Sequoia-Backed China Online Education Falls in Trading Debut

  • Raised $46 million in third U.S. IPO by Chinese firms in 2016
  • Company offers $5 English classes taught by Filipino teachers

China Online Education Group, which offers online English language training and is funded by venture capital firms including DCM Ventures and Sequoia Capital, fell on its first day of trading in the U.S. after raising $46 million in an initial public offering.

The American depositary receipts dropped 0.1 percent to $18.98 in New York Friday, after climbing as much as 10 percent. The IPO was priced at $19, the middle of its target range between $18 and $20.

China Online Education is the third mainland Chinese company to go public in the U.S. in 2016, after online commodity trading firm Yintech Investment Holdings Ltd. raised $101 million in April and BeiGene Ltd., a biopharmaceutical company, fetched $182 million in February. They’re going against the trend as a record number of U.S.-listed Chinese companies are seeking to return to their home market in a bid for higher valuations.

“The primary purpose of this IPO is for branding,” said Hurst Lin, a partner at DCM Ventures, the company’s largest shareholder. “Having the company go public on the U.S. stock exchange gives us that brand and the credibility in the market place, which will allow us to lower our customer acquisition cost.”

Online Lessons

Founded in 2011, the Beijing-based company aims to cash in on the country’s increasing demand for English learning, hiring native speakers, most of whom are from the Philippines, to teach one-on-one online courses for about $5 for each 25-minute lesson.

The company more than doubled its active students last year to 87,000, helping net revenue almost triple to $24 million, according to the prospectus. The expansion has also added to its costs, leading to a net loss of $51 million in 2015. Chief Financial Officer Jimmy Lai said the company is focused on expanding its market share, while cash flow remains “healthy.”

Upon completion of the listing, two venture capital firms -- DCM and Sequoia Capital China Investment Funds -- have agreed to invest a total of $20 million through private placements, according to a company filing. DCM is the largest shareholder, controlling about 24 percent of ordinary shares, and Sequoia Capital China Investment Funds has a 17 percent stake, according to the regulatory filings.

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