We Anticipate TAL Education to Turn Profitable in 2025

Equity Analyst

Cheng Wang

TAL Education, or TAL, repositioned itself as a smart learning solutions provider after regulatory changes in 2021 decimated the K-9 academic afterschool tutoring industry. It currently focuses on enrichment learning and content solutions. Enrichment learning offers nonacademic programs to students aged between two and 18 years. Content solutions offer learning content in both paper and digital formats to students.

Unlike New Oriental Education’s diversified revenue sources, TAL generated more than 90% of revenue from K-12 academic afterschool tutoring before the crackdown. As a result, TAL was hit harder than New Oriental. In the 12 months ending February 2023, TAL’s revenue was down 77% year over year, compared with 30% for New Oriental. We expect revenue to only recover to 81% of the 2022 level by fiscal 2029.

We estimate learning services, which include enrichment learning, high school tutoring, learning technology, and others, accounted for 71% of revenue in fiscal 2024. We expect this segment to grow at 16% CAGR from fiscal 2024 to 2029 driven primarily by enrichment learning. As an enrichment learning provider, TAL should benefit from its expertise gained from academic tutoring. Besides, given the recent improvement in the regulatory environment, we see lower risk in high school academic afterschool tutoring now. We expect learning services to represent 61% of revenue by fiscal 2029.

We estimate content solutions accounted for 29% of revenue in fiscal 2024, but we expect 39% contribution by 2029. We project 26% revenue CAGR from 2024 to 2029 underpinned by strong shipment growth of learning tablets.

TAL made losses in fiscal 2024, but we expect it to turn profitable in 2025 as businesses scale up.

Business Strategy & Outlook

We do not think TAL Education has a moat.

TAL used to be the market leader in afterschool tutoring. Following the regulatory change in 2021, TAL spun off its K-9 academic afterschool tutoring business. It focuses on enrichment learning and content solutions now.

Enrichment learning offers nonacademic tutoring on science and creativity, coding and programming, humanity and aesthetics, and other programs. The market is highly fragmented. Demand is not as sticky as academic tutoring. The lack of means to measure the effectiveness makes it difficult for service providers to stand out from peers. Retention is often a problem when students are busy with academic coursework. Parents are not as willing to spend, and margins are lower compared with academic afterschool tutoring. In addition, the government has been tightening regulations on nonacademic afterschool tutoring. We think it is difficult to develop a moat in this business.

Content solutions offer TAL Education's educational content to individual learners. We acknowledge that TAL Education is a leader in learning content, but we do not see anything that cannot be replicated by competitors. TAL's learning tablet gained strong growth momentum after being launched in early 2023. We estimate it now has close to 10% market share by shipment in China. However, the learning hardware business is highly competitive with a low entry barrier. We do not think TAL can build a moat on this front.

None

Economic Moat

TAL Education Group

TAL Education Group operates as a holding company, which engages in the provision of after-school tutoring programs for primary and secondary school students. Its services are delivered through small classes, personalized premium services such as one-on-one tutoring, and online course offerings for primary and middle school students. The company was founded by Bang Xin Zhang and Yun Dong Cao on August 2003 and is headquartered in Beijing, China.

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TAL Education Group is a holding company, which engages in the provision of after-school tutoring programs for primary and secondary school students. The company was founded by Bang Xin Zhang and Yun Dong Cao in August 2003 and is headquartered in Beijing, China.

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