17 Edu & Tech (YQ.US) – Note (pre-4Q20ER guess)

[March 8th, 2021]

This is an exercise on guessing (no research on underlying) the 4Q20 result of 17 Education & Technology Group (YQ.US). The information is based on F-1 where the company disclosed their unaudited financial data of October 2019 and October 2020 (page 7). I think it’s because the online education market in China is very competitive and YQ needed to give investors some confidence on IPO after spending 161.4% of net revenue on sales and marketing in 3Q20.

Financial data of 4Q19 & 3Q20

My 4Q20 guess is simply the quarterly run-rate of October 2020 result (Oct. 20 times three).

Unaudited Financial Data of October 2019 and October 2020
Guess based on quarterly run-rate

It’s impressive to see Oct was up 226% and the business had operating leverage on all cost and expense items compared to the results last year. However, the run-rate for the quarter is not impressive in terms of YoY and QoQ because the revenue distribution was skewed toward last two months in 4Q19 and the scale of company has grown over the last year.

My revised guess for 4Q20
– Net revenue YoY between 105% and 226%. Guess it’s mid-point, 165%
– GP margin between 67.5% and 73%. Guess: 70%
– S&M exp. ratio between 36% and 60%. I guess it’s 55%.
– R&D exp. ratio around 36.7% (same as Oct. 20)
– G&M exp. ratio around 15.2% (same as Oct. 20)

Revised guess (educated or not?)

If there’s a positive surprise, I guess it comes from improvement on conversion rate (better monetization).

Life is much easier if you have alternative data or check with industry expert.

YQ will report the 4Q20 result on March 8th, 2021 after the close of US markets.

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