Online Lecture Unlimited Pass 'Mega Pass' Gains Popularity... Megastudy Education Eyes Over 700 Billion KRW in Sales

Unexpected Beneficiary of 'Connection ON' Education Companies from Test Takers to Elementary Students

Performance Soars with the Activation of Non-Face-to-Face Education Due to COVID-19

Due to the resurgence of COVID-19 and the escalation of social distancing measures, students are once again receiving non-face-to-face education at home instead of attending school. Initially, it was expected that offline academy or dormitory academy enrollment rates would increase once vaccination became widespread, but offline education has been delayed more than anticipated due to the spread of the COVID-19 Delta variant. Education companies have each strengthened their online competitiveness by expanding star instructors and developing edutech technologies. With the increase in online private education participation among elementary and middle school students and changes in the university entrance examination system starting this year, there are forecasts that education companies' performance will improve.

[Asia Economy Reporter Park So-yeon] Megastudy Education recorded its highest performance since its establishment in the first quarter of this year. This was thanks to a surge in sales of the online course 'Megapass.' Although sales and operating profit in the offline sector, which has a high fixed cost ratio, decreased due to the adverse effects of COVID-19, strong growth in the online sector and increased textbook sales dispelled concerns about poor performance.

◇ Solid Performance Despite COVID-19... Growth in Online Business = Megastudy Education was established in 2015 through a spin-off from Megastudy. It provides educational content for elementary, middle, and high school students as well as general adults. The business is divided into elementary and middle school division, high school division, general adult division, and other divisions (real estate rental business). It offers various content not only for elementary students' school curriculum-linked learning but also for students preparing for special-purpose high schools and gifted schools. Online brands include 'Elly High' for elementary, 'Mbest' for middle school, and 'Megastudy' for high school. Offline, it operates Mbest SE Academy, home tutoring, Megastudy Academy, and Russell Academy.

Megastudy Education's sales have steadily increased over the past three years: 356.9 billion KRW in 2018, 437.3 billion KRW in 2019, and 474.7 billion KRW in 2020. Operating profit was 48.2 billion KRW in 2018, 59.6 billion KRW in 2019, and 32.8 billion KRW in 2020. Although there was no sales decline due to COVID-19 last year, operating profit significantly decreased. In particular, the general adult division recorded an operating loss of 7.8 billion KRW last year. Operating profit in the elementary and middle school division was 12.6 billion KRW, an 81.8% increase compared to the previous year. The high school division's operating profit was 27.6 billion KRW, down 45.2% year-on-year. This is analyzed to be because the elementary and middle school business is mainly online, while the high school business is mainly offline. The deficit in the general adult division was due to temporary costs incurred when the subsidiary Ivy Kim Young went public (IPO) last year. A Megastudy Education official said, "The subsidiary responsible for the general adult business went public, causing temporary merger costs," adding, "Regarding lectures for civil service exams, since we entered the market in 2019 as a latecomer, initial investment costs such as instructor recruitment and advertising are being incurred."

◇ Recruitment of 'Top Instructors' and Changes in the College Entrance System... Expectations for Performance = This year, performance has noticeably improved. Consolidated sales in the first quarter increased by 57.5% year-on-year to 172.1 billion KRW. Operating profit also turned positive, recording 12.8 billion KRW. The payment amount for the annual online lecture unlimited pass 'Megapass' increased by 120% from November last year, right after the college entrance exam, through March this year compared to the same period last year. Megastudy Education aims for 700 billion KRW in sales and 100 billion KRW in operating profit this year. A Megastudy Education official said, "Since the outbreak of COVID-19, we have recruited three 'star instructors' in the science inquiry field from competitors to strengthen online capabilities," adding, "By strengthening the instructor pool, payment amounts have significantly increased compared to last year, and the performance consensus for this year is positive."

There is optimism that performance will record high growth once the offline sector damage caused by COVID-19 normalizes. With the expansion of the online sector, high growth is expected not only for third-year high school students and repeaters but across all grades. Analysts believe that if the offline sector normalizes in a situation where the online market has been strengthened, additional performance improvements will occur. Yoon Chang-min, senior researcher at Shinhan Financial Investment, said, "If vaccination rates increase and normalization returns to 2019 levels, further upward revisions are possible."

The structural changes in the university entrance examination system starting this year are also positive for performance. This year is the first year of major changes in the university entrance system, including the implementation of an integrated liberal arts and science CSAT, an increase in the proportion of regular admissions, and a decrease in the EBS linkage rate. Jeong Ji-yoon, a researcher at NH Investment & Securities, said, "Megastudy Education has the industry's top-level instructor lineup in mathematics and science inquiry areas, and considering the recruitment of new students for pharmacy colleges in 2022 and the increase in regular admissions, a direct benefit from the increase in Megapass subscribers is expected," adding, "The structural changes in the college entrance system will be a turning point that levels up Megastudy Education's performance." An industry insider hinted, "With many changes in the CSAT system, the number of students retaking the exam starting from June has increased significantly."

Megastudy Education is also expanding new business areas such as edutech and overseas expansion. A Megastudy Education official said, "Experiencing COVID-19 has increased the growth potential of the online education market," adding, "We are strengthening investments in edutech that combines education and technology." In January this year, Megastudy Education established a joint venture with the startup Skelter Labs, which develops artificial intelligence (AI). The joint venture provides customized content related to school grades and the College Scholastic Ability Test for elementary, middle, high school students, and repeaters. They plan to enhance services that predict and recommend educational content tailored to each student's characteristics using personalized AI technology.

Overseas business is also being actively expanded. Last year, Megastudy Education established a joint venture 'Mega Edutech' in Thailand, investing 50% equity. This is an investment to build a Korean online education platform business model locally in Thailand. A Megastudy Education official said, "The Thai market has an entrance examination system similar to ours," adding, "We are continuously researching the Southeast Asian market using Thailand as a foothold."