BDA-H资本小马过河1对1培训项目商业尽调报告EN-2014 03 12

DueDiligenceReportonXiaoMaGuoHe12March2014ForHCapitalOnly©BDA20142TableofContentsExecutiveSummaryTheMarketinChinaforOne-on-OneTrainingforOverseasStudyAnalysisonXiaoMa’sBusinessPerformanceAssessmentonXiaoMa’sOverallCompetitivenessOutlookforXiaoMa’sTopandBottomLineCompanyCultureandManagementTeamPotentialRisksonXiaoMaOverall,weholdaslightlypositiveviewonXiaoMaafterrecognizingfourkeyprosandfourrisksrelatingtoitsfuturedevelopment(1/2)3InvestmentHighlightsSizableUnderlyingMarketwithMajorExpansionPotentialStronglyCompetitiveintheOne-on-OneTrainingMarketRobustFutureTopLineGrowth123ExperiencedManagementTeam4Thesizeofthemarketforone-on-onetrainingforoverseasstudyamountedtoRMB2.0–2.5BNin2013ThemarketceilingisestimatedtobearoundRMB26BN,whichmeansitisalucrativeoneTheone-on-onetrainingmarketisveryfragmented,sothereisplentyofexpansionpotentialforXiaoMaXiaoMahasperformedbetterthanitscompetitorsintermsofenrollmentability,reputationfromword-ofmouthandreplicabilityofteachingteamXiaoMa’sgrossrevenueisexpectedtoamounttoRMB130–140MNin2014,meaningapproximatelyYoYgrowthof140%from2013,fueledbyitseffectiveonlinemarketingspendingXiaoMa’smanagementteamisveryexperiencedintheEnglishtrainingmarketandhaveextensiveexecutiveabilitiesOverall,weholdaslightlypositiveviewonXiaoMaafterrecognizingfourkeyprosandfourrisksrelatingtoitsfuturedevelopment(2/2)4ThreatsfromEDUMarginPressureduetoLaborCosts12InvestmentConcernsUnprovenExpansionCapabilityRiskyMid-termStrategy24XiaoMa’sbottomlinemightcomeundersomepressurein2014becauseofincreasingteachingcostsandonlinemarketingspendingXiaoMamightfaceameaningfulthreatfromEDU,althoughEDUcurrentlyclaimsitdoesnotfocusontheone-on-onetrainingmarketbecauseitislessprofitable.Thiscouldchangeinthefuture.XiaoMahasnoexperienceinexpandingintootherregions.XiaoMa’soperationalpreparationfortheShanghaibranch,includingobtainingteachingtalentsandoperationalstaffseemstobeverylimited.XiaoMaplanstotapintotheoverseas-studyagencymarketwhichisquitecompetitiveandXiaoMahasnorelevantexperienceinthisfield.5TableofContentsExecutiveSummaryTheMarketinChinaforOne-on-OneTrainingforOverseasStudyAnalysisofXiaoMa’sBusinessPerformanceAssessmentofXiaoMa’sOverallCompetitivenessOutlookforXiaoMa’sTopandBottomLinesCompanyCultureandManagementTeamPotentialRisksFacingXiaoMaTheone-on-onetrainingforoverseasstudymarketwasworthRMB2.0–2.5BNin2013;ThemarketceilingisestimatedtobearoundRMB26BN,andcanbereachedwithin10to15years62.6–3.3CAGR19%30-40%MarketCeiling(In10-15Years)~262014E20132.0–2.5MarketSizeofOne-on-oneTrainingforOverseasStudyRMBBNSource:BDAinterviewsandanalysisBenefitingfromthegrowthmomentumcausedbymoremid/highschoolstudentschoosinganoverseaseducationpath,themarketwillenjoyapproximately30-40%growthnextyearThemaindriveroftheone-one-onetrainingmarketisthepenetrationofoverseasstudymid/highstudents%ofmid/highstudentsgooverseastostudy0.7%6.0%Averageconsumptiononone-on-oneTrainingperstudent2013CeilingYearRMBKNote:Anestimated2.1%annualincreasebasedonhistoricalCPIgrowthofeducationalsector#ofmid/highstudentsgooverseastostudyCeilingYear1,4392013ThereisstillampleroomforXiaoMatoexpandinthismoderategrowingmarket,givenitisveryfragmentedandleadingplayersaretakingsharesKTheoverseasstudytutoringmarket

