First annual profit in six years! But TAL Education Group plunged 18%, revealing some hidden pains in the industry?

After six years, TAL Education Group finally returned to annual profitability in fiscal year 2025.

However, unexpectedly, after the release of such an annual financial report, TAL Education Group $TAL Edu(TAL.US) plummeted over 18% on April 24, Eastern Time.

Data shows that as of February 28, 2025, TAL's annual revenue increased by 51% compared to the previous year's $1.49 billion; operating losses significantly narrowed from $69.23 million to $3.16 million; Non-GAAP operating profit more than doubled year-over-year, reaching $61.78 million.

The corresponding annual net profit successfully shifted from a loss of $4.138 million in fiscal 2024 to a profit of $84.26 million. Looking back at the company's financial data over the past few years, this marks TAL's first return to annual profitability since fiscal 2019.

The company's full-year Non-GAAP net profit attributable to shareholders was $150 million, a 75.2% increase from the previous year's $85.33 million.

Unfortunately, the overall situation of high revenue growth and profitability turnaround could not mask investors' concerns about the latest quarter's underperformance relative to expectations.

Expectations "Missed"! Where Did It Go Wrong?

Quarterly data shows that TAL's Q4 net revenue was $610.2 million, a 42% year-over-year increase, lower than the full-year growth rate of 51%. This indicates a sequential decline in revenue growth by Q4, with the final quarterly revenue falling short of market expectations of $640 million.

In terms of operating profit, the company's quarterly operating loss increased by 44.8% year-over-year from $11.06 million to $16.02 million. Non-GAAP operating profit shifted from a profit of $9.44 million in Q4 2024 to a net loss of $1.69 million, significantly below Bloomberg's consensus estimate of $36.38 million.

During this period, the company's adjusted earnings per ADS were $0.01, down from $0.08 in the same period last year.

Clearly, from a quarterly trend perspective, TAL's recovery trajectory remains volatile.

A deeper look into the company's business structure reveals that, as an education enterprise centered on K-12 after-school tutoring, the dual-drive of learning services and content solutions businesses was the main reason for TAL's 42% revenue growth in Q4.

Data shows that in Q4, the company's learning services business (including quality education and offline small-class courses) and content solutions (smart hardware, AI learning devices) revenues surged by 35% and 50%, respectively.

However, due to slowing sales growth of Xueersi hardware and lower-than-expected enrollment in offline courses in some regions, quarterly revenue growth fell short of Bloomberg's consensus estimate of 47.2%.

On the profitability front, adjusted net profit also saw a significant decline due to increased sales and R&D expenses.

During this period, the company continued to invest heavily in smart hardware, launching new products like the xPad2Pro, leading to a 62% year-over-year increase in sales expenses to $180 million. Meanwhile, AI large-model R&D spending rose by 40%, further squeezing profit margins.

Ultimately, Q4 net profit attributable to TAL shifted from a profit of approximately $27.5 million in the same period last year to a net loss of $7.3 million.

In response to this earnings report, renowned institutional investor Morgan Stanley downgraded TAL (TAL.US) from Overweight to Neutral.

New Engine Expectations Revised: Building an Education Ecosystem with Hardware

Despite slowing quarterly revenue growth and fluctuating profit momentum, the company's management remains optimistic about the future. TAL President and CFO Peng Zhuangzhuang stated: "Both learning services and content solutions businesses achieved year-over-year revenue growth in Q4 and the full fiscal year."

He emphasized, "Over the past year, our smart learning devices have also made progress, increasingly becoming an important tool for students' independent learning. Looking ahead, by integrating offline face-to-face services, online interactive courses, and smart learning devices, TAL is confident in its full-stack service capabilities to continue creating value for students and families."

Three years have passed since the "Double Reduction" policy was introduced. During this time, most domestic education companies have gradually completed their transformations, with non-academic education businesses becoming the new growth curve for education groups like TAL and New Oriental.

However, unlike New Oriental's focus on technology empowerment, TAL views smart learning devices as the core of its future strategy, actively building an education ecosystem with hardware as the entry point, integrating content and services.

