20-F: New Oriental Reports Strong FY2025 Growth Amid Strategic Shifts

New Oriental Education & Technology Group Inc. reported a 13.6% increase in total net revenues to US$4.9 billion for fiscal year 2025, driven by educational services growth, despite a decline in private label product sales and a goodwill impairment.

Summary

• Total net revenues increased by 13.6% to US$4,900.3 million for the fiscal year ended May 31, 2025, from US$4,313.6 million in FY2024.
• Net service revenues grew by 23.8% to US$4,334.1 million in FY2025, primarily due to new educational business initiatives, especially non-academic tutoring courses.
• Net product revenues decreased by 30.3% to US$566.2 million in FY2025, mainly due to a decrease in sales of East Buy private label products through its livestreaming e-commerce platform.
• Operating income increased to US$428.3 million in FY2025 from US$350.4 million in FY2024.
• Net income increased by 15.6% to US$375.8 million in FY2025 from US$325.2 million in FY2024.
• Goodwill impairment loss of US$60.3 million was recorded in FY2025, primarily related to the kindergarten business reporting unit.
• The company repurchased 7,811,753 ADSs for US$445,495,000 during FY2025, completing its US$700 million share repurchase program.
• A special cash dividend of US$0.60 per ADS (US$0.06 per common share) totaling approximately US$100.0 million was declared in August 2024.
• A new three-year shareholder return plan, dedicating no less than 50% of net income to shareholder returns (dividends and/or share repurchases), will be effective from FY2026.
• Student enrollments in test preparation courses reached approximately 1,102,000 in FY2025.
• Non-academic tutoring courses had approximately 2,804,000 student enrollments in FY2025.
• Intelligent learning systems and devices had 479,000 active paid users in FY2025.
• Total GMV from all sales channels for East Buy was RMB8.7 billion for FY2025, down from RMB14.3 billion in FY2024.
• The company employed approximately 41,000 teachers as of May 31, 2025.
• The online education business of East Buy was acquired by Elite Concept Holdings Limited and New Oriental China in March 2024 for RMB1.5 billion.
• Time with Yuhui (Beijing) Technology Ltd was sold by Beijing Xuncheng to Mr. Yuhui Dong in July 2024 for approximately RMB76.59 million and deconsolidated in August 2024.

Sentiment

Score: 7

Explanation: The company demonstrated strong revenue and net income growth in its core educational services, successfully navigated regulatory changes by pivoting to new initiatives, and committed to significant shareholder returns. However, the decline in product revenues and a goodwill impairment in the kindergarten business, along with ongoing regulatory uncertainties, temper the overall positive sentiment.

Positives

• Total net revenues increased by 13.6% to US$4,900.3 million in FY2025, indicating strong overall business growth.
• Net service revenues, particularly from new educational business initiatives like non-academic tutoring, showed robust growth of 23.8% to US$4,334.1 million.
• Operating income increased to US$428.3 million in FY2025, demonstrating improved operational efficiency and profitability.
• Net income increased by 15.6% to US$375.8 million in FY2025.
• Successful completion of the US$700 million share repurchase program, returning value to shareholders.
• Declaration of a special cash dividend of US$0.60 per ADS (US$0.06 per common share) totaling approximately US$100.0 million.
• Commitment to a new three-year shareholder return plan (no less than 50% of net income) starting FY2026.
• Significant student enrollments in non-academic tutoring (2,804,000) and test preparation courses (1,102,000) in FY2025.
• Growth in active paid users for intelligent learning systems and devices to 479,000 in FY2025.
• Expansion of physical network to 77 schools and 1,241 learning centers in 70 cities, with approximately 41,000 teachers.
• Continued investment in AI-powered technologies to enhance educational systems, teaching support, assessment, and operational tools.

Negatives

• Net product revenues decreased by 30.3% to US$566.2 million in FY2025, primarily due to a decrease in sales of East Buy private label products through its livestreaming e-commerce platform.
• Total GMV from East Buy's sales channels decreased from RMB14.3 billion in FY2024 to RMB8.7 billion in FY2025.
• Goodwill impairment loss of US$60.3 million was recognized in FY2025, specifically in the kindergarten business reporting unit.
• Loss from fair value change of investments of US$10.1 million in FY2025, including a US$14,028,000 loss related to Mobvoi Inc. stock price fluctuation.
• Interest income decreased from US$153.6 million in FY2024 to US$119.6 million in FY2025.
• The sale of Time with Yuhui (Beijing) Technology Ltd, a popular livestreaming brand, to Mr. Yuhui Dong in July 2024, leading to its deconsolidation and potential impact on livestreaming e-commerce business.