featuresseveraltypesofclass:Thecourselengthandcontentofone-on-oneclassesarehighlycustomized7#ofStudentsPerClassBigClassSmallClassOne-on-oneClassTypicalClassSizeSetofCurriculaTeachingContentUniformteachingmaterials60-5006-151Highlycustomizedtutoringsubjectsandcourselengthtailoredtostudents’Englishproficiencyandtargetscore,e.g.astudentisabletosignupfortwospeakingpracticesessionsOnelessonusuallylaststwohoursSomeinstitutionsalsohavefreetutorialclasses,e.g.classesforgrammarordictationEverycoursehasabout30-40lessons,andeachlessonlasts2hoursEverycoursehasabout30-40lessons,andeachlessonlasts2hoursUniformteachingmaterialsCustomizedteachingmaterialsaccordingtostudentscharacteristicsSource:BDAinterviewsandanalysisOne-on-onetutoringismoreexpensivethanotherclasstypes,butstudentsbenefitfrommoreflexibleschedulesandmoreinteractionwithteachers8BigClassSmallClassOne-on-oneClassInteractivityTimeFlexibilityAmountofExpenseBDACommentsMostadvantaged:Leastadvantaged:Littleclassinteraction:Students’workisneverchecked,andthereisnohomeworkFixedclassscheduleCostsonestudentRMB20-50perhour,andusuallyRMB2,000-3,000percourseSomeinteractioninclass:TeachersdopaymoreattentiontoeachstudentduringandafterclassesFixedclassscheduleCostsonestudentRMB200-300perhour,andusuallyRMB20,000percourseLotsofinteraction:AfterclassesstudentshavehomeworkandalsotutorialclassesforgeneralstudyproblemsStudentsenjoyflexibleschedules,e.g.therearefiveclasstimeswithinonedayCostsonestudentRMB500-1,000perhour,andusuallyRMB30,000percourseSource:BDAinterviewsandanalysisWelearntthatone-on-onetrainingismainlyaimedatmiddle/highschoolstudentswhowanttostudyabroadforhighschool/collegeeducation;Theyaccountforabout85%oftotalenrollment925%60%10%MiddleSchoolStudentsHighSchoolStudentsCollegeStudentsorAboveGraduatedpeopleBreakdownofTargetCustomersbyTypeofStudentsWhatWeHeard

“Mid/highschoolstudentshavelowself-studyability,andrequireflexibletimeschedulefortutoringstudy.”-MarketingManagerofAoji

“Mid/highschoolparentsspendmuchmoremoneyontheirchildren’soverseasstudybecausetheirchildrenneedmoretutorialandguidanceduringthestudyperiod.”-TeachingDirectorofHuanQiuTianXiaSource:BDAinterviewsandanalysisDifferenttestsubjectsarerequiredformiddle/highschoolstudentsapplyingtoUS/UKschools;TOEFL,SAT/SSATandIELTSaccountforalmostalltherevenuefromone-on-onetraining10TOEFLSATSSATüüûüüûUKapplicantsneedIELTSasadmissiontestonlyApplyingUSApplyingUK“Mid/highschoolstudentshavinglowIELTSscorecouldtakepreparatorycoursesinUKbeforeenteringhighschools/colleges.”-TeachingDirectorofGlobalEducationWhatWeHeard“AllstudentspursuingUSeducationneedTOEFL,whileonlymiddleschoolstudentswhoapplytieroneprivatehighschoolsinUSandCanadaneedSSAT,andonlyhighschoolstudentswhoapplytop30/50collegesneedSAT.”-TeachingDirectorofGlobalEducationMidSchoolHighSchoolSource:BDAinterviewsandanalysisTheone-on-onetrainingforoverseasstudymarketisestimatedtohavebeenwortharoundRMB2.0–2.5BNin2013byemployingbothatop-downmethod…11%ofone-on-oneclassamongmid/highschoolstudentsTotalMarketSize#oftesters%ofmid/highstudents#oftargetmid/highschoolstudents×#ofone-on-oneenrollmentsofmid/highschoolstudents280K350K61K25%20%100%222Ave.testtimesperuniquestudent35K35K31K75%50%75%26K18K23K67K85%78KAve.SpendingPerStudentRMB30KRMB2,351MNTOEFLIELTSSAT/SSATTOTAL÷=×==#ofTargetMid/HighSchoolStudents#ofone-on-oneEnrollmentsofMid/HighSchoolStudents#oftotalone-on-oneenrollments%oftotalone-on-onestudents÷Totalone-on-onestudents=×Year2013About25%ofTOEFLtestersaremid/highschoolstudents,whileforIELTSitisonly20%AlltheSSATtestersaremid/highschoolstudents“Youngerstudentstendtotakeadmissiontestsfor2or3timesormore,togetabetterscore.Onaverage,thetimeisaround2.”-MarketingManagerofNewOrientalMoremid/highschoolstudentschooseone-on-oneclassforTOEFLandSAT/SSAT,about75%,thanIELTS,about50%,accordingtoourintervieweesSource:BDAinterviewsandanalysis…andbottom-upmethod12One-on-oneSchoolRev12013(RMBMN)AsofBeijingNewOriental,Beijing20026%GlobalEducation(环球雅思)608%XiaoMaGuoHe577%EIC(启德)506%NewChannel,Beijing(北京新航道)253%ShinywayEducation(新通教育)253%TiandaoEdu(天道教育)203%Longre(朗阁教育)203%Aoji(澳际教育)71%Subtotal46460%asoftotalBeijingmarket60%Beijingmarketsize774100%asoftotalnationalmarket30-40%Totalmarketsize2,000-2,500

