What happened
Shares of Gaotu Techedu (GOTU -7.59%) were moving higher today after the Chinese online tutoring company reported first-quarter earnings this morning, and seemed to benefit from news that the Chinese government was roling back COVID-19 restrictions, which lifted a number of Chinese stocks today.
As of 1:08 p.m. ET, Gaotu Techedu stock was up 10.6%.
Image source: Getty Images.
So what
Gaotu Techedu's revenue fell sharply in the quarter, but that was to be expected as the Chinese government cracked down harshly on online education services last year, banning for-profit K-12 tutoring and imposing restrictions in other areas.
Revenue in the quarter fell 62% to $109 million.
However, the good news was that the company's bottom line improved significantly as it slashed its marketing expenses and restructured its business, helping it deliver its second straight quarter of profitability.
It posted a non-GAAP (adjusted) profit of $13.9 million, or $0.05 per share.
CEO Larry Chen said in a statement: "In the first quarter of 2022, our businesses continued to maintain a healthy and sustainable development, and we have remained profitable for two consecutive quarters since we began our business restructuring. Going forward, we will continue to develop and invest in our four core businesses, which are professional education for college students and adults, vocational education, STEAM education, and digital educational products."
Also today, the Chinese government took steps to reopen the economy following several months of COVID-19 lockdowns. Public transport is returning to most of Beijing's districts, and officials have declared the end of an outbreak in the capital.
Among the winners were Alibaba Group Holding, which was up 7% in afternoon trading.
Now what
Gaotu Techedu still remains a high-risk stock, but investors should be encouraged by two straight quarters of profitability and Beijing's lifting of COVID lockdowns.
However, the stock is still down 99% form its peak early last year and investors are likely to be wary of dabbling in a space where the Chinese government exercises so much power.
