17 Education & Technology Group Inc. (YQ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the 17 Education & Technology Group Inc. Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today, Tuesday, the 9th of March 2021. I would now like to hand the conference over to your first speaker today, Mr. Raymond Huang, Investor Relations Director of the company. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us today. 17EdTech's earnings release was distributed earlier today and is available on the company's IR website. On the call with me today are Mr. Andy Chang Liu, Founder, Chairman and Chief Executive Officer of 17EdTech; and Mr. Michael Chao Du, Director and the Chief Financial Officer of 17EdTech. Andy will walk you through our latest business performance and strategies, followed by Michael, who will discuss our financial performance and the guidance. They will be available to answer your questions during the Q&A session after their prepared remarks. Before we begin, I'd like to remind you that this conference call contains forward-looking statements as defined in Section 20E of the Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current views, current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control. These risks may cause the company's actual results, performance or achievement to differ materially. Further information regarding this and other risks, uncertainties or factors is included in the company's filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. It is now my pleasure to introduce our Chairman and Chief Executive Officer. Andy, please go ahead.

Thank you, Raymond. Hello, everyone. Thank you all for joining us for our earnings call. This is our first call as a public company since we successfully listed on NASDAQ in early December 2020. We are grateful for the support from the investor community, and we believe our IPO helped further strengthen our brand image among parents, students and public school teachers as well as help us attract more great talent to join our team. Please allow me to start with a very quick background for those who might be new to our story. We have successfully developed our differentiated "in-school + after-school" integrated model that coherently brings together our smart in-school classroom solutions and online after-school tutoring operations. Our smart in-school classroom solution operation started in 2011 and provides school teachers with industry-leading tools and content libraries in a wide range of in-school teaching and learning scenarios, including class preparation, class delivery, homework assignment and grading and academic assessments to allow a smoother and more efficient data-driven teaching, learning and tracking experience for teachers and students at over 70,000 K-12 schools across China. We are now the largest in-school classroom solution provider in China in terms of MAU. Under our "in-school + after-school" integrated model, we also offer online K-12 large-class after-school tutoring services that complement students' in-school learning, leveraging our insights into students' localized education needs and personal learning profile gained from our in-school operations. Powered by our integrated model and technology, our online K-12 large-class after-school tutoring courses stand out in terms of unique approach to personalization based on our data-driven understanding of individual students' in-school performance as well as our district-level localized insights. Our business continued to grow rapidly in 2020. In 2020, our net revenues grew by 217% to RMB 1.29 billion from 2011 -- 2019. Our gross billings from our online K-12 tutoring services were approximately RMB 1.65 billion, up 203%. And our paid course enrollments reached 2.02 million, up 178%. We are committed to our differentiated "in-school + after-school" integrated model in this highly competitive market. After multiple years of investment, our in-school products now connect a lot of teachers, students and parents and are used at schools across over 360 cities across China. In addition, through more than the 722 billion of homework assignments students completed on our platform, we're gaining insights into students' learning progress, which help us pinpoint the strengths and the weakness of individual students. Teachers, students and parents interact actively around the apps across various learning and teaching scenarios such as homework and academic assessments. All of this make it possible for us to deliver teaching and services with a higher level of personalization in the after-school tutoring market. In the fourth quarter of 2020, the average MAU of in-school application for students were approximately 20 million, representing a year-over-year increase of 28% from approximately 60 million in the fourth quarter of 2019. 