Sizeoftotalone-on-onemarket,2013Note1:Alltherevenuesarefromone-on-oneoverseasstudytraining,exclusivefromK12orothertutorialclasses“80%ofthetotalnationalmarketisoccupiedbytieronecities,inwhichBeijingtakesabout50%.”-MarketingManagerofEICWhatWeHeard“Theone-on-onetrainingmarketisveryfragmented,e.g.inBeijingtherearearound80to100trainingschoolsamongwhichthetop10schoolsaccountforabout60%ofthemarket,andtherestsareallsmall.”-VicePresidentofAojiSource:BDAinterviewsandanalysisAccordingtoindustryexperts,themarketofone-on-onetrainingenjoysanapprox.30%annualgrowthrateinrecentyears,andthefuturegrowthislikelytoremainstrong13123~30%2011-2013AnnualGrowthRateofone-on-oneTrainingMarketThepercentageofmid/highschoolstudentsthatchooseoverseaseducationasoftotalmid/highgraduatesisincreasingfrom2010to2013Asaresult,thegrowthofyouthtestersoftheseoverseastudytests(likeTOEFLorIELTS)areacceleratingMoreover,asaresultofenlarginghighschoolapplicants,admissiontestscoresforChinesestudentsaregraduallyincreasing,resultinginmoredemandonone-on-onetutoringSource:BDAinterviewsandanalysisThepercentageoftotalhighschoolgraduateswhochooseoverseaseducationgrewfromin0.6%2010to1.7%in201314Source:MinistryofEducation,BDAinterviewsandanalysisOtherStudentsPenetrationofOverseasStudy20131.7%20121.4%20111.0%20100.6%PenetrationofHighSchoolStudentsPursuingOverseasStudies

“TheincomelevelforChinesehouseholdsisincreasingtheseyears,lettingtakecollegeabroadmoreaffordable.”“Alotofhighschoolgraduateschoosetoprepareadmissiontestsincaseofthefailureofnationalcollegeentranceexamination.”-MarketingManagerofGlobalEducation1Moreandmorestudentsunder18yearsoldhavetakenTOEFLandSATsince201015Source:BDAinterviewsandanalysis#ofMid/highSchoolTOEFLTesters,2010-2013Thegrowthofyouthtestersofoverseastudytests(likeTOEFLorIELTS)areaccelerating,at12%,25%for2010,2011respectively,andkeptatmorethan30%for2012and2013“MoreandmoreyouthstudentswhochoosetoabandonNCEEandstudyininternationalschoolsneedtotakeTOEFLandSATtests.”-MarketingManagerofAoji+35%201120201026+25%+30%2013162012352Unit:KThetrendforadmissiontestscorestoriseforChinesestudentshasresultedingreaterdemandforone-on-onetutoring16Source:BDAinterviewsandanalysisMid/highStudents’AverageAdmissionScoreforTOEFLAndSAT,2010-2013TheapplicantsforUScollegesarerapidlyincreasingrecently,however,theenrollmentsoftoptiercollegesdidnotexpand,resultinginhigheradmissionscoresformid/highstudents

