EDU (Trans): Market Share Up, Pursuing High-Quality Growth

Dolphin Research's FY26 Q2 earnings call Trans for EDU. For the results read-through, see New Oriental: Resilient growth; the premium on the education bellwether keeps rising.

I. Key financial metrics

II. Management commentary

1) Overall outlook

Management said the quarter and 1H FY26 delivered strong results, reinforcing confidence in operational resilience and growth momentum.They will continue to balance revenue growth and profitability.

• With cost discipline to drive sustainable profitability across lines of biz.;
• A prudent stance on capacity/site expansion, emphasizing growth not at the expense of quality,
• Resource allocation tilted to cities with stronger revenue and profit, with tight resource management maintained;
• Pacing for new initiatives: closely monitor the speed and scale of new products/biz., aligning with operational needs and financial performance through the year.

2) FY2026 Q3 revenue guide (next quarter)

• Scope and range
  • Target: Group total net revenue (incl. East Buy).
  • Period: FY2026 Q3 (2025/12/1–2026/2/28).
  • Range: $1.3132bn–$1.3487bn.
  • YoY growth: +11%–+14%.
• Drivers behind the momentum include:
  • Healthy growth in K-12,
  • Recovery at East Buy.

3) FY2026 full-year revenue guide

Group total revenue: $5.2923bn–$5.4883bn. YoY growth: +8%–+12%.

4) Margin/profitability outlook (qualitative)

• Continue to drive sustainable profitability,
• Profit quality underpinned by cost discipline and resource management,
• Expansion without sacrificing quality, with deeper presence in outperforming cities,
• New biz. pacing aligned with operating and financial outcomes, avoiding cash-burn expansion.

5) Capital return plans

Cash dividend

• Announced in Oct 2025: under the 3-year shareholder return plan, the BOD approved a dividend of $0.12 per common share / $1.2 per ADS, paid in two tranches as FY2026 shareholder returns.
• Tranche 1: fully paid as of today.
• Tranche 2: timing and details to be determined and announced in due course.

Buyback

• Authorization: repurchase up to $300mn of ADSs or common shares over the next 12 months.
• Progress: as of 2026/1/27 (yesterday), repurchased ~1.6mn ADS for a total consideration of ~$86.3mn (open market).

III. Q&A

Q1: Guidance raise — can you break down growth by segment? What drove the full-year uplift?

A: Starting with this quarter's revenue breakdown, we are pleased to see faster growth in K-12. Our strategy this year is to improve product and service quality, and in Q2 we saw strong results: higher student retention and better customer feedback in K-12.For Q3, I expect K-12 to grow around 20% YoY or higher, i.e., 20%+. Overseas-related businesses face headwinds, but overseas test prep still grew 4% YoY in Q2, showing resilience. In fact, I believe we are taking share.

For Q3 and 2H, I expect overseas-related revenue growth to be flattish, which remains a drag, but we will do our best. College English should grow about 14%–15%.We are constructive on 2H revenue growth and more confident on margin expansion. Since Mar 2025 we have tightened cost control, and execution has been solid. We will keep strengthening cost controls, so margins should continue to expand in 2H and into next year.

Q2: Overseas test prep + study-abroad consulting integration — how much margin uplift? Can it offset US headwinds? CAC reduction? Cross-sell targets?

A: Yes, we have combined the overseas operations with consulting. Previously, overseas test prep and consulting served customers separately, with distinct site management, teachers, marketing and admin teams. We have now integrated overseas test prep with consulting.The goal is a one-stop service for better customer experience. It should also lower costs via synergies, as staff can take on broader roles and be more productive, but we will observe the impact first. We will share savings, revenue uplift, and any top-line acceleration on the next call.

Q3: Q2 margin expanded by over 100bps — key drivers? 2H margin outlook?

A: On margins, despite some drag from overseas-related businesses, we still expanded margins in Q2, with non-GAAP OP margin up 470bps YoY.Drivers included better resource utilization, higher operating leverage, cost control, and profit contribution from East Buy. We will keep focusing on operating efficiency and strict resource management, i.e., cost control.

We are limiting learning center expansion and managing marketing spend. The results are visible in the numbers. I believe we will continue to expand margins in Q3 and Q4, i.e., in 2H. We typically do not provide margin guidance, so no specific numbers, but we are quite optimistic on 2H margin expansion this year.

Q4: Overseas grew 4% in a tough environment — why the outperformance? What is the outlook?

A: Overseas is exposed to the external macro environment. The team executed very well in 1H and showed strong resilience, and we believe they will gain more share from competitors.The group is also offering more support than before, given the pressure on this segment.

For 2H, my guidance is: overseas growth to be roughly flat, or slightly down, i.e., low single-digit growth/decline, as external conditions have not changed. That said, I am confident the team will keep delivering as in 1H.

Q5: Q2 margin expansion — contribution from core edu vs. East Buy? Can new edu sustain 20%+ in coming years?

A: East Buy has also reported 1H results, so you can approximate. Ex-East Buy, the rest of the businesses delivered about 300bps YoY margin expansion.

Q: Your new education segment grew 20%+, which is impressive. What is the sustainable growth rate over the next few years? If group capacity expansion stabilizes at ~10% p.a., K-9 could grow capacity 15% p.a., plus 4%–5% ASP growth and several points from utilization/efficiency. Does that imply 20%+ growth for the next few years? I mean structurally, not just in 2H. Will this formula change vs. the past?

A: Great question. Ahead of this fiscal year, we adjusted strategy: slowing learning center expansion from 20%–30% last year to about 10%. This lets us focus more on quality, and retention has improved across lines from high school to K-9, even beating expectations.It also strengthens word of mouth, reducing the need for heavy marketing to acquire new students. We can attract them via stronger reputation. Hence our 2H K-12 revenue guide is 20%+ YoY, and I believe we can sustain growth next year as well.

With better quality and a stronger competitive edge at New Oriental, we should enroll more new students while spending less on marketing. We are opening fewer than 10% new learning centers this year, yet revenue is growing around 20%, so utilization and K-12 margins are rising.In Q3, I expect margin improvement from both the core biz. and East Buy.

Q6: AI initiatives — any concrete progress/quantifiable results? Updates on new course formats?

A: Over the past three months, our teams have pushed hard on new AI products and new offerings, though these may need another quarter for validation. I believe they will contribute more revenue ahead. One more point:

AI is also helping us enhance existing products, as seen in improved student retention. We are doubling down on product and service quality, and I am confident AI will further lift retention. AI is also improving operating efficiency, saving expenses and costs.

So at the group level, AI shows up in new product supply, upgrades to existing products, and cost savings. We will keep investing in AI, but in a controlled way, and I expect to see more payoff from these investments going forward.

Q7: Rising GPM and lower S&M ratio — linked to the cross-dept customer service system? Will S&M keep trending down?

A: I believe this trend will continue.First, we focus more on the product itself rather than heavier marketing, yet growth remains very healthy.

Second, we set up a new customer service Dept., which connects info and resources across New Oriental: legacy segments, overseas, consulting, university, K-12, high school, K-9, other businesses, cultural tourism, and East Buy. This new Dept. helps channel more internal traffic and convert within our existing customer base more effectively, making it a great tool to further reduce marketing spend.

We are only opening about 10% more learning centers this year, so no need for extra marketing push. Even though some peers offered summer promos or free classes in Q1, we were pleased to see more students come back to New Oriental in the fall, which speaks to our core advantage in product quality. I expect sales and marketing as a % of revenue to keep declining, not only in 2H this year but also next year.

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