2021 spring semester has also recently started and we are happy to see continuous growth in the use of our in-school applications among teachers and students in terms of DAU in the first week of the semester as compared with the first week of fourth semester of 2020. The long-term trend of informatization within China's public education system presents tremendous growth opportunities. Government policy has also been supported since technology will allow students in smaller cities to have a better chance than ever to access the same high-quality teaching opportunities that until now have otherwise only been enjoyed by kids living in large cities. In April 2018, the Ministry of Education issued the Education Informatization 2.0 Action Plan. And in February 2019, the State Council issued China's Education Modernization 2035, emphasizing the position and role of education implementation in the process of promoting education modernization. Just recently on January 28, 2021, the opinions of the Ministry of Education and 4 other departments on strengthening the construction and application of online education and teaching resources for primary and secondary schools were released. We believe education informatization will provide huge room for our in-school operations to grow in the years ahead. We have continued to invest in our smart in-school solutions in terms of products, content, services and school coverage. Our understanding of students' learning profile continued to improve as the use of apps in the in-school scenarios. This, at the same time, help us improve the quality of our after-school tutoring business and services to better address their own learning needs. We see great synergies and further potentials between our in-school and after-school business in helping us provide products and services that better address the needs of our users and customers. Under our integrated model, we have achieved rapid growth in our after-school tutoring business, leveraging the advantages of our proprietary user base, localized content and data insights into student learning from our in-school business. Our paid course enrollments increased by 165% year-over-year to 849,000 in the fourth quarter of 2020 and our annual total paid course enrollments has reached 2.02 million. The integrated model allowed us to grow rapidly without relying on massive spending on external traffic acquisition. This allows us to enjoy healthy new customer acquisition costs and more attractive unit economics. We continue to maintain low and relatively stable new customer acquisition costs in this highly competitive market. Given our differentiated customer acquisition approach and high entry barrier in the in-school industry, our new customer acquisition costs are also less susceptible to industry competition and cost increases. Our new customer, CAC, has demonstrated strong stability over the past few quarters, including this last winter. We are achieving increasing high number of new paid course enrollments conversion. Such advantage in customer acquisition costs has allowed us to achieve better unit economics and healthier growth. We plan to continue to grow our online large-class K-12 after-school tutoring business, relying on our proprietary user base under our integrated model. We are confident that this unique integrated model allows us to grow and compete effectively and efficiently in the market. Another benefit of our integrated model is the insight we gain into students' personal learning needs and our understanding of local teaching and assessment emphasis. My team and I spend significant time in reaching out to our customers to better understand their education needs. Together with the feedback and our understanding of their in-school academic profiles, we have invested in a proprietary teaching assistance system, [Foreign Language], borrowing the name of an ancient Chinese doctor we can -- who can diagnose disease from limited symptoms. This system allows us to better integrate the insights we gain from our in-school operations with our after-school tutoring business on an individual basis to achieve higher level of personalization. We have noted that the renewal rates of students who are helped by such system tend to have renewal rates of up to high single-digit higher than those whose in-school learning data are not yet available to us. We see huge potential in our integrated model not only because it allows us to achieve healthier customer acquisition in this market so that more resources can be invested into improving our products and services, but also because we believe it has its unique value in evaluating teaching and learning efficiencies and effectiveness, both in-school and after-school, to a new rate that will create more value for our users and customers. Now I will turn the call over to Michael, our CFO, to walk you through our latest financial performance. Thank you.