“Inyear2009,Chinesestudentswith80+TOEFLand1,800SATcouldacceptedbyUIUC,however,studentswith105+TOEFLand2,000SATgotrejectedbyUIUCin2013.”-VicePresidentofAojiTop5010090Top30108103Top10111109201020132,1202,0302,0002,1801,8602,160TOEFLSAT3Weestimatethepercentageofmiddleandhighschoolstudentsstudyingabroadwillreach6.0%in10–15years…175.3%

20136.0%20106.0%20052.5%20003.9%1995Trendof%ofUndergraduateStudentstoOverseasStudy,1995-2013UndergraduatesOverseaspercentageTrendMainAssumptionWeassumethetrendofmid/highstudents’overseasstudyratiowillfollowthetrendofundergraduates’,takingashortertime,10-15yearsSource:MinistryofEducation,BDAinterviewsandanalysis…andtheone-on-onetrainingmarketsizeforoverseasstudywillbearoundRMB26BN,11timesasofthecurrentsize18#ofGraduates%ofstudentsgooverseastostudy#ofstudentstooverseasstudy×=Middleschool16,175Normalhighschool7,901Undergraduate(normalcourses)3,2916.0%0.2%6.0%1.7%6.0%6.0%Ceiling201396732472133197197Unit:K9XCeiling1,4392013Unit:KCeiling#ofMid/highStudentstoOverseasStudyCeilingofone-on-oneTrainingforOverseasStudyMarket~2620132.0-2.511XCeilingUnit:RMBBNNote:Consideringtheeducationalsector2.1%CPIeffectinthefuture,themarketceilingwillbe11Xof2013,reachingRMB26BNwithin10-15yearsSource:MinistryofEducation,BDAinterviewsandanalysis19TableofContentsExecutiveSummaryTheMarketinChinaforOne-on-OneTrainingforOverseasStudyAnalysisonXiaoMa’sBusinessPerformanceAssessmentonXiaoMa’sOverallCompetitivenessOutlookforXiaoMa’sTopandBottomLineCompanyCultureandManagementTeamPotentialRisksonXiaoMaXiaoMa’sgrowthhasmainlybeendrivenbygrowthinstudentenrollment,whichwentupataCAGRof130%between2011and201320+185%+208%2013201220116-7XiaoMaGuoHe:GrossRevenue,2011-13RMBMN20131,80020121,40020111,000ASPofXiaoMa’s1-on-1Class×Source:CompanydataandmanagementinterviewsRMB/Class20132012~6402011~290~1,550Note:ASPreferstoaveragesellingpriceCAGR(2011-13)~200%34%130%PersonAveragenumberofclassesperstudentisabout20;thisfigureisrelativelystableCAGR(2011-13)CAGR(2011-13)EnrollmentofXiaoMa’s1-on-1ClassNote:Assuming90%ofthegrossrevenuein2011-2012wasfrom1-on-1classesApproximately94%ofXiaoMa’sgrossrevenuecomesfromitsone-on-oneclasses,whichwillstillbethebusinessfocusofXiaoMainthefuture21Others1-on-1WholeYear201357.353.8

(94%)Q4201318.10.417.7

(98%)Q3201320.31.319.0

(94%)Q2201311.91.210.7

(90%)Q120136.96.3

(92%)XiaoMaGuoHe:BreakdownofRevenuebyTypeofClassRMBMNSource:CompanydataandmanagementinterviewsNote1:RevenueforFebruaryiscalculateduptoFebruary25thFeb-145.60.25.5

(97%)Jan-146.20.26.1

(97%)“Wewillkeepfocusingonourone-on-oneclassesinthefuture.”-MaJun,FounderofXiaoMaGuoHeRMBMNYear2013January–February2014Intermsofsubjects,acrossthewholeyear2013TOEFLcontributed82%ofgrossrevenue,SAT/SSATcontributedaround13%andIELTScontributed3%2218.16.92.9

