New Oriental Earnings: Education Businesses Met Guidance, but Losses at East Buy Are Disappointing

While New Oriental’s fiscal 2025 first-quarter (ending August) results, excluding its livestreaming e-commerce subsidiary East Buy, were in line with prior guidance, shares fell more than 8% as the second-quarter guidance led to concerns about softening demand. However, we believe New Oriental will be able to achieve its fiscal 2025 revenue growth guidance of 30%, excluding East Buy, as its high school tutoring, domestic test preparation, and new education businesses are resilient to consumption downgrading since these offerings are more affordable and less discretionary. We maintain our revenue forecasts but have lowered our adjusted operating income by 9% for fiscal 2025 and by 3%-6% for fiscal 2026-29 due to our more bearish view on East Buy, which does not materially affect our fair value estimates of USD 62 and HKD 49 per share. We believe New Oriental’s shares are currently fairly valued.