The stable fundamentals struggle to support the valuation; when will Gaotu's stock price rise after the new round of consolidation?

After trying new businesses such as e-commerce live streaming and research projects, Gaotu (GOTU.US) has turned its attention to the esports projects that attract teenagers, attempting to tap into the Generation Z market through cross-industry cooperation with esports. According to Zhitong Finance APP, Gaotu recently announced a partnership with the Wolves Esports Club, becoming its official learning partner, and the two parties will engage in in-depth cooperation around the cultivation of global esports talent.

In fact, since the "double reduction" policy in 2021, many leading K12 education companies in China have chosen to transform and seek a second growth point, with popular paths including AI hardware and e-commerce live streaming. However, Gaotu's "alternative path" does not seem to have received positive feedback from the secondary market.

After reaching a temporary high of $4.12 during intraday trading on August 29, Gaotu's stock price has been on a downward trend, hitting a new low of $3.37 on September 24, with a maximum decline of 18.20% in the past month.

Is a new round of wash trading starting with the cross-industry esports news?

Similarly announcing the pursuit of a second growth point, the secondary market's response to Gaotu's cross-industry esports initiative is evidently less positive than the enthusiastic reaction when the company announced its transition to AI earlier this year, and there is also the possibility that major funds are "taking the opportunity to wash the stock."

According to Zhitong Finance APP, on February 12, Gaotu officially announced the integration of the DeepSeek artificial intelligence model, aiming to strengthen its deep application in multiple core business scenarios such as research, teaching, product development, and content creation, and plans to launch several optimization results and updates in the next three months. Furthermore, during the 2024 annual performance meeting, CEO Chen Xiangdong repeatedly emphasized Gaotu's focus on AI and its application, clearly stating a "firm embrace of the AI strategy."

At that time, the industrial revolution triggered by DeepSeek in China had already led to a "collective soaring" market trend in both A and H shares. For example, from February 5 to February 24, the DeepSeek concept sector in A-shares saw a cumulative increase of 42.75%. At this point, the DeepSeek sector had experienced a round of highs and pullbacks, with popular stocks running at high levels, but the speculative sentiment was still at its peak. Thus, the previously undervalued Gaotu, which had significant performance recovery and was also part of the DeepSeek concept, became highly sought after.

On February 26, Gaotu's stock price opened high and rose, reaching an intraday high of $3.4 within the first hour and a half of trading, ultimately closing up 31.23%, with a massive volume of 15.1005 million shares traded, and a turnover rate of 5.96%, significantly higher than previous levels.

In contrast, regarding the background of Gaotu's announcement of cross-industry esports, after reaching a year-high stock price of $4.56 on May 15, Gaotu's stock price entered a three-and-a-half-month period of sideways fluctuation. Based on the closing prices from May 16 to August 29, Gaotu's stock price basically maintained a range of $3.5 to $4, with a price increase of only 2.36%, maintaining a stable sideways effect.

It is worth mentioning that during this process, major funds suppressed the stock price by manipulating some chips and absorbing selling pressure, keeping most of the chips inactive, with the overlap of 70% and 90% chip ranges remaining stable at over 60%. According to the chip distribution chart, regardless of how the stock is traded, the overall average cost of chips has basically fluctuated around $3.5

However, during the process of the main funds maintaining a sideways fluctuation, not only did some low-cost funds enter and continue to trade around the average cost line of $3.58, but there were also some chips bought in April this year at a cost line of only $2.5. Therefore, from the perspective of the main funds, there is a certain necessity for a new round of washing before the subsequent price increase, with August 26 being a test.

During the sideways fluctuation period from May 15 to August 29, a phase bottom of $3.44 was formed on July 7. Even during the bottoming process on July 30, the lowest price of the day only reached $3.45, not breaking the $3.44 bottom. However, on August 26, Gaotu's stock price pulled out a long lower shadow, with the lowest price breaking the aforementioned bottom, probing down to $3.40. In terms of volume, Gaotu's stock price fell by 3.70% that day, with a trading volume of 2,497,100 shares, which was second only to the over 11% surge on July 15 and significantly higher than previous periods. This indicates that the divergence in the market is widening, which is beneficial for the main funds to further accumulate shares.