Risks

• Reliance on contractual arrangements (VIE structure) for operations in China, which may not be as effective as direct ownership and could be subject to severe penalties or relinquishment of interests if deemed non-compliant by the PRC government.
• Uncertainty regarding potential future actions by the PRC government that could affect the enforceability of VIE contractual arrangements.
• Potential conflicts of interest with the controlling shareholder of Century Friendship (Mr. Michael Minhong Yu), which could materially and adversely affect the business if not resolved in the company's favor.
• Risks related to the interpretation and implementation of, or proposed changes to, PRC laws, regulations, and policies regarding the private education industry, particularly the 'Alleviating Burden Opinion' and its implementation measures, which have already had a material adverse effect.
• Uncertainty regarding the administration and supervision of academic subjects tutoring institutions for students in grades ten to twelve, which may require further actions or lead to cessation of services.
• Risk that the provision of digital educational resources through intelligent learning systems and devices could be deemed after-school tutoring activities, leading to foreign ownership prohibitions and unwinding of contractual arrangements.
• Inability to attract students without a significant decrease in course fees, potentially leading to revenue decline and inability to maintain profitability.
• Harm to business and operating results if the 'New Oriental' brand cannot be maintained and enhanced, or if negative publicity occurs.
• Dependence on dedicated and capable faculty and staff; failure to maintain consistent teaching quality or service quality could adversely affect business.
• Difficulty in forecasting financial and operating results due to business changes, new initiatives, and evolving regulatory policies.
• Risks from health epidemics and other outbreaks (e.g., COVID-19 variants) leading to reduced attendance or temporary school closures.
• Potential for decreased margins due to new businesses, investments, or acquisitions.
• New programs, services, and products may compete with current offerings without increasing total student enrollments or profitability.
• Business subject to seasonal fluctuations, causing volatility in operating results.
• Negative impact on reputation, results, and share price from adverse publicity or detrimental conduct, including investor inquiries following the departure of a popular livestreamer.
• Failure to adequately and promptly respond to changes in testing materials, admissions standards, and PRC laws on school curriculum, potentially leading to less attractive programs or rectification measures.
• Decrease in demand for services if colleges, universities, and other higher education institutions reduce reliance on admissions and assessment tests.
• Risk of not fulfilling obligations in respect of deferred revenue, which might have an impact on cash/liquidity position.
• Fair value changes for long-term and short-term investments, and uncertainty due to the use of unobservable inputs.
• Limited experience generating net income from some new services, making business evaluation difficult.
• The continuing efforts of senior management team and other key personnel are important to success, and business may be harmed if services are lost.
• Reliance on livestreamers to host livestreaming sessions; inability to attract new livestreamers or retain existing ones may adversely affect livestreaming e-commerce business.
• Generation of a significant portion of revenues from certain cities in China; any event negatively affecting the private education industry in these cities could have a material adverse effect.
• Inability to continually enhance online programs, services, and products and online education systems and adapt them to rapid technological changes and student needs, potentially leading to market share loss.
• Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material and adverse effect on the trading price of common shares and ADSs.
• Lack of liability or business disruption insurance in some teaching facilities, and a liability claim due to injuries suffered by students or other people could adversely affect reputation and financial results.
• Capacity constraints or system disruptions to computer systems or websites, cybersecurity incidents, or a leak of student or consumer data could damage reputation, limit ability to retain students and increase enrollments or attract and retain consumers, and require significant resources.
• Failure to comply with governmental regulation and other legal obligations concerning privacy, data protection, cybersecurity, and artificial intelligence may subject the company to penalties, damage reputation and brand, and materially and adversely affect business.
• Advertising and promotional content may subject the company to penalties and other administrative actions.
• Terrorist attacks, geopolitical uncertainty, economic slowdown, and international conflicts involving the United States, the United Kingdom, and elsewhere may discourage more students from studying abroad, causing declines in student enrollments for overseas-related courses.
• Legal proceedings in the ordinary course of business, including a putative shareholder class action lawsuit, could have a material adverse effect on business, results of operations, and financial condition.
• Need for additional capital, and financing may not be available on terms acceptable or at all.
