Digital learning firm Shanghai Able targets tech upgrade 

Boasting more than 27,000 online courses and backed by Sina and Baidu, the owner of China’s “Wisdom Tree” learning platform is seeking a Hong Kong IPO to boost spending on educational R&D 

Key Takeaways:

• Shanghai Able’s revenues rose 63% to just over 650 million yuan last year
• In revenue terms, the company ranked first among China’s producers of digital learning materials for higher education 

By Li Shin Ta

China’s education sector offers a case study in technology-driven change, with the rapid rise of virtual classrooms, digital tuition and learning apps.

The online shift is also proving to be a lesson in finance for makers of educational content such as Shanghai Able Digital Science & Tech Co. Ltd..

China’s leading producer of learning materials for the higher education market recently applied to list on the Hong Kong Stock Exchange, with Agricultural Bank of China International as the exclusive sponsor.

The company wants to invest some of the IPO proceeds in upgrading its learning technologies to set the pace in digital education.

Chinese students are familiar with the company’s products through its two well-known learning platforms, Zhidao and Treenity, which is known as “Zhihuishu” or wisdom tree in Chinese.

Zhihuishu carries special connotations for many university students, as the name of an educational program they watched as children on state TV as well as a school homework platform. Nowadays, more and more colleges and universities list platform-based digital modules as elective courses for students seeking study credits.

Founded in Shanghai in 2008, Shanghai Able serves both teachers and students, providing digital instruction materials and learning management systems for educational institutions as well as courses for learners.

Backing from big names

Institutional investors have been piling into the digital education arena in recent years. Between 2015 and 2020, Shanghai Able completed five rounds of financing, attracting investors such as digital giants Sina Corp(SINA.US) and Baidu Inc. (9888.HK; BIDU.US), according to the prospectus. The company was valued at more than 2.3 billion yuan ($318.3 million) after the latest financing round.

Sina is the largest institutional shareholder in the company with a 17.9% stake, followed by Baidu with 10.1%. Other shareholders include Delta Capital, New Margin Ventures and Chengmai Xinri.

With years in the business, Shanghai Able has risen to become a market leader in digitized education, although the industry is highly fragmented. Last year the company ranked second in revenue terms in China’s digital higher education business with a market share of 3.4%, according to a Frost & Sullivan report quoted in the prospectus. As a learning content producer, it ranked first with a market share of 6.2%.

Shanghai Able produced more than 27,000 digital courses in the last three years, covering 12 subject categories and 92 majors, according to the application document. Of those, 513 courses won gold awards from China’s education ministry for undergraduate and vocational courses, the highest tally among China’s top five revenue-generating producers of digital learning, the document said.

Gross margin above 60%

The company’s revenue has fluctuated in the years leading up to the IPO application, but turnover grew last year. Shanghai Able posted 420 million yuan in revenue in 2021, dipping to around 400 million yuan in 2022 but jumping 63% to just over 650 million yuan last year. Overall, revenues grew at a compound rate of 25.2% over the period. 

Annual gross profit traced a similar trajectory over the three years, going from 210 million yuan to 180 million yuan and 390 million yuan, corresponding to gross margins of 51.1%, 44.1% and 60.7%.

The improved figures resulted from delivery efficiencies and economies of scale, plus the launch of new products with bigger margins, the company said.

The bottom line was flushed free of red ink last year, with a profit attributable to shareholders of 81.42 millionyuan after a loss of 59.1 million yuan in 2022.

Key customers

Shanghai Able’s main customers are universities, colleges, and vocational schools.  At the end of 2023, the company had 236 customer service and support centers in 92 cities, covering most of China’s provinces, municipalities and autonomous regions.

The most important clients, dubbed “lighthouse customers”, have been awarded special status by the Chinese education authorities as world-class or first-rate universities or vocational schools. Shanghai Able served 231 customers in this category in 2023, nearly 76% of all the schools granted the classification.

According to Frost & Sullivan, these major institutes spend two to four times more on learning technology than standard schools.

Shanghai Able has sought to retain its core customers and encourage them to raise their average spending by pumping out lots of new content across different subjects. So-called overlapping customers that purchase from different parts of the business numbered 346 last year, each generating average revenue of 1.01 million yuan, up from 760,000 yuan in 2021.

With support from the government, China’s digital education business has been growing fast, with further scope to expand. But competition is also fierce, creating a splintered market in which the top five companies together only command a 12.6% share of the business.

Shanghai Able admitted that it may need to cut prices to hold its own in a crowded market. Customers could demand bigger discounts, denting its turnover and profitability.

With a large volume of content, Shanghai Able has an upper hand for now, but technical capability will be key to future expansion and leading market position. However, the company’s investment figures point to an emphasis on sales over innovation. The digital learning firm only spent 100 million yuan last year on research and development, less than its 170 million yuan of sales expenses. 

IPO funds have been earmarked for investments in R&D and customer services, the company said in its listing application. The research targets include artificial intelligence and 3D modelling. If it wants to be top of the class in digital learning, Shanghai Able will need to leverage cutting-edge technologies to deliver profitable products that also get high marks for user experience.

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