(16%)13.9

(77%)20.3Q220136.6

(96%)IELTSSAT/SSATTOEFLWholeYear201357.33.8

(19%)15.5

(76%)1.5(3%)1.5(3%)Q32013Others7.3

(13%)Q12013Q4201310.9

(92%)47.0

(82%)11.9XiaoMaGuoHe:BreakdownofRevenuebySubject,2013RMBMNSource:CompanydataandmanagementinterviewsXiaoMa’sone-on-oneenrollmenttripledbetweenJanuary2013andJanuary201423Q22013WholeYear20131,596Q42013Q32013Q12013XiaoMaGuoHe:EnrollmentTrendinOne-on-OneClasses,January2013-January2014Source:CompanydataandmanagementinterviewsUnit:numberJan-133×Jan-14YoYGrowthinEnrollment,January2013vs.January20141Note1:TheCNYvacationswereinFebruaryfor2013and2014,postingnoinfluenceontheenrollmentinJanuary.In2013,12%ofstudentschosetorefund,amountingto5%oftotalgrossrevenue24Source:Companydataandmanagementinterview1-on-195%5%AllClassTypes95%5%PercentageofRefundsasofGrossRevenue1-on-188%12%AllClassTypes88%12%PercentagesofRefundStudentsasofTotalEnrollment3%9%5%5%5%4%7%2%1%6%10%12%Jan-2013Jan-2014DecNovOctSepAugJulJunMayAprMarFeb5%TrendofPercentageofRefundsasofGrossRevenueJanuary2013toJanuary2014Jan-201415%Dec7%Nov11%Oct13%Sep11%Aug34%Jan-201320%FebApr8%Mar21%11%JulMay9%Jun11%5%TrendofPercentageofRefundStudentsasofTotalEnrollmentJanuary2013toJanuary2014TheutilizationrateofXiaoMa’scurrentteachingcenterishigherthantheindustryaveragelevel25XiaoMa’ssecondteachingcenterlocatedintheGuoMaoareahasbeeninoperationsinceJanuary2014XiaoMaplanstolaunchanewteachingcenterinShanghaiinMayorJune2014Source:CompanydataandmanagementinterviewsIndustryAverage20-30%XiaoMa34%“Forone-on-oneclassrooms,about20-30%utilizationistheindustryaveragelevel,sinceeachclassroomwillbeoccupiedatweekendswhilethereareonly1-2classesduringweekdays.”-OverseasDepartmentDirector,NewOrientalXiaoMa’sClassroomUtilization,2013TeachingCenterUtilizationQuarterlyActualNumberofClassesNumberofRoomsxDailyClassroomCapacityx90=1Q201314%4Q201347%3Q201351%2Q201320%Studentstendtotakemoreclassesduringsummervacation.TeachingCenterUtilizationofXiaoMavs.NewOriental,2013InDecember2013,XiaoMa’steachersheld43classesonaverage;Thestudent-teacherratiowasabout20,muchhigherthancompetitors26MonthlyNumberofClassesperTeacher,December2013Source:Companydata,BDAinterviewsandanalysis>6032

(41%)40-6024

(31%)20-4012

(15%)<2010

(13%)Dec.2013Average43ClassperTeacher

“IamhappywiththenumberofclassesIteachbecauseIcanmakeenoughmoneyandalsohaveenoughleisuretimetorelax”-ATeacherofXiaoMaGlobalEducation4EIC17XiaoMa20Student-TeacherRatio,2013Student-TeacherRatio=Numberofstudents/numberofteachersUnit:numberUnit:numberTeacher#Class#permonth27TableofContentsExecutiveSummaryTheMarketinChinaforOne-on-OneTrainingforOverseasStudyAnalysisofXiaoMa’sBusinessPerformanceAssessmentofXiaoMa’sOverallCompetitivenessOutlookforXiaoMa’sTopandBottomLinesCompanyCultureandManagementTeamPotentialRisksFacingXiaoMa28XiaoMa’sMarketPositionAtpresentXiaoMaGuoHeonlyoffersone-on-onetraininginBeijing,accountingforaround7%ofthemarketthere29Thesizeoftheone-on-onetrainingmarketinBeijingisestimatedtobeRMB750–800MN,accountingfor30-40%ofthetotalnationalmarket.3%LongreShinywayEducation1%7%XiaoMaGuoHeNewChannel,BeijingAojiEIC3%TiandaoEdu3%Others3%GlobalEducationNewOriental,BeijingMarketSharesofLeadingOne-on-OneTrainingPlayers,Beijing2013Source:BDAinterviewsandanalysis

“Iknowlittleaboutthetotalnationalone-on-onetrainingforoverseastudymarketsize,however,IamsurethatforNewOrientalBeijingitwasworthaboutRMB200MNin2013.”FormerBeijingPrincipal,NewOriental

