(Bloomberg) — Larry Chen, the chairman and chief executive officer of GSX Techedu Inc., lost $3.5 billion overnight as American depositary receipts of his company tumbled like never before following a Credit Suisse Group AG downgrade.
The Swiss brokerage said the after-school tutoring platform is facing increased competition and has made “mistakes” during its summer promotion. It cut its rating on the ADRs to the equivalent of a sell from neutral and lowered its estimated price to $71 from $85, sending the stock sinking 31% to $71.23.
That cut Chen’s net worth by almost one-third to $7.8 billion, according to the Bloomberg Billionaires Index. He lost more than anyone else in the gauge of the world’s 500 richest people on Wednesday.
Alex Xie, the Credit Suisse analyst who wrote the report, said he anticipates record low conversion rates from the summer promotion as competitors had similar offers and some parents took advantage of them without actually paying for the whole period. GSX “no longer benefits from organic traffic growth and has made mistakes at a key stage of competition,” he added.
Credit Suisse has been close to the company since it led its New York initial public offering last year. In April, Chen said in a call with analysts that he pledged 5.1 million ADRs — currently worth about $363 million — to the Swiss firm for a $50 million loan facility.
Analysts tracked by Bloomberg are divided on GSX. The ADRs have seven buy ratings and as many holds, with three sell recommendations.
“We believe we have and will continue to have the highest operating efficiency, and we are confident about our full-year performance,” Sandy Qin, a spokeswoman for GSX, said in a WeChat message answering a Bloomberg request. “We firmly believe that, in the long run, the core strength to stand out is a firm’s organizational efficiency and culture, which we believe are GSX’s cutting-edge advantages.”
The shift to online amid the coronavirus pandemic has helped the Beijing-based company this year, with its ADRs surging as much as 500% even as short sellers said it forged sales and student numbers. In September came a hiccups, though, after GSX disclosed the U.S. Securities and Exchange Commission was investigating its second-quarter earnings release, which noted a 367% jump in revenue. The stock gradually recovered and was up more than 370% for 2020 before Wednesday’s plunge.
Chen, 49, was born in a poor village in northern China. His father helped him enroll in a tuition-free vocational training school for teachers in the hope that he’d be able to find a stable job. Chen started his career as a middle school teacher at 17 and joined New Oriental Education & Technology Group Inc. in 1999, eventually becoming executive president before leaving to start GSX in 2014.
The provider of online K-12 courses reported sales of 2.1 billion yuan ($315 million) last year, a fivefold increase from 2018, with 2.7 million enrollments and students in more than 190 countries.
(Updates with analyst ratings and company comment in sixth and seventh paragraphs)
For more articles like this, please visit us at bloomberg.com
Subscribe now to stay ahead with the most trusted business news source.
©2020 Bloomberg L.P.
