OMO, the New Era of Online Education March 2020 China offline K-12 - - PowerPoint PPT Presentation

March 2020

OMO, the New Era of Online Education

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China offline K-12 AST market is projected to grow at 9% CAGR, while the premium sector is expected to grow at 16%

169 (30%) 146 (28%) 109 (25%) 349 (74%)

475

324 (75%) 373 (72%)

2018

126 (26%)

2019 2020

395 (70%)

2021

196 (32%) 416 (68%)

2022

Premium CAGR +16% Non-premium CAGR +6% 433 518 564 611

CAGR +9%

Premium after-school tutoring (AST) sector grows much faster than the entire market

Source: Frost & Sullivan: China’s K-12 After-School Tutoring Market Study (March 2018)

China K-12 AST Market Size (2018 – 2022F) RMB billions



Rising awareness and preferences for individualized learning



Consumption upgrade by increasing number of Mid-Class families



Rising willingness to pay for premium services The premium sector presents the most attractive segment in the offline space

~RMB 200bn premium market Notes: 1) Premium tutoring services refers to either 1-on-1classes priced at or above RMB 200 per session or small group classes priced at or above RMB 120 per session, according to Frost & Sullivan 2) Numbers were projected back in 2017, when it only included limited size for online AST sector as it was still at nascent stage. For example, it predicted less than RMB 10bn

• nline revenue by 2022. An updated projection for online sector by the same vendor is provided on next slide

Drivers of premium market growth:

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Source: Goldman Sachs Research, Frost & Sullivan, CITIC securities

2015 2013 2018 2016 2014 2017 2019E 2020F 2021F 2022F 2 2023F Online Small Group Class & 1v1 Online Large Group Class 12 1 3 6 30 64 119 197 277 367

China online AST market size 55% CAGR China online AST market penetration

1.0%1.3%1.8%2.9% 45.0% 15.7% 4.7% 9.5% 23.4% 32.4% 39.0% 2016 2013 2014 2015 2017 2018 2019E 2020F 2021F 2022F 2023F

Online AST as % of total AST market*

RMB billions

CAGR @ 52% CAGR @ 58%

China online AST market expects much faster growth at 55% CAGR driven by rapid consumer adoption and increased supply

* Forecasts were made before the COVID-19 outbreak, numbers may be higher due to potentially higher online adoption

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While all three segments present attractive growth potential, the online large class segment is relatively crowded, while the other two segments still at early stage

Each online formats satisfies 2 of the 3 key consumer preferences: convenience, effectiveness & price

There are three major online segments, each offers differentiated value propositions thus create growth potential

Effectiveness Price Convenience

Online 1on1 Class Online Small Group Class Online Large Class

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Both offline and online models are facing their own challenges

Online Model Offline Model

X

License requirements for centers

X

Coverage limitation (~3 kilometers from centers)

X

Capex and local management requirements

X

Ramp-up time requirements (3yrs to stabilize)

X

Impact by online penetration

X

Fierce competition

X

Learning results not ideal due to limitation

• n engagement level, thus still challenged

to meet K-12 score improvement requirements, the main industry demand

X

High customer acquisition cost due to high cost and low conversion rates in online channels

X

Profitability largely not proven… so far

• nly few online large class models

profitable

6

OMO model combines advantages of both online and offline models

OMO Model

Online teaching/service + Offline experience center

Offline Model

Pure offline No online presence

Convenience Interactions / Services Quality Acquisition Cost Expansion Pace

For customer For Company

High, student Can learn at home High, offline real person interactions Online services also available Relatively low, Offline centers help lower CAC

Light offline centers serve as experience center for acquisition and service functions

Low, student needs to visit

• ffline center

High, offline real person interactions Low CAC Slow, requires license approval

= best = worst Combines advantages of both

• nline and offline models

Online Model

Pure online, No offline center

High, student Can learn at home Low,

• nly online

services High, acquires customer online leads to high CAC Fast, can expand nationwide quickly

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Better Teacher Convenience

Customer Needs

希望加频的同时 希望节约往返校区的时间 /

Customer Types

Existing Customer New Customer

More frequency while also save commute time: Weekday online courses Same city but long distance from OneSmart center: OMO model Better teacher For high school students* OMO model

* Online education suitable for high school students because:

1.

Lower tier city students demand for higher quality teachers often gathered in the largest cities of China such as Beijing and Shanghai

2.

College entrance exam is more standardized countrywide in China;

3.