“Beijingaccountedforabout30-40%ofChina’sone-on-oneoverseatrainingmarketin2013.”-VicePresident,AojiBeijingMarketXiaoMahasseenmuchhighergrowththanitspeers,recodingaCAGRofabout200%between2011and201330Source:BDAinterviewsandanalysisTiandaoEduEICNewChannelXiaoMaGuoHeGlobalEducationNewOriental100140200LeadingOne-on-OneTrainingPlayers:GrowthTrendofGrossRevenue,2011-2013201120122013Unit:RMBMillion67%58%29%200%30%40%CAGR,2011-2013IndependentTrainingInstitutionsTrainingDepartmentofOverseasStudyAgency

31KSFAnalysis68%ofrespondentssaidstudentsthemselvesarethekeydecisionmakers;Teacherqualityandword-of-moutharebyfarthetwomostimportantfactorsinfluencingstudents’andparents’choice32Q:Foryouwhichfactorsarethetwomostimportantoneswhenchoosingaone-on-onetrainingschool?(Multipleresponses)Q:WhomadethedecisiontogotoXiaoMaGuoHe?(Singleresponse)StudentsParents32%(N=304)(N=206,otherintervieweeswerenotdecisionmakers)Others7%TestPredictions17%Price18%Facilities24%TeacherQuality59%Word-of-Mouth74%OtherfactorsintervieweesmentionedincludedconvenienceofschoollocationsandwhetherschoolscanalsoprovideconsultingservicesforoverseasstudySource:BDAsurveyandanalysisTheabilitytorecruitstudents,gainingareputationfromword-of-mouthandthereplicabilityofteachingskillsarethreekeyfactorsdeterminingXiaoMa’slong-termsuccess33AbilitytorecruitstudentsReplicabilityofteachingskills123DemandBeneficialEnrollmentCycleSupplySource:BDAinterviewsandanalysisReputationbasedonword-of-mouthImprovingtestscoresSatisfactorytutoringservicesImprovingtestscoresSatisfactorytutoringservicesXiaoMaleadsitscompetitorsintermsofenrollmentcapability,reputationfromword-ofmouthandreplicability,butcouldfacepotentialthreatsfromEDU34Source:BDAinterviewsandanalysisAbilitytorecruitstudentsReplicabilityofteachingskillsReputationfromword-of-mouthXiaoMaOtherCompetitorsEDUBDA’sCommentsXiaoMaisbetteratrecruitmentthanitscompetitors,leveragingitseffectiveonlinemarketingEDUcaneasilyrecruitstudentsforitsone-on-onetraining,ifitswitchesitsstrategicfocusfrombigclassestosmallonesXiaoMaanditspeersperformsimilarlyintermsofimprovingstudents’testscoresXiaoMatopsitscompetitorsintermsofsatisfactionlevelsfortheteachingXiaoMaisabletoscaleuptheteacherteamusingitsstandardizedtrainingsystem;EDUcanattractexperiencedteachingstaffandhasagoodrecordofexpandingtootherregionsXiaoMa’senrollmentgrowthhasshowngreatmomentum,whileitscompetitorshaveonlyachievedmoderategrowthinnewstudents…35Source:BDAinterviewsandanalysis140NewOrientalTiandaoEduEICNewChannelXiaoMaGuoHeGlobalEducation200LeadingOne-on-OneTrainingPlayers:GrowthTrendofGrossRevenue,2012-201320122013RMBMN30%30%142%<5%<5%10%YoYEnrollmentGrowth,2012-13IndependentTrainingInstitutionsTrainingDepartmentsofCollegePlacementInstitutionsYoYRevenueGrowth,2012-1367%67%185%25%30%40%“Thepriceofone-on-onetrainingindustryincreasedbyabout30%from2012to2013.”-GeneralManager,Longre“Ourrevenuegrowthwaslargelydrivenbythe20-30%priceincreasefrom2012to2013.”