• Inability to comply with the restrictions and covenants in connection with current or future debt and other related agreements could adversely affect cash flow and liquidity.
• Failure to control rental costs, obtain leases at desired locations at reasonable prices, or protect leasehold interests could materially and adversely affect business.
• Failure to comply with laws and regulations regarding food safety, product quality, online sales, and online livestreaming could subject the company to fines, penalties, other administrative measures, or liability claims and may harm reputation.
• Any deterioration in relationships with certain sales channels may adversely affect prospects and business operations of East Buy.
• Potential liability or administrative penalties for counterfeit or unauthorized products sold through East Buy's sales channels, or for products sold through or content posted on East Buy's sales channels that infringe on third-party intellectual property rights, or for other misconduct.
• The delivery, return, and exchange policies of East Buy may materially and adversely affect its results of operations.
• PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent the company from making loans to PRC subsidiaries or making additional capital contributions to PRC subsidiaries, which could materially and adversely affect liquidity and ability to fund and expand business.
• If any of New Oriental China and its schools and subsidiaries becomes the subject of a bankruptcy or liquidation proceeding, the company may lose the ability to use and enjoy their assets, which could reduce the size of operations and materially and adversely affect business, ability to generate revenue, and the market price of common shares and ADSs.
• Changes in China's economic, political, or social conditions or government policies could have a material adverse effect on business, financial conditions, and results of operations.
• Uncertainties with respect to the enforcement of laws, and changes in laws and regulations in China could adversely affect the company.
• The PRC government's oversight and discretion over business operations could result in a material adverse change in operations and the value of ADSs and common shares.
• The approval of and filings with the CSRC or other PRC government authorities may be required in connection with offshore offerings under PRC law, and, if required, the company cannot predict whether it will be able to obtain such approval or complete such filings or how long they might take.
• Increases in labor costs and enforcement of labor laws and regulations in the PRC may adversely affect business, profitability, and results of operations.
• Governmental control of currency conversion may affect the value of investment.
• Fluctuation in the value of the RMB may have a material adverse effect on investment.
• The discontinuation of any preferential tax treatments currently available could materially and adversely affect results of operations.
• The company may be treated as a resident enterprise for PRC tax purposes under the PRC Enterprise Income Tax Law, which may subject it to PRC income tax for global income and withholding for any dividends paid to non-PRC shareholders and ADS holders.
• Uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
• Failure to obtain and maintain the licenses and approvals required for online business in China, which may materially and adversely affect business, financial condition, and results of operations.
• Regulatory measures in China concerning employees' participation in share incentive plans.
• The different characteristics of the capital markets in Hong Kong and the U.S. may negatively affect the trading prices of common shares and ADSs in different ways.
• The trading prices of ADSs and common shares have been and are likely to continue to be volatile, which could result in substantial losses to holders.
• If securities or industry analysts publish negative reports about business, the price and trading volume of common shares and ADSs securities could decline.
• Holders of ADSs may have fewer rights than holders of common shares and must act through the depositary to exercise those rights.
• The right of ADS holders to participate in any future rights offerings may be limited, which may cause dilution to holdings.
• Holders of ADSs may be subject to limitations on transfer of their ADSs.
• Certain judgments obtained against the company by shareholders may not be enforceable in the Cayman Islands or PRC.
• The rights of shareholders may be more limited than those of shareholders of a company organized in the United States or Hong Kong.
• Articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of common shares and ADSs.
• The company believes it was a passive foreign investment company (PFIC) for United States federal income tax purposes for the taxable year ended May 31, 2025, which could result in significant adverse U.S. federal income tax consequences to U.S. holders of ADSs or common shares.
• Exchange between common shares and ADSs may adversely affect the liquidity and/or trading price of each other.
• The time required for the exchange between common shares and ADSs might be longer than expected and investors might not be able to settle or effect any sale of their securities during this period, and the exchange of common shares into ADSs involves costs.
• An active trading market for common shares on the Hong Kong Stock Exchange might not develop or be sustained and trading prices might fluctuate significantly.
• Uncertainty as to whether Hong Kong stamp duty will apply to the trading or conversion of ADSs.

