New Oriental (EDU) Q1 2025 Earnings Transcript

New Oriental posted strong Q1 FY2025 results, with total net revenue up 30.5% year over year and non-GAAP operating margin expanding 220 bps to 24.4%. Operating income rose 42.9% to $293.2 million, while net income attributable to the company increased 48.4% to $245.4 million; management also guided Q2 revenue growth of 25% to 28% excluding East Buy and reiterated full-year revenue growth around 30%. The company continues investing in AI, new educational products, and tourism, while authorizing a larger $700 million buyback program, though tourism is expected to be loss-making for the full year and Q2 margins may face some pressure.

Analysis

The market is likely underestimating how much of the margin story is really a capacity-utilization story, not just a growth story. EDU is effectively converting last year’s fixed-cost buildout into operating leverage, but the key second-order effect is that the same expansion creates near-term pressure in weaker geographies while strengthening the strongest cities’ unit economics. That argues for a wider dispersion between best-in-class education operators with disciplined footprint allocation and those still chasing top-line through brute-force openings.

The tourism push is the main variable that can make headline margins look better or worse than the core business, and the sequencing matters. Management is signaling that Q1 was seasonally flattering and that Q2 will likely absorb the first real P&L drag from tourism plus marketing normalization; if that playbook proves right, the stock may trade through an uncomfortable 1-2 quarter earnings reset before the core education comp re-accelerates in the back half. In other words, this is less a demand problem than a mixed-business-model problem, and the market will need to decide whether tourism is an option value asset or a permanent dilution to quality.

The buyback authorization meaningfully changes downside asymmetry because the company can now retire shares against a large net cash balance, which is a stronger signal than the raw authorization itself. The contrarian miss is that consensus may be too focused on the new-business growth rate and not enough on whether management can keep capital discipline as it scales AI, devices, and tourism simultaneously; these are three different return profiles bundled under one equity. If execution slips in either tourism profitability or learning-center utilization, the multiple can compress quickly despite still-strong reported growth.

Key Decisions for Investors

• Long EDU on a 3-6 month horizon into the expected Q2 margin air pocket, with a target to add on any post-earnings pullback; risk/reward is favorable if the market over-discounts one weak seasonal quarter versus a stronger H2 re-acceleration.
• Pair trade: long EDU / short an education or consumer-discretionary proxy with weaker balance sheet and no buyback support, sized for 90-day catalyst risk; the thesis is that EDU can self-fund growth while preserving capital returns.
• Buy EDU Jan-2025 or Mar-2025 call spreads rather than outright stock if you want exposure to H2 margin recovery; this limits downside if tourism losses prove larger than expected while preserving upside from utilization and repurchase support.
• If you already own EDU, sell covered calls against the position into any pre-earnings strength and look to re-establish after Q2 commentary; the next catalyst is likely operational clarity, not near-term upside surprise.
• Avoid chasing after strong prints in the tourism/new-business narrative until there is evidence of positive unit economics; the risk is that the market capitalizes growth too early before the segment proves it can earn its cost of capital.