Key Investment Considerations:

Maintaining Speculative Buy rating and twelve month price target of $9.00 per share.

QuantaSing Group’s has significant growth potential for its online adult learning brand portals in China. Frost & Sullivan anticipates the Chinese online segment of the adult learning market to grow annually by 17.8% from 2022 through 2027, reaching RMB325 billion (or an estimated $46 billion in 2027).

Supporting our growth forecast should be QSG’s ability to successfully monetize its registered user base of over 103 million and over 300,000 paying learners on its technology portal brands. In 1Q24, registered users and paying learners grew 51.9% and 18.2% respectively, compared to 1Q23.

To monetize its users, QSG launched a live e-commerce segment that is selling Chinese liquor. In a move to expand outside of Mainland China, the company acquired Hong Kong based Kelly’s Education.

In 1Q24, QSG reported (on 12-13-23) EPS of $0.05 on revenue increasing 24.6% to $119.1 million. In 1Q23, revenue was $95.6 million with a loss of ($0.26). We projected a loss of ($0.06) on revenue of $109.3 million.

For FY24, we project EPS of $0.16 on 23.6% revenue growth to $525.2 million reflecting 1Q24 results and sales from the company’s live e-commerce liquor offering and the September 2023 acquisition of Hong Kong based Kelly’s Education. We previously forecast EPS $0.01 and revenue of $509.6 million.

For FY25, we project EPS of $0.20 on 20.9% revenue growth to $635 million. We previously forecast EPS $0.04 and revenue of $612.6 million. The increase in our EPS forecast reflects the company’s ability to utilize its internally developed technologies to create operating efficiencies faster than previously anticipated. We project operating expense margin improving to 80% compared to our prior forecast of 84.4%. Revenue growth should be supported by increases in paid learners and monetization of QSG’s registered users.