Thanks, Andy, and thank you, everyone, for joining the call. I will now walk you through our financial and operating results. Please note that all financial data I talk about will be presented in RMB terms. I'm pleased to report our strong results for the fourth quarter and for the full year of 2020. We achieved strong top line growth. Net revenues increased by 153% year-over-year to RMB 487 million in the fourth quarter of 2020 and increased by 218.6% to RMB 1,294.4 million in 2020. The net revenues from online K-12 tutoring services increased by 164% to RMB 468 million in the fourth quarter of 2020 and increased by 239% to RMB 1,219 million in 2020. Gross billings of online K-12 tutoring services, which is a non-GAAP measure, increased by 166% year-over-year to RMB 579 million in the fourth quarter of 2020 and increased by 203% year-over-year to RMB 1,655 million for the full year. Paid course enrollments increased by 165% year-over-year to 849,000 in the fourth quarter of 2020 and increased by 178% year-over-year to 2.02 million. In addition to robust revenue growth, our operational efficiency continued to improve in the fourth quarter and the year of 2020. Our gross margin was 64.3% in the fourth quarter of 2020, improving from 62.9% in the fourth quarter of 2019. It was also 61.7% for the full year 2020 compared with 57.3% in 2019. Our adjusted net loss, also a non-GAAP measure which excludes share-based compensation expenses, was RMB 134.6 million loss in the fourth quarter of 2020, a decrease from RMB 163 million in the fourth quarter of 2019. For the full year 2020, our adjusted net loss was RMB 984 million compared with RMB 871 million in 2019. In terms of adjusted net loss as a percentage of net revenue, it was negative 27.7% in the fourth quarter of 2020, significantly narrowed from negative 84.8% in the fourth quarter of 2019. For the full year 2020, our adjusted net loss as a percentage of net revenues was negative 76%, significantly decreased from the negative 214% in 2019. We're happy to share that operating cash flow has also turned positive in the first -- in the fourth quarter of 2020. Our business model has strong operational leverage. Our differentiated integrated model allows us to grow at relatively attractive and stable customer acquisition costs as our net revenue growth from online K-12 tutoring businesses will be much faster than the increase in costs and expenses associated with our in-school operations. Our operational leverage continues to increase as we grow. Our larger revenue base allows us to better observe the sales and marketing, R&D and G&A expenses associated with our in-school operations and thus allow continuous improvements in our operational efficiency. Next, I would like to go through our fourth quarter financials in greater details. Our net revenues for the fourth quarter of 2020 were RMB 487 million, representing a year-over-year increase of 153% from RMB 192 million in the fourth quarter of 2019. The increase was primarily driven by the increase in net revenues from our online K-12 tutoring businesses. Our net revenues from online K-12 tutoring businesses were RMB 468 million, up 164% year-over-year from RMB 177 million in the fourth quarter of 2019 and accounted for 96% of our total revenues. The increase was primarily driven by increasing paid course enrollments and increase in the medium levels of our course fees. Our paid course enrollments for fourth quarter of 2020 were 849,000, representing an increase of 165% year-over-year from approximately 320,000 in the fourth quarter of 2019. Our cost of revenue for the fourth quarter of 2020 was RMB 174 million, representing an increase of 144% year-over-year, primarily due to the increase in compensation costs for instructors and tutors and teaching materials, which were largely in line with the revenue growth. Our gross profit for the fourth quarter was RMB 313 million, representing a year-over-year increase of 159%. The increase was primarily driven by the increase in net revenues. We also see growth in our gross margin, improving to 64.3% from 62.9% in the fourth quarter last year. The increase was primarily attributable to the growth of the business operation scale as well as improvements in our operational efficiency. Our average MAUs of in-school applications for students for the fourth quarter in 2020 was 20.4 million, representing a year-over-year increase of 28% from around 16 million in the fourth quarter of 2019. Moving to the expense side. Our total expense -- operating expenses for the fourth -- were RMB 676 million. This includes RMB 230 million of share-based compensation expenses. Our total operating expenses as a percentage of net revenues decreased to 139% from 157% in the fourth quarter of 2019. Our selling and marketing expenses for the fourth quarter of 2020 were RMB 247 million. This includes RMB 23.4 million of share-based compensation expenses. This represents an increase of 74.5% from RMB 142 million