New Oriental's Q4 net revenue increased by 9.4% year-on-year, but "goodwill impairment" caused net profit to drop by more than 70% | Financial Report Insights

Wallstreetcn
2025.07.30 13:41
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New Oriental's Q4 net revenue increased by 9.4% year-on-year to USD 1.243 billion, but net profit attributable to shareholders plummeted by 73.7% to USD 7.1 million, mainly due to a USD 60.3 million goodwill impairment. Excluding the Dongfang Zhenxuan business, core education business revenue was USD 1.09 billion, with a year-on-year growth rate of 18.7%. The company's stock price fell by 8.3%

New Oriental's Q4 net revenue increased by 9.4% year-on-year to USD 1.243 billion, but net profit attributable to shareholders plummeted by 73.7% to USD 7.1 million, mainly due to a USD 60.3 million goodwill impairment. Excluding the Dongfang Zhenxuan business, core education revenue was USD 1.09 billion, with a year-on-year growth rate of 18.7%.

The guidance provided by the company for Q1 and the full fiscal year 2026 is relatively conservative. The Q1 revenue guidance is expected to grow by 2%-5% year-on-year, while the full-year guidance is 5%-10%, lower than the current growth momentum of the core business. The company's U.S. stock price fell by 8.3%.

On the 30th, New Oriental announced its unaudited financial results for the fourth quarter and year ending May 31, 2025:

  • In Q4 of fiscal year 2025, New Oriental's net revenue was USD 1.243 billion, a year-on-year increase of 9.4%, exceeding the consensus expectation of USD 1.19 billion.
  • Net profit attributable to the company was USD 7.1 million, a decrease of 73.7% year-on-year, mainly due to a USD 60.3 million goodwill impairment.
  • The company recorded an operating loss of USD 8.7 million, compared to an operating profit of USD 10.5 million in the same period last year.
  • Adjusted earnings per ADS were USD 0.61, significantly exceeding analysts' estimate of USD 0.29.

In terms of annual performance, revenue for fiscal year 2025 grew by 13.6% to USD 4.9 billion, and net profit attributable to shareholders increased by 20.1% to USD 372 million, with a Non-GAAP operating profit margin of 11.3%.

For fiscal year 2026, New Oriental expects revenue to be between USD 5.15 billion and USD 5.39 billion, representing a year-on-year growth of 5% to 10%. Revenue for the first quarter is expected to be between USD 1.46 billion and USD 1.51 billion, with a growth of 2% to 5%.

Despite the revenue exceeding expectations, investors seem concerned about the operating loss and the outlook for slower growth in the coming quarters, leading to an 8.3% drop in stock price.

Strong Growth in Core Education Business, but Overall Profit Declines Sharply

New Oriental's recently released Q4 and annual performance report for fiscal year 2025 shows that net profit attributable to shareholders plummeted by 73.7% year-on-year to only USD 7.1 million, while a GAAP operating loss of USD 8.7 million was recorded. The company stated that the decline in GAAP profit was due to a goodwill impairment of up to USD 60.3 million.

Excluding this non-operating, non-cash item, the company's Non-GAAP operating profit was USD 81.7 million, soaring by 116.3% year-on-year. Non-GAAP net profit attributable to New Oriental shareholders was USD 98.1 million, a year-on-year increase of 59.4% Data shows that net revenue excluding Dongfang Zhenxuan increased by 18.7% year-on-year to USD 1.089 billion, a growth rate significantly higher than the overall growth rate of 9.4% after consolidation. The growth was primarily driven by the following factors:

  1. New education business: This segment's revenue in Q4 grew by 32.5% year-on-year, showing strong momentum. Among them, the non-subject tutoring business conducted in nearly 60 cities achieved 918,000 registrations in a single quarter.
  2. Traditional advantageous business: The overseas exam preparation business and domestic college student exam preparation business achieved year-on-year growth of 14.6% and 17.0%, respectively.
  3. Efficiency improvement: CFO Yang Zhihui emphasized that after excluding Dongfang Zhenxuan, the Non-GAAP operating profit margin of the core business increased by 410 basis points year-on-year to 6.5%.

"We are pleased to end the fiscal year 2025 with a healthy revenue growth of 9.4% this quarter," said CEO Yu Minhong:

"Revenue from overseas exam training and overseas study consulting businesses grew by approximately 14.6% and 8.2% year-on-year, respectively."

After completing the previous USD 700 million repurchase plan, New Oriental's board proposed a three-year shareholder return plan. The plan will return no less than 50% of its net profit attributable to shareholders from the previous fiscal year to shareholders in the form of dividends and/or share repurchases

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