One day before TAL released its latest earnings report, New Oriental also disclosed its recent performance. In Q3 2025, its new education business segment surged by 34.5%, with non-academic tutoring and smart learning systems both delivering strong performances. New Oriental also emphasized its heavy investment in AI and other technological R&D, aiming to empower teaching through technology, improve operational efficiency, and achieve endogenous growth.

Meanwhile, TAL remains focused on online education, retaining three core segments—learning services, content solutions, and technology solutions—after divesting its academic tutoring business.

In Q4, learning services still contributed 70.6% of revenue. According to statistics, as of February 2025, the number of teaching outlets increased by approximately 70% year-over-year, with new teaching centers mainly concentrated in third- and fourth-tier cities. Meanwhile, the number of Xueersi offline learning centers reached 450, a 50% increase year-over-year, covering 38 cities nationwide.

However, the growth stability of smart hardware is more volatile. During the reporting period, the revenue share of content solutions rose to 29.4%, with Xueersi learning device online sales growing by 88% year-over-year to 356,000 units, ranking first in the industry. Nevertheless, due to high R&D costs and intensified competition, the hardware business remains unprofitable.

Peng Zhuangzhuang explicitly stated during the earnings call: "The company plans to add 100 teaching centers in fiscal 2025 and increase R&D investment in AI learning devices, targeting a 35% revenue share for the hardware business."

As of February 2025, the company's cash reserves reached $3.618 billion, a 9.5% year-over-year increase. According to the company's plan, cash flow will primarily be used for technology R&D and hardware production, differing from New Oriental's buyback strategy.

Huatai Securities believes that, as of early April 2025, the company's total teaching outlets numbered approximately 500, a 25% year-over-year increase, indicating a shift from rapid expansion to stable growth. Combined with the company's deferred revenue, the firm expects TAL's education business to grow steadily, with revised expectations for learning device growth.

Education Giants Underperform! EdTech Becomes the "Common Ground"

As of today, among U.S.-listed education institutions, the three leading companies—New Oriental, TAL, and Gaotu—have all released their latest earnings reports. All three maintained steady growth overall.

Gaotu delivered a strong performance in 2024, achieving accelerated growth for four consecutive quarters, with full-year revenue up 53.8% and cash revenue growth reaching 68.1%, exceeding ¥5.6 billion. Notably, non-academic tutoring service revenue grew over 150% year-over-year, with Q4 performance particularly outstanding.

After spinning off its East Buy live e-commerce business, New Oriental's core education business showed strong recovery momentum. In its new education business, the explosive growth of non-academic services was the highlight of the earnings report.

Currently, its non-academic tutoring courses are available in nearly 60 cities, with 408,000 enrollments in Q3 2025 alone. Meanwhile, smart learning systems and devices have been adopted in about 60 cities, with 309,000 active paying users this quarter.

However, similarly, even after three years of business transformation, the new business growth of these companies still exhibits some instability, with the latest quarterly results slightly missing market expectations.

EdTech has become a unanimously agreed-upon breakthrough.

Education digitization is a critical breakthrough for China to open new avenues and shape new advantages in education development. The "Education Power Construction Plan Outline" (2024–2035) explicitly proposes enhancing lifelong learning public services, implementing a national education digitization strategy, and promoting AI-driven education transformation.

Recently, the Ministry of Education and eight other departments jointly issued the "Opinions on Accelerating Education Digitization" (referred to as the "Opinions"). Building on the experience of the National Education Digitization Strategy over the past three years, the "Opinions" comprehensively outline the future direction of education digitization.

Notably, on the day Gaotu released its audited 2024 financial results, it announced the appointment of Sun Hao, an expert in intelligent scientific computing theory and interdisciplinary research, as a company director, signaling Gaotu's AI and technology strategy reaching new heights.

New Oriental CEO Zhou Chenggang also stated during the earnings call that the company is continuously advancing its OMO teaching system and increasing investment in AI technology applications in education. With multiple innovations deeply integrated into offline and online products, the company's product competitiveness continues to improve.

Are education giants "hardening" the market with hardware or using technology to "reduce costs and increase efficiency"? This transformation battle is far from over.