What happened
QuantaSing (QSG +4.48%) was trouncing the market on Thursday -- the stock was up 24% as of 1 p.m. ET, compared to a 0.9% rally in the S&P 500. However, that increase erased just a small portion of its recent declines, and shares of the Chinese online education services provider remain below their initial trading price from its public offering in late February.
Thursday's rally was sparked by the company's positive quarterly earnings update.
So what
Before the U.S. markets opened Thursday, QuantaSing reported that its fiscal Q3 revenue was up 17% year over year on strong demand for adult education services. Several engagement metrics, including active user growth and repeat purchases, improved in the period, which ended March 31. Management also said the company's wider array of courses helped push sales higher. "We maintained our growth momentum," CFO Dong Xie said in the earnings press release.
NASDAQ: QSG
Key Data Points
QuantaSing took a big step toward profitability, although it isn't yet generating sustainably strong earnings. Net losses were $3 million compared to a tiny profit in the prior-year period. Adjusted earnings fell slightly, but remained in positive territory.
Now what
The company aims to build up its earnings power by growing its sales base while keeping costs under control. Strong revenue gains are a key factor in that strategy, and executives are projecting further growth on that score. QuantaSing is guiding for sales to rise by between 21% and 26% year over year in the current quarter.
Wall Street understandably reacted positively to the news of accelerating sales growth. Yet investors can expect this small-cap stock to remain highly volatile in both directions as management works to build a bigger revenue base and sustainable profitability.
QuantaSing's international focus adds to the risk for investors, exposing them to any economic downturns in the Chinese market. Those factors, plus its short track record on public markets, suggest that most investors should watch this growth stock from the sidelines for now.