in the fourth quarter of 2019. The increase was significantly slower than our revenue growth. This was primarily due to the increase in our operational efficiency as well as our payments into the salary and welfare for sales and marketing personnels, branding-related expenses as well as promotional cost expenses as we have enhanced our sales and marketing efforts to prepare our growth. We have seen similar trends in our R&D expenses which were RMB 192 million, representing a year-over-year growth of 49%. The increase was primarily due to continuous investments into R&D, including salaries and welfare for R&D personnels. G&A expenses were RMB 237 million, which also includes our share-based compensation expenses of RMB 176 million. The share-based compensation was primarily due to an increase of share-based compensations that are related to IPO. Our net loss on a GAAP basis was RMB 365 million compared with RMB 178 million last quarter, but on a non-GAAP -- adjusted basis, which excludes share-based compensation, we see our adjusted net loss narrowing to RMB 135 million, which was negative 27.7% of our net revenues in the first -- in the fourth quarter of 2020 compared to a negative 84.8% in the fourth quarter of 2019. As of December 31, 2020, other than restricted cash of around RMB 0.2 million, our cash and cash equivalents were RMB 2.8 billion compared to RMB 654 million as of December 31, 2019. And finally, our deferred revenue was RMB 598 million, up 145% year-over-year. This was primarily attributable to our rapid growth in our after-school tutoring businesses. We generally collect course fees in advance, which we initially record as deferred revenues. We believe our deferred revenue give us greater visibilities on our upcoming quarters' performance. With that, I will now provide our views on our business outlook. Based on our current estimate, total revenues for the first quarter of 2021 are expected to be between 458 million and 470 million, representing a year-over-year increase of around 100% to 105.2%. These estimates represent our current and preliminary view, which are subject to potential change. Although due to negative accretion of redeemed preferred shares pure accounting treatment, we have actually achieved net income available to ordinary shareholders of RMB 552.6 million in the fourth quarter of 2020. We do not expect this to continue as this is one-off event. We will continue to balance the growth rate and profitability. We believe, at this stage, continuous investment into our business growth is more important for the company. To conclude, I would like to remind everyone about the seasonality within our businesses. The fourth quarter tends to be a quarter with relatively higher margins. We typically have higher revenue and lower selling and marketing expenses in the second and fourth quarters of the year, and thus, higher profitability. And also relatively lower quarter-to-quarter revenue growth will be seen in the first and third quarters, but together with higher selling and marketing expenses as a majority of the conversion and promotion expense activities take place in winter and summer vacations. Therefore, for the first and third quarters, they tend to have to experience more losses. This is a primary result of, first, we primarily rely on our proprietary user base for our trial course enrollments. Therefore, the biggest chunk of our selling and marketing expenses are actually related to providing the services for potential students instead of paying to external parties for them to attain our trial courses. That's why the substantial portion of our trial course service fee takes place in the first and third quarters. On a similar reason, we typically see more material increases in paid course enrollments after the winter and summer vacations and -- which have more revenue uplift in the second and fourth quarters on a quarter-over-quarter basis. Similarly, our selling and marketing expenses in second and fourth quarters tends to be lower than the first and third quarter. This fluctuation is further amplified by the fact that we don't incur a large amount of online external traffic acquisition expenses which is common in the industry. That's why relative compared to our peers, we might be seeing a slightly stronger seasonality fluctuation between different quarters. We do expect us to reach breakeven on our profitability in the second or the fourth quarters easier and earlier when compared with the first or third quarters or on a full year basis. However, if reaching profitability in certain quarter, especially in the second and fourth quarter, doesn't automatically guarantee the next quarter to be profitable due to the seasonality reasons I mentioned above. That's why we internally review our performance and operational efficiency on a semi-annual basis to gain a more complete view. With that, it concludes our prepared remarks. Thank you. Operator, we are now ready to begin the Q&A session.

