New Oriental's Panic Attack

According to IPOHome.com, New Oriental Education (NYSE: EDU  ) is the third best-performing IPO for the past year and is up a cool 265%. The stock is also a pick of the Motley Fool Global Gains international newsletter service. But on its fiscal Q4 report, the stock price fell 12%.

New Oriental is the dominant player for private education in China. The main focus is on English instruction and test preparation.

In the fiscal fourth quarter, revenue surged 29% to $24.9 million. The growth is not cheap, though, and the company had to ramp up selling and marketing expenses by 48%. There were also increases of 22% for overall operating expenses and a 27% increase in cost of revenue. As a result, New Oriental sustained a net loss of $1.6 million, or $0.04 per share.

While the company has built an impressive platform, it realizes it can't do everything on its own. In Q4, it struck a deal with Nokia (NYSE: NOK  ) to allow students to access educational material from mobile phones.

Another key partner is Thomson (NYSE: TOC  ) . Through that relationship, New Oriental has been able to bolster its content offerings.

It also looks like New Oriental is poised for some acquisitions. The private-education market is highly fragmented in China. And with New Oriental's high valuation and cash hoard, it can pick up some deals.

With less than 5% of the total market, there is lots of room for growth. The company has a premium brand, an extensive network, and deep resources. It's a pretty good formula for growth. But as seen with the quarterly results, it can be a bumpy ride.

Smarten up with further Foolishness:

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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares of companies mentioned in this article. He is currently ranked 2,419 out of more than 60,000 players in CAPS. The Fool's disclosure policy always does its homework.


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