IPO Update: 17 Education & Technology Prepares Terms For $288 Million IPO

Summary

• 17 Education & Technology Group has filed proposed terms for its U.S. IPO.
• The firm provides offline materials and online tutoring to students in the K-12 market in China.
• YQ has produced strong revenue growth during the pandemic, but operating losses and cash burn are high and increasing.
• I'll watch the IPO from the sidelines.
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Quick Take

17 Education & Technology Group (NASDAQ:YQ) has filed to raise $288 million from the sale of ADSs representing its Class A stock in an IPO, according to an amended registration statement.

The company provides offline to online K-12 education products and services in China.

While YQ has produced strong revenue growth and is well-positioned to benefit from the continued high demand for online education services in China, its ever-increasing operating losses and high operating cash burn are a serious concern.

I'll watch the IPO from the sidelines.

Company & Technology

Beijing, China-based 17 Education was founded to develop an innovative hybrid offline-online model for K-12 students in China.

Management is headed by founder, Chairman and CEO Mr. Andy Chang Liu, who was previously principal of Shenyang New Oriental School, along with many years of education experience in offline schools.

The firm provides offline learning materials for free to more than 70,000 schools in China and those offline material service to onboard students into its online tutoring products, which now account for more than 90% of its revenues.

17 Education has received at least $1.37 billion from investors including Shunwei Capital, Fluency Holding, H Capital, CL Lion Investment, Esta Investments, Walden Investments Group and Long Great Holdings.

Customer/User Acquisition

The firm provides a variety of education materials free to offline schools throughout China.

The company then leverages these offline relationships to generate interest in its after-school online tutoring services.

Sales and Marketing expenses as a percentage of total revenue have been uneven but trending upward as revenues have increased, as the figures below indicate:

Sales and Marketing	Expenses vs. Revenue
Period	Percentage
Nine Mos. Ended Sept. 30, 2020	105.4%
2019	143.7%
2018	97.7%

Click to enlarge

Source: Company registration statement

The Sales and Marketing efficiency rate, defined as how

Analyst’s Disclosure:I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.