[Operator Instructions] Our first telephone question comes from Sheng Zhong from Morgan Stanley.

My first question is on your next quarter revenue guidance. How much impact do you see from the late Chinese New Year? And can you also provide the revenue guidance for the full year next year? And second question is about the regulation. We see government disallow electronic homework. And especially for primary school students, the government now requires the homework to be done in school. Do you think this will impact the -- your in-school business, the MAU growth? And do you have a plan to do more external student acquisition if there is impact from the regulation?

Thanks, Zhong Sheng. I'll answer the first questions, and then I'll pass to Andy for the second questions. So on your question on net quarter's revenue guidance, how much was it affected by late Chinese New Year, yes, it's actually indeed affected by that. We actually have already completed our winter conversion cycle and that we do see strong growth during that period. However, as the Chinese New Year is actually relatively late, so actually for the spring revenues, actually it has one whole week less of revenue that is being recognized in the first quarter. On our initial estimation, it probably will actually decrease the overall revenue by around 10%, assuming if all cycles were similar as previous year. In terms of annual revenue guidance, we actually do not provide revenue guidance for the full year. With that, I will pass to Andy for the second question.

I would speak in Chinese and Michael will translate in English. [Foreign Language]

[Interpreted] Even considering the regulatory environment we have seen, we are still very confident in our overall annual growth in terms of revenues. Especially, we are confident that we are able to achieve that without relying on external traffic acquisition.

[Foreign Language]

Then I'll further elaborate on the reasons behind that. So first, in terms of the -- our in-school ecosystem, essentially it's not only a homework. It actually includes class preparation, class delivery, homework assignments as well as assessments, which is comprehensive multiple scenarios interacting with the teachers, students and the parents. Secondly, even in terms of homework, it can be completed by students in multiple type of devices, including PCs, pads and including mobile phones in the home. Also, in terms of completing homeworks and homes on different multiple devices, it was actually activities controlled by the parents and students themselves. So we don't see much impact on that. And also the philosophy, I think, starting from last year's, we actually have been exploring private domains where we are able to back up and duplicate the -- reach to parents and to various students on our various social networks, which further allow us to be less impacted in terms of the app itself.

[Foreign Language]

[Interpreted] So therefore, those in terms of near-term and the longer-term of our integrated model, we are fairly confident because we believe if you look at things at 3 or 5 years or even longer cycle or longer horizons, the informatization and modernization of China's education system is irreversible. This is actually the only way to achieve or to improve education and quality in China. So we are very confident. As long as we can provide high values to the teachers, students and parents in class preparations, deliveries, homework assessments, various learning and teaching scenarios, we are confident this is a model that has long prosperities. If some of you might be interested, you're encouraged you to actually see the 14th 5-year plans, its interpretation and discussion about informatization of China's education over the next few years. We see very strong needs and willingness to prepare this from China's government.

May I follow-up that your MAU outlook for next year?

Thanks, Zhong Sheng. So we don't actually provide, say, outlook for a particular 1 year or so, but I think despite the policy environment, we are still confident that the MAU of apps is likely to double over the next 2 to 3 years' horizon.

[Foreign Language]

[Interpreted] Yes. Just to supplement our remarks, Andy added, so probably it might be -- to be more accurate, it will be unique IDs, both in terms of apps as well as potentially PC or other formats.

Our next telephone question in queue is from Lucy Yu from BofA Securities.

So I have 2 questions here. One is also on the policy side, but more on the after-school tutoring. So we have seen government requiring all instructors to have the teacher qualification. So may I know that how many of your current instructors who are teaching right now is without the qualification at the moment? So if they don't have the qualification, does it mean that they cannot teach the classes for the upcoming semester? And also how should we think about the competition in after-school part going forward? So that's question number one. Number 2 is could we elaborate a bit more about our winter promotion strategy? So I have seen that the conversion rate from in-school to after-school went up quite nicely in the fourth quarter of last year with MAU being largely flattish Q-on-Q, but the paid enrollment actually surged a lot. So how should we think about the conversion rate from in-school to after-school in 2021?

Thanks, Lucy. Let me quickly translate the questions to Andy first. Thanks, Lucy. So basically, in terms of instructor qualifications, as I recall, we have more than -- around 2/3 of our instructors actually are properly qualified or have already and only around 10% of them have passed all the tests but not yet got their qualifications yet. We don't see this have a major impact on us as the vast majority of the revenues generated from instructors are with those with qualifications. And we are actually among the leading players with a higher percentage of teachers or instructors having such qualification. On your second question, in terms of our school tutoring competition and how we can -- how we see our fourth quarter paid course enrollment, I think the fourth quarter paid course enrollments was a combination of our improvements in terms of the students we can convert from our in-school traffic as well as the student -- existing students renew their course and signing up of their course. That's why you can see the number keep increasing in the fourth quarter. In terms of our winter strategy or actually our expectation for 2020, as you know, the winter conversion season actually has already completed. We have some preliminary statistic from that, and we see them are very promising and we're happy to see the trend. In summary, we see, first, in terms of the number of full price students that get converted from our winter actually has increased significantly, which is actually more than double the same number of the last winter. Secondly, in terms of unit customer acquisition expenses, it's also remained highly stable. I think it only increased by around 10% compared to the last conversion cycle, which is significantly slower than industry increase. We believe this is a significant benefit and the edge of our integrated models. That's why with, as you mentioned earlier, the paid course enrollment that took place in the fourth quarter and also what we have seen in the winter cycle, we actually see us approaching what we believe is major milestones for our business where the number of concurrent students getting very close to 1 million enrollments after the winter cycle. So for 2021, I think we are -- as Andy has mentioned earlier, we are very confident to continuously grow in these sectors despite the competition and we are confident delivering a very strong overall year.