Future Outlook

The company anticipates continued growth in its educational services and new business initiatives. A new three-year shareholder return plan, effective from fiscal year 2026, commits no less than 50% of net income to shareholder returns through dividends and/or share repurchases. The board will determine the implementation of this plan based on FY2025 net income. The company expects PRC laws and regulations to continue limiting the use of proceeds from offshore offerings and anticipates ongoing scrutiny in the private education and online sectors.

Management Comments

• Our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for the foreseeable future.
• Our board of directors reserves discretion to determine the form, timing and amount of shareholder return measures in any fiscal year based on our results of operations, capital requirements and other relevant factors.
• Our strong technology capabilities enable us to deliver a superior learning experience and improve our operational efficiency.
• We are committed to continuing to help students from remote and less developed areas to gain access to high quality teaching content with the help of 5G technology as the technology improves.
• These guidelines, procedures and safeguards increase our ability to avoid infringing or potentially infringing activities, reduce our exposure to third-party claims and protect our reputation as a company that respects the intellectual property rights of third parties.
• Our insurance coverage is in line with that of other private education providers in China.

Industry Context

The Chinese private education sector continues to navigate significant regulatory changes, particularly the 'Alleviating Burden Opinion' which has reshaped the after-school tutoring market. New Oriental's strategic pivot towards non-academic tutoring, intelligent learning systems, and cultural tourism, alongside its livestreaming e-commerce venture (East Buy), reflects a broader industry trend of diversification and adaptation to stricter government oversight. The decline in East Buy's GMV and the goodwill impairment in the kindergarten business highlight the challenges of these new ventures and the impact of regulatory shifts. The company's focus on technology, particularly AI and OMO systems, aligns with the industry's move towards digital transformation and efficiency, while its expansion into lower-tier cities addresses market demand for quality education resources.

Comparison to Industry Standards

• The company's shift to non-academic tutoring and intelligent learning systems is a direct response to the 'Alleviating Burden Opinion,' a unique regulatory challenge in China's education sector, making direct comparisons to global benchmarks difficult without specific data on other companies' post-regulation performance.
• The use of OMO (online-merge-offline) standardized digital classroom teaching system and AI-powered technologies for personalized learning and operational efficiency is a competitive strategy, but specific industry benchmarks for these integrated systems are not provided in the filing.
• The decline in East Buy's GMV from RMB14.3 billion to RMB8.7 billion in FY2025, coupled with the sale of 'Time with Yuhui,' indicates significant challenges in the highly competitive livestreaming e-commerce sector, which includes major players like Douyin, Taobao, and JD.com. Without specific competitor GMV data for the same period, a direct comparison of performance is limited.
• The company's teacher recruitment, training, and compensation practices are stated to be 'among the highest in the private education industry in China,' suggesting a competitive advantage in talent acquisition and retention within the domestic market.
• The company's insurance coverage is considered 'in line with that of other private education providers in China,' indicating adherence to local industry norms rather than global benchmarks.

Management Changes

Corporate Governance

Legal Proceedings

• Two related securities class actions filed in the United States District Court for the Southern District of New York, consolidated under 'In re New Oriental Education & Technology Group Inc. Securities Litigation, No. 1:22-CV-01014.'
• Lead Plaintiff filed an amended consolidated complaint on September 2, 2022, alleging misstatements and omissions regarding business and compliance practices between October 23, 2018, and July 25, 2021.
• Plaintiff filed the Second Amended Consolidated Complaint on December 9, 2022.
• Defendants' motion-to-dismiss was fully briefed and argued as of May 2024; the Court has yet to rule.
• The company is unable to estimate the possible outcome or loss associated with the resolution of this case.
• The company has been subject to copyright, trademark, and trade name infringement claims and legal proceedings in the past, and may face similar claims from time to time in the future.

