(Yicai Global) Nov. 28 -- China's online education sector, once the darling of the capital markets with large stock market listings, is now facing a financing crisis. But market insiders told Yicai Global that investor appetite still exists. The key is to find the right business model.
The e-education field faces increasing funding difficulties as investors become more cautious, according to Cao Wei, general manager of industry leader Tomorrow Advancing Life Education Group's strategic development center.
The situation this year is much worse than before, said Tang Xiaoming, founding partner of We Capital. This means that highly valued companies whose liquidity has not been proved, or which are in need of a business pattern based on technological evolution, will be unable to secure funds and it will be difficult to maintain their current evaluation.
Underlying demand has not changed, though, and the need for children's education will continue to rise. The nature of the market will not change, Zhang Lijun, partner of investment firm Sinovation Ventures, told Yicai Global. Rather, the industry will need to make adjustments, such as reducing operating costs, controlling budgets and optimizing financial models.
"The industry needs to be more prudent in making growth forecasts and judgments in a bad capital environment," Zhang said. "It should set up healthier and steadier patterns for finance and cash flows, which are now increasingly important."
No obvious progress has been made in the retail concept of Online-Merge-Offline that was proposed some time ago, Cao added. This has also contributed to the cooling down of online education. The sector needs to take a step back and look at the gap between market evaluation and bubbles to verify its strategies, he added.
One mother has chosen to take her child to English-language classes rather than signing her up for an online course. "This is because I have doubts about online courses and I think face-to-face classes are better," she told Yicai Global.
"The discounted prices of online education courses are very attractive," another parent commented. However the quality of the education and whether children are willing to take the course are all key factors in whether parents will opt to sign up for the classes, regardless of whether they are online or offline.
The online education sector will recover, Zhang added. The New York-listed stocks of the industry's two leaders New Oriental Education & Technology Group and TAL Education Group are both on the rise and are close to historical highs.