[Foreign Language]

[Interpreted] So the numbers we have seen in fourth quarter and also the initial statistics we've seen on the winter were very stable, CAC only increasing of around 10% and also the number of students getting converted was actually doubling what we've seen in last winter 2019 as well. Also the -- our over -- our after-school tutoring business approaching a SKU very close to 1 million concurrent full price students enrollments. This is actually all behind -- as a result, the long-term advantage of our -- inherent advantage of our integrated models. So over the last few years, our accumulations of presence in in-school scenarios of more than 70,000 schools actually is a long-term strength and the benefit that we actually gradually play out in the next few quarters and years. We are confident that we actually will be growing on a very healthy unique customer acquisition expenses and in a relatively solid growth rates without relying on external traffic.

[Operator Instructions] Our next telephone question is from Sheng Zhong from Morgan Stanley.

Actually, I asked my questions already, but if I may, I want to ask one question, one more question. Since you mentioned that your retention rates seen very strong improvement, so do you -- can you add some color on this perspective? What the retention rate for the students you have, their academic performance record and comparing with the normal ones?

[Foreign Language]

[Interpreted] Let me try to translate. So as we have shared earlier and also some of the investor has been communicating with us, we do experience customer acquisition expenses that is significantly lower than industry average and also at similar retention rates among the leading players. Therefore, we have -- we enjoy significantly better unit economics with much higher LTV versus CAC structures. But we also want to share that we do see stronger potentials of our renewal rates to improve further. As we shared earlier, that we have built a [Foreign Language] system where we utilized the in-school students learning and localized learning data information together with our after-school tutoring services. We believe vast majority of our potential students or our current students actually want to improve their grades in their in-school learning scenarios. That's why our in-school learning scenarios where we accumulate a lot of data in terms the academic assessments, homework data, what's the student mistakes and what's the local exam focus is, such insights allows us to be much more efficient in terms of helping the students to improve their learning results and to be more targeted. So I know people might be more -- this might be more obvious to the people where the integrated model allows us to enjoy a significantly lower customer acquisition expense, but actually in our mind, what's even more valuable and especially more valuable in the longer-term is that the localized content and data that it provides that allow us to actually providing a stronger and more efficient and effective after-school tutoring and learning products to the students.

Our next telephone question is from Christine Cho from Goldman Sachs.

Just -- I think we start to notice a lot more of your competitors actually starting to talk about localization as well as potentially exploring some offline customer acquisition channels. Can you highlight any product or R&D, some developments on that side over the last few months that you can highlight there?

[Foreign Language]