However, after Gaotu's stock experienced two consecutive days of gains on August 27 and 28, the trading volume began to shrink significantly, leading to a noticeable decline without volume. Generally speaking, when the stock price falls below the 60-day moving average, most investors tend to believe that the stock price is approaching a phase bottom area. The slight increase in daily trading volume to over 800,000 shares on September 23 and 24 may signal small-scale accumulation from outside the market. However, from the perspective of the main funds, if the stock price further breaks down and creates new lows, it could trigger panic selling from uncertain holders. Therefore, for ordinary investors, it is necessary to keep a close watch on Gaotu's subsequent stock price movements.

Fundamentals Expected to Support Phase Value Recovery

Although Gaotu's stock price has experienced some fluctuations recently, even if there is a further breakdown in the future, the stock price will ultimately reverse. The reason lies in the fact that after the Q2 2025 performance, the secondary market has not fully reflected the company's business development situation.

According to the previously disclosed Q2 2025 performance by Gaotu, the company achieved revenue of approximately 1.39 billion yuan (RMB, same unit) during the period, a year-on-year increase of 37.6%. This marks the sixth consecutive quarter of revenue growth exceeding 30% for Gaotu, and this revenue situation surpasses the upper limit of the 1.32 billion yuan guidance provided in the Q1 2025 financial report.

It is worth mentioning that since the first quarter of last year, Gaotu has achieved over 30% revenue growth for six consecutive quarters, with an average growth rate of 51.7%. Regarding the revenue growth in Q2 2025, the company stated in its financial report that it was due to the full accommodation of strong market demand, with cash revenue continuing to grow year-on-year From the perspective of cash income, as of Q2 2025, Gaotu has maintained continuous growth for 10 consecutive quarters, with an average growth rate of 46.4%.

In terms of segment performance, Gaotu's core revenue source is learning services, which accounted for over 95% of its revenue in Q2 2025. The remaining revenue contributions come from intelligent learning content and products (including teaching aids, etc.). Among these, the learning services business is further divided into non-subject training for K12, traditional services for high school students, and services for college students and adults, with the first two segments contributing over 85% of Gaotu's revenue.

The financial report shows that in Q2 2025, Gaotu's overall revenue growth benefited from its K12 non-subject training business, which accounted for nearly 40% of revenue during the period and achieved over 100% year-on-year growth for the fifth consecutive quarter, with cash income growth also exceeding 100%.

On the cost and expense side, with steady investments in the business, Gaotu's main business costs reached 473 million yuan during the period, an increase of 50.9% year-on-year. The main reasons for this were the increase in labor costs due to the growth in the number of main and secondary teachers, as well as rising rent, depreciation, and amortization expenses. This led to a year-on-year increase in gross profit of 31.6% to 917 million yuan, while the gross profit margin decreased by 3 percentage points from 69% in the same period last year to 66%. In terms of operating expenses, the company's total operating expenses for the period were 1.158 billion yuan, a slight decrease of 0.2% year-on-year, maintaining a relatively stable expense level.

Therefore, under the backdrop of revenue growth and stable expenses, Gaotu reported a net loss of 216 million yuan in Q2 2025, narrowing by 50% compared to the same period last year. However, the operating net cash inflow for the period reached 589 million yuan, indicating an overall improvement in financial structure and development trend. Additionally, as of the end of June 2025, Gaotu held a total of 3.824 billion yuan in cash and cash equivalents, restricted funds, short-term investments, and long-term investments, along with positive operating cash inflows, indicating a good cash reserve situation.

It can be seen that, supported by current business development, Gaotu has maintained a relatively stable growth trend. However, Gaotu's PS valuation has fallen to only 1.08 times, significantly lower than the industry average of 1.78 times, indicating a clearly undervalued state. However, from its secondary market performance, it may take some time for major funds to drive the stock up