Students more self driven thus more concentrated when doing online classes

OMO model helps offline players address incremental demand, helps expand into areas where offline centers cannot yet cover

• Online and offline integrated
• Leverages ~430 offline learnings

centers in 20+ provinces

• Convenient for students at long

distance to our centers or students prefer online education

• Choices for higher quality teachers

located in the largest cities of China

OneSmart OMO model

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OneSmart OMO model: integrated with offline business and offers supplementary and compelling value proposition

Offline Center Online Platform Show-room Feedback & Services

Customer acquisition

Consultancy Student Assessment Teaching Customer Demand Products Unit Economics

OneSmart Offline Model Prefer effectiveness of onsite 1on1 tutoring 1on1 format and typically focused on one or two subjects Proven unit economics (Per Student OP Margin >25%) and margin expansion driven by new center ramp-up OneSmart OMO Model

• 1. Time and convenience
• 2. No limitation on distance
• 3. Cover more lower tier cities
• 4. Choices of high quality teacher
• 1. Offerings of more subjects
• 2. 1on1, group and large class

formats

• 3. Choices of shorter term

packages

• 1. Unit economics comparable to
• ffline model: some discounts to
• ffline pricing, offset by rental

savings, higher teacher utilization rate and similar acquisition cost

• 2. Profitable growth … not to burn

money for scale

Supplementary to offline business to capture larger market demand

OneSmart APP

Offline and Online integrated

Teaching & Services

OneSmart OMO Model

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City Tier Positioning Higher Lower Higher Tier 1 & 15 Largest Tier 2 Cities OneSmart Offline & Weekday Online Tier 3 Cities OneSmart Online OMO Tier 2 Cities OneSmart Offline & Online OMO

OneSmart Business Line / City Tier Matrix

OMO offerings provide a much larger addressable market, creating largely increased growth potential for OneSmart

OneSmart Offline Business

Note: Tier-1 includes 4 cities, Tier-2 includes 45 cities

• Upgrade to more premium Elite products to drive

incremental growth

• Growth strategy is to scale up the top 20 cites to

achieve city level operations efficiency and economy of scale

• Incremental growth and margin expansion driven

by ramp-up of the 237 new centers opened in FY18 & FY19

Growth Strategy OneSmart OMO

• Expand our offerings to cover students located far

from our currently limited center network in tier 2 cities

• Possibility to enter tier 3 or even lower tier cities

where we have not entered yet While OneSmart will continue to grow its offline business to strengthen its leading position in the offline premium sector, it will strategically focus on OMO model to capture much enhanced addressable market

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OneSmart OMO products satisfy the demand of majority students

Online Small Group Classes － Two versions: premium and regular － Initially focused on students from 4th grade to 9th grade, expand to 10th through 12th graders 2 Overseas Studies Test Preparation and Consulting Classes － Online 1on1 and small group test preparation classes for students who plan to study abroad － The consultants also help students through the school application process 3

Young Children Classes

－ Online small group classes for Primary School & Kindergarten － Mainly English Language and Math programs 4 Online Personalized 1on1 Classes － 1on1 Online classes for K-12 tutoring － Focused on middle and high school students 1

Source: China student population data based on NDS data and Goldman Sachs research

High School Middle School Primary School & Kindergarten

OneSmart OMO Products Map

24million 47million 104 million

By Student Grades By Market Segmentation / Affordability

Premium Market Mass to high- end market

Online K-12 Personalized 1on1 classes Premium K-12 small group classes Regular K-12 Small group classes Online Large classes

Young Children Classes

Online K-12 Small Group Classes Online K-12 personalized 1on1 classes Overseas Studies Test Preparation and Consulting

48 million

China Student Population in 2019

OneSmart Online Products

Note: OneSmart also plans to roll out a online large class as a complementary product SKU

Young Children Classes

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OneSmart OMO model’s advantages and quality control

High quality delivery Customer acquisition Management system OneSmart OMO Methodology

－ Customer acquisition through offline channels, i.e. learning centers, AI experience centers － Additional acquisitions through online channels, i.e. private online traffic channels (WeChat public account, WeChat Mini Programs, and online APPs) － Other customer acquisition channels shared with offline businesses, i.e. cross selling, telemarketing, etc. － Unified application user platform--- OneSmart Online － AI powered teaching system is based on years of teaching research and large digitized notes and quiz database － Online teaching management platform and quality control mechanism built from years of offline operations － Online based customer relationship management tools learnt from

• ffline experience

－ Localized teaching & research team (mostly for middle school students) － Higher quality star teachers for high school students － Personalized premium services

Thank You