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Rachel Lu

New Oriental, Schooled in U.S. Stock Market, Still Makes the Grade at Home

What "plunge" looks like. No finance degree required

The Chinese education giant New Oriental has learned a lesson from the international capital market. Its shares, listed on the New York Stock Exchange under the symbol EDU, plunged from about US$22 per share on Monday to about US$9.50 per share on Wednesday; it has since recovered some lost ground and climbed to about US$12.5 on Friday.

The company was hit by the double whammy of an SEC investigation and an analyst report by short-seller Muddy Waters that alleged fraud by its management and auditors. Investors in the U.S., already skittish over a series of scandals of China-based companies, engaged in panicked sell-off. 

Happier days. New Oriental's listing ceremony on the NYSE in 2006

However, judging from sentiments on China’s social media, New Oriental still gets high marks at home. Many China-based observers see an opportunity to scoop up shares of a Chinese blue chip company on the cheap. Liu Shengjun (@刘胜军改革), a columnist for the Financial Times’ Chinese edition, tweeted on Sina Weibo, China’s Twitter, “Great time to buy up New Oriental at the bottom.” {{1}}[[1]]抄底新东方的好机会啊[[1]]

Stanley Gao (@高晓虎Stanley), a senior investment manager at Innovation Works, tweeted, “Before I got off work, I told my colleague six times to buy New Oriental once the market opens. Sell your house and buy New Oriental once the market opens!” {{2}}[[2]]今晚下班前,我至少六次给我同事@徐薇-创新工场 说:开盘买入新东方!卖了房子,开盘买入新东方![[2]] Yang Zhiwei (@杨志伟_金沙江创业投资) believes U.S. investors do not know the full picture: “Who is selling? The lack of information caused panic. The stock is seriously undervalued.” {{3}}[[3]]是谁在卖?不知情导致恐慌,股价严重低估。[[3]]

Michael Yu, from lowly English teacher to multi-millionaire

Much of the goodwill stems from trust in New Oriental’s founder, Michael Yu, who perfected the formula of turning exam-prep classes into a combination of stand-up comedy, inspirational speech and rote memorization. Mr. Yu’s rags-to-riches story is also the stuff of legend among the school’s many alumni. Since New Oriental’s start in early 1990′s, almost all of China’s best and brightest attended its classes before taking standardized tests required for admission into schools overseas, such as the GRE or the TOEFL. 

Mr. Yu (@俞敏洪) also used Sina Weibo to defend his company and called the accusations in the Muddy Waters Research report “baseless.” Li Lei (@力波村的劳伦斯), the former CFO of Shengyuan Dairy, puts in a vote of confidence: “I never liked New Oriental’s approach to turn education into an industry, but I believe Michael Yu. Its structure is definitely legal and its audits are also solid. Those who dabble in the U.S. stock market should buy New Oriental.” {{4}}[[4]]对新东方的产业化教育方式一直很反感,但我相信俞敏洪说的话。VIE肯定合法,新东方的审计也不会有问题,玩美股的可以买新东方股票了。[[4]]

Ling Daihong (@凌代鸿), an angel investor, shared his observation, “Haha, we are in the same building as New Oriental, and we see tons of people downstairs all day and we know that their business is doing great.” {{5}}[[5]]哈哈,我们住在新东方楼里,整天看到下面人头涌涌,只要看看就知道他们生意暴好![[5]]  Li Zhi (@八百客李智), a founder of Li Zhi, tweeted, “How many of students who went to study in the U.S. in the early years have not attended Michael Yu’s classes? New Oriental has a lot of alumni support. {{6}}[[6]]早期留美的有几个没听过俞敏洪的课?新东方有太多校友支持。[[6]] @暖橙C-陈宇 agreed, “As an alumni of New Oriental who studied financial management, I really want to throw away the books and buy some New Oriental stocks.” {{7}}[[7]]作为一个学财务管理加新东方的学生,我好想抛开理论的东西。。 买点新东方的股票哇。[[7]]

Wang Ran (@王冉), the CEO of China E-Capital, was more cautious. “I am too scared to buy on the cheap now. When international investors group most Chinese entrepreneurs with fraudsters, there is always a new low in stock prices. There are other issues too, China’s growth is slowing down and Chinese law is unfriendly to private enterprises, and also a few bad apples have spoiled the entire bunch. {{8}}[[8]]我现在已经不敢随便抄底了,因为当国际投资人一刀切地把多数中国企业家视为骗子的时候,新低后还有新低,新底后还有新底。这里面有中国经济增长放缓的问题,有中国法律法规以刁难企业为最高原则的问题,也有几只不诚信的苍蝇坏了一锅粥的问题。[[8]] Du Xuan (@榴莲_杜旋), a director at CCTV’s finance channel, tweeted, “New Oriental is much better than many of the other Chinese companies listed in the U.S., this is still what it gets. I think the whole world is short on China.” {{9}}[[9]]新东方应该比很多在美上市的中国公司要强很多了,仍然遭遇如此下场,看来全世界都在做空中国 [[9]]

For his part, Mr. Yu continued to court his home base. After promising to respect the SEC investigation and try his best to protect investors’ interest, he tweeted, “No matter what happens, we put the interests of our students and employees above all else.” {{10}}[[10]]新东方尊重美国证监委关于VIE调查,努力保护投资者利益 6.不管发生什么事情,学生和员工利益高于一切。[[10]]

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Rachel Lu

Rachel Lu is a co-founder of Tea Leaf Nation. Rachel traces her ancestry to Southern China. She spent much of her childhood memorizing Chinese poetry. After long stints in New York, New Haven and Cambridge, she has returned to China to bear witness to its great transformation. She is currently based in China.