Related Party Transactions

• Lease arrangements with Metropolis Holding China Limited (an entity wholly-owned by Mr. Michael Minhong Yu, the executive chairman): 38 operating entities rented office space from Metropolis Holding as of May 31, 2025. Accrued rent of US$13.2 million to Metropolis Holding during FY2025. Amounts due from Metropolis Holding were US$5.2 million as of May 31, 2025 (prepaid rent and rental deposit). Amounts due to Metropolis Holding were US$0.4 million as of May 31, 2025 (accrued but unpaid service fee for property management). Right-of-use assets related to Metropolis leases were US$17.35 million and relevant lease liabilities were US$17.193 million as of May 31, 2025.
• Loans provided to Thaiwoo Management (an equity method investee): Loans in aggregate of US$6.371 million provided during FY2025. Outstanding balance of loans was US$6.4 million as of May 31, 2025.
• Services provided to Beijing Edutainment World Education Technology Co., Ltd (a long-term investee): Unpaid balance for services was US$3.07 million as of May 31, 2025.
• Acquisition of East Buy's online education business: Elite Concept Holdings Limited and New Oriental China acquired East Buy's online education business for RMB1.5 billion in March 2024.
• Sale of Time with Yuhui (Beijing) Technology Ltd: Beijing Xuncheng agreed to sell 100% equity to Mr. Yuhui Dong (a popular livestreamer) for approximately RMB76.59 million in July 2024. Time with Yuhui ceased to be a consolidated affiliated entity of East Buy in August 2024.
• Transactions with other related parties: Revenue of US$185,000 recorded from other related parties in FY2025. US$13.9 million in aggregate due from other related parties as of May 31, 2025. US$2,000 in aggregate due to other related parties as of May 31, 2025.

Stakeholder Impact

• Shareholders: Positive impact from increased net income, completion of share repurchase program, special cash dividend, and a new shareholder return plan. Potential negative impact from ongoing securities class action lawsuit and volatility in share prices due to market and regulatory factors.
• Employees: Increased headcount (41,000 teachers, 3,600 R&D personnel) indicates growth in employment opportunities. Share incentive plans provide long-term incentives. Staff optimization plans and layoffs occurred in connection with K-9 AST services cessation.
• Customers (Students): Expanded offerings in non-academic tutoring and intelligent learning systems provide diversified educational services. Continued focus on teaching quality and OMO system aims to enhance learning experience.
• Suppliers: East Buy's supply chain management system and diversified cooperation with third parties indicate ongoing relationships, but potential for liability claims for counterfeit products could impact supplier relationships.
• Regulatory Authorities: The company is actively navigating and complying with evolving PRC regulations in education, cybersecurity, data privacy, and e-commerce, indicating ongoing engagement and potential for further adjustments.

Next Steps

• Implement the three-year shareholder return plan, effective from fiscal year 2026, dedicating no less than 50% of net income to shareholder returns.
• Board of directors to determine the implementation of the shareholder return plan based on net income attributable to New Oriental for the fiscal year ended May 31, 2025.
• Continue to improve existing operational, administrative, and technological systems and financial and management controls.
• Recruit, train, and retain additional qualified teachers, management personnel, and other administrative and sales and marketing personnel, especially for new areas.
• Continue to explore business opportunities in the culture and tourism market.
• Monitor and adapt to evolving PRC laws and regulations, particularly concerning private education, cybersecurity, data privacy, and AI.
• Complete necessary filings and/or assessments for applicable AI products with the Cyberspace Administration of China (CAC).
• Continue efforts to comply with laws and regulations regarding food safety, product quality, online sales, and online livestreaming for East Buy.
• Manage and potentially relocate operations for properties not fully complying with fire control approval or filing requirements.
• Defend against the pending shareholder class action lawsuit.

Key Dates

Recommendation

While New Oriental demonstrated strong revenue and net income growth in its educational services, successfully adapting to the 'Double Reduction' policy, and committed to shareholder returns, significant uncertainties remain. The decline in East Buy's product revenues and GMV, coupled with the sale of a key livestreaming brand, indicates challenges in its diversification strategy. The goodwill impairment in the kindergarten business and ongoing regulatory risks in China, including the potential for further scrutiny of VIE structures and new business models, present considerable headwinds. The pending securities class action lawsuit also adds a layer of legal uncertainty. Given the mixed financial performance across segments and the persistent regulatory and geopolitical risks, a 'hold' recommendation is appropriate, suggesting investors monitor the company's ability to sustain growth in new educational areas and effectively manage its e-commerce segment amidst a complex operating environment.

Keywords

Education, China, Online Learning, Livestreaming E-commerce, Test Preparation, Non-academic Tutoring, Intelligent Learning Systems, Overseas Study Consulting, SEC Filing, Form 20-F, Financial Results, Share Repurchase, Dividend, VIE Structure, Regulatory Risk, AI Technology, New Oriental, East Buy