.cn), and then navigated to the individual city sites from there. We also had Google Translate active when we visited each site.

For reference, the screenshot below shows the POP Kids website for one of the main cities, Shanghai. Notice the design of the website and the current information. Summer and Fall classes for 2014 are advertised on the main page.

(Changchun POP Kids Website)

Changchun

The first individual city website we looked at was Changchun. The POP Kids website does not appear to have been updated since 2010. That's the date of the newest course listed on the main page.

Below is another screenshot of the website that we accessed in June of last year (2013).

Notice the area highlighted in red. The course listings are the same.

The main page and featured course listings for the Changchun POP Kids website have not been updated for over four years!

Shenyang

The website for Shenyang shows the same issue, out-of-date course listings. In this case, the newest course is from 2009.

Kunming

Kunming's website is a bit newer, showing courses from 2011.

As with Changchun, we also have a screenshot of the main page of the website that we accessed in June of 2013. It is shown below.

You will notice the website was slightly different then, but the outdated course listings remain the same.

Zhengzhou

The website for Zhengzhou below also displays outdated courses from 2011.

Jinan

The final website in our test group, Jinan, again displays circa 2011 courses.

Summary

So what do all of these out-of-date websites mean?

According to New Oriental's latest 20-F, having a web presence is very important: "The performance and reliability of our online program infrastructure is critical to our reputation and ability to retain students and increase student enrollments." On a January 21, 2013 conference call, CEO Louis Hsieh said this about their online presence: "… create new revenue streams with online value-added services and many - also - bring online to offline traffic to generate more enrollments and revenues."

We also spoke with several independent ESL school owners in China, and all of them told us that having a web presence is extremely important and that they got most of their enrollments online.

Are New Oriental's outdated websites having an effect on the POP Kids program? In the company's latest April conference call about the POP Kids program, Mr. Hsieh said:

... Third, we are in the midst of rolling out a major refresh of our POP Kids programs targeting kids ages 6 to 12, and as we transition from the old courses to new courses, we have seen a noticeable dip in enrollments. During the quarter, enrollments declined 12.2% year-over-year to approximately 163,400.

This is the most significant new program introduction for our POP Kids offering since we launched this business in 2004. The new program basically will be a complete renewal of the existing business line, featuring updated teaching content, new teaching technologies, as well as live blackboards and fully integrated digital and online elements.

We are now trialing the new offering in a number of schools and learning centers across the country, and we will be rolling it out to all schools during the first quarter of fiscal year 2015, this summer.

As we wind down our existing POP Kids program, we have reduced our marketing effort behind these courses in preparation for a big push in support of the new offerings. As a result, we've seen enrollments decline across the market network.

This raises some questions. The POP Kids revamp might explain why some of the websites are out-of-date, but why would the websites be out-of-date by years? It's already summer, so why aren't the websites in some of New Oriental's major markets already updated? If we had only picked third-tier cities and small markets to review, then out-of-date websites might be acceptable.

For investors, I would be worried about New Oriental's IT capabilities; the enrollment decline Mr. Hsieh referenced may not be all attributed to a change in the POP Kids' programming. Some of it could be reflective of the poor state of New Oriental's POP Kids' online presence.

Source: New Oriental Education: Are Out-Of-Date Websites To Blame For POP Kids Enrollment Decline?