Nomura

China education: Embracing the online boom

  • The online education industry in China has great growth potential, with market size expected to double in five years.
  • The two major drivers of this growing industry are the penetration rate likely to jump to 47% from 32%, and the internet empowering education to penetrate into lower-tier cities in China.
  • The prolonged pandemic reshaped users’ behavior in online study and could have meaningful long-term impacts on the development of the industry.

China is a large market with approximately 180 million K12 students, which accounts for approximately 66% of the total student base. In 2019, the overall academic-related AST (after school tutoring) penetration rate was estimated at an average of 32%. The mix of online education was around 13%, while traditional offline classes dominated.

We believe the industry has great growth potential and forecast the market size to double in five years, reaching RMB980 billion in 2024 (implying a 15% CAGR). The two major drivers are 1) penetration rate to jump to 47% in 2024 from 32% in 2019; and 2) internet empowering education to penetrate into lower-tier cities in China. Online penetration has the potential to improve to 40% by 2024, versus a mere 13% in 2019.

How is Covid-19 reshaping the industry? Online learning became the best solution for all students in China after public school and offline learning centers temporarily closed. Leading online K12 AST companies bode well for the exponential growth in demand, leading to further industry consolidation. The aggregated market share of the top 6 players could rise to 25% in 2020 versus 20% in 2019. Additionally, the prolonged pandemic reshaped users’ behavior in online study and may have unexpected meaningful long-term impact on the development of the industry.

Online education is still at an early stage, where growth takes priority. To protect their leading position, top players are fueling up their marketing spending. With large scale marketing and branding campaigns, most of the players are looking for triple digit top line growth for this summer and autumn.

Unlike any other industry, education is a long runway and a large battle field that can accommodate more than three giants. The internet is fueling growth, not changing dynamics. We believe content and people remain the core of this business. Only ones with solid foundation and differentiated strategies can stand out and become a winner in this marathon.

For further insight into China’s K12 after-school tutoring, read our full report here.

Contributor

  • Jialong Shi

    Head of Internet Research, China

  • Jessie Xu

    China Internet & Education

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