-MarketingManager,GlobalEducation1…thisbeingmainlyduetoXiaoMa’sstrongperformanceinonlinemarketing;Theonlinechannelcontributesthebulkofitssalesleadsandnewstudents,followedbythewordofmoutheffect…361OnlineChannelSource:BDAmanagementinterviewsandanalysisWalk-inLargeClientMainChannelSEMSEOBBSDescriptionSalesLeadBreakdownTheplacementofadsonmainsearchengines,includingBaidu,Googleand360,bybuyingkeywordsrelatedtoone-on-onetraining<5%10%15%55–60%15%OfflineChannelItoptimizesthecontentonXiaoMa’swebsitesbasedonanalyzingthealgorithmsofsearchenginestogainmoreexposureUpdatearticlesandlearningmaterialsonXiaoMa’sownBBStopromotetheconversionratefromregistereduserstostudentsStudentsattractedbywordofmouthorrecommendedbyXiaoMa’sformerstudentsXiaoMahascooperatedwithsomehighschoolstosourcestudents…whichisconfirmedbyoursurveyofXiaoMa’sstudentsandparentsQuestion:Fromwhichchannels,didyougettoknowXiaoMa?(Multiplechoice;N=208)3722%35%XiaoMawasrecommendedalotonlineIheardaboutXiaoMafrommyfriendsMyteacherrecommended/assignedXiaomaOtherchannelsIamauserofXiaoma’sBBSIsawXiaoMa’sadsonline7%5%43%37%Source:BDAsurveyandanalysisOnlineChannel1SEMhascontributedanincreasingshareoftotalsalesleadsandtheconversionratefromsalesleadstoeffectiveonehasstayedataround40%...38May,132,40527%61%12%Apr,132,14328%52%20%Mar,132,16116%63%20%6,98868%23%11%3,97847%26%11%Jul,136,17366%24%22%10%9%Sep,13Oct,135,74743%Jun,1363%10%Aug,137,73768%10%SEOSEMBBSDec,135,86572%19%9%Nov,135,82666%24%Source:CompanyinformationandBDAanalysisNov,13Oct,13Sep,13Jun,13Apr,13May,13Aug,13Jul,1342%41%39%40%Mar,1341%42%41%43%37%45%Dec,13BreakdownofOnlineSalesLeadsbySourceConversionRate(fromsalesleadstoeffectiveleads)Onlinesalesleads:ThismeansclientswhocommunicatewithXiaoMa’scustomerservicestaffEffectiveonlinesalesleads:meansclientswhohaveleftavalidcontactnumber×Unit:number1…indicatingSEMaccountsforthelion’sshareoftotaleffectivesalesleads,whiletheSEMconversionratefromeffectivesalesleadstonewstudentsisthelowestamongonlinechannels,astrafficfromSEOandBBSismoreaccurate…39SEMSEOBBSDec,132,37071%19%10%Nov,1316%65%20%Apr,1391232%51%17%Mar,1396627%59%10%9%64%11%10%64%28%Jul,132,507Oct,132,86927%13%30%1,01131%8%Aug,132,372Sep,1324%2,69363%60%44%11%May,1362%2,4011,62145%Jun,13Source:CompanyinformationandBDAanalysisSEMSEOBBSDec,135%9%6%Nov,135%10%4%Oct,134%8%9%Sep,134%11%7%Aug,134%9%7%Jul,136%18%8%Jun,136%10%10%May,136%9%13%Apr,139%13%11%BreakdownofEffectiveSalesLeadsbySourceConversionRate(fromeffectivesalesleadstonewstudents)×Unit:number1TheconversionrateofSEMchanneldroppedinAugustmainlyduetolackofsalesandcustomerservicestaffduringthepeakseason.…soinsummary,SEMcontributesanincreasingshareofthenewstudentsfromonlinechannels,amountingtoaround60%bytheendof201340Source:CompanyinformationandBDAanalysisMay,138421%63%15%Apr,1310126%57%17%15539%42%7%13632%50%11%Jul,1323845%44%51%10%14%Sep,13Oct,1313754%Jun,1340%11%Aug,1316645%13%SEOSEMBBSDec,1313460%28%11%Nov,1314955%38%BreakdownofNewStudentsfromOnlineChannelsbySource(April2013–December2013)1Unit:numberXiaoMa’sstrongmarketingperformancecanbemainlyattributedtoitsstrategicemphasisononlinechannels,theeffectivemarketingmechanismandusefulpricemonitoringtooldevelopedin-house…41Source:BDAinterviewsandanalysisStrategicEmphasisEffectiveMarketingMechanismPowerfulMarketingToolThemarketingdepartmentisregardedasthemostimportantunitinXiaoMa,andisleddirectlybyMaJun.XiaoMahasbuiltupasizablewordbank,