[Interpreted] Let me translate what Andy has shared earlier. So the question was about more and more players are talking about localizations as well as trying to acquire students or -- from offline channels and what was our investments, especially in R&D products, in these aspects. So I think this actually as well a trend where we have pioneered. If people -- if everyone remembers that even during last year's investor meetings, roadshows, we have already mentioned that we have already become the leading -- among the leading players who has the most number of localized textbook versions in terms of after-school tutoring courses as well as multiple levels of difficulties for online large classes. And this is what we have always been focused about too so that we can provide more targeted services. However, what we believe, having multiple localized course versions and multiple difficulties are actually only the first steps. It has some value to the parents, but may not be as great because from a parent's perspective, they don't really know about look -- they don't really look -- see localized versions. What they really need is to have courses and services that's more targeted to helping them in solving the problems that they have seen from in-school and to help them get better prepared to face exams within the schools. And this, to our perspective, 2 level of data of the highest value. The first is on school level, what's the -- or a district level, what's its exam focus is, teaching focus is and what's more likely to be tested. And secondly, on individual level, so what the person's own learning problem is, what's the strength and weaknesses, how you can be more targeted to providing our tutoring services. And this too is actually expect what we have particularly strong with our integrated model. To share with a number, more than 10 million students actually have took our academic assessments in 2020. This is consistent with the trend where the Chinese government is trying to use progress data instead of one final exams to evaluate how students are learning. This is a product and service where it's highly demanding in terms of -- those in terms of technology as well as expertise accumulation over the last few years. Such large number of students attending assessments of our platform, more than 10 million of them, actually give us significant knowledge advantage in terms what the schools are likely to test, what's the exam focus. All such information will actually be imported into our [Foreign Language] system. This system will be used by our tutors so that they can be providing -- when they provide services to our students, it can be more targeted and organized, small tutoring sessions to talk about more localized, school-based and individual-based questions and complementing to the overall relatively general large classes. In terms of the offline customer acquisitions, we do see this trend fairly early. As we've shared earlier, we believe all the players will be actually having a matrix of customer acquisition trends channels, both online and offline, as the customer acquisition expenses in the social platform are becoming increasing and increasingly more expensive. However, in terms of when you look at offline, we can still further dissect into multiple segments. You can -- first is offline but still outside the schools. This is not difficult and doesn't have much barriers at all, and that has what -- all the industry -- offline actually has been doing over the last few years. But the difficulty is that it's more difficult to scale out. It's not as scalable. You can do that, you have low customer acquisition expenses, but it will be difficult for our players to build such an offline structures within short time so that it can provide major growth. Secondly is those that involves in-school scenarios. Even within the in-school scenarios, you have multiple growth paths. First is product-driven, in-school systems similar to us. This requires a much longer -- multiple years of investments, both in terms of products, contents, trust and relationship buildup within the schools and the students. This one we believe will be very difficult for others to replicate and build up in a short time. Others, what we have seen is more trying to do more efficient in terms of timing and one-off approach such as holding seminars within schools. This is similar to those that took place in outside schools. This is also something what offline institutions has been using for multiple years. It has some advantage in terms of costs, but it's more difficult to scale up.

Our next telephone question is from Manik Mahajan from Freemont Capital.

I just have one question, and that's around the ASP trend. So how should we think about the average selling price for the after-school tutoring courses going forward? And any color you can share on how it has been trending as per your expectations?

[Foreign Language]

[Interpreted] So let me share my view of results first. In terms of ASP, I believe it's very likely that the average -- on an average basis, it is likely to grow at around 15% annual growth over the next few years. The reasons behind that is that if you look at the average price of the online large classes, it's around RMB 3,000 for the whole year. This is a price even highly acceptable and comfortable for students in Tier 3 and Tier 4 cities. This would account for around up to 10% of their annual income, even in Tier 3 and Tier 4 cities. We have also conducted several surveys. We believe this is fairly comfortable levels where they can accept. Second, in terms of the emphasis and focus on education as a whole and driven by the continuous product improvements of the industries. Indeed, the online large classes actually bringing much better and attractive instructors into lower-tier cities so that -- we believe it will actually drive continuous demand from even lower-tier cities. Also, as for online large classes alternative to other formats, it also have significant price advantage compared to multiple other forms. So even with 15% annual price increase over, say, next 2 to 3, its price will still remain competitive.

There are no more further questions at this time. I would like to hand the call back to the speakers for closing remarks. Please continue.

Thank you, operator. In closing, on behalf of 17EdTech's management team, we'd like to thank you for your participation on today's call. If you require any further information, feel free to reach out to us directly. Thank you for joining us today. This concludes the call. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]