China Online Education Group Snaps Up Kaola Reading

Online education platform, China Online Education Group, has agreed to acquire a 100% stake in Beijing Xiangyue Education Technology Co (Kaola Reading).

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China Online Education Group (COE) is primarily focused on English education. Kaola Reading provides Chinese reading ability assessment systems and reading training systems in China. Kaola makes use of AI and machine learning to assess and rate reading skills and to suggest courses suitable to each student.

China Online Education Group Founder, Chairman, and CEO Jack Jiajia Huang said, “We see clear strategic value in this acquisition. Leveraging Kaola Reading’s expertise in reading assessment, we plan to develop an English assessment and rating system that allows us to provide more targeted course offerings to our students, deliver enhanced learning experiences and outcomes, and add graded reading content to further diversify our curriculum portfolio.” (See China Online Education stock analysis on TipRanks)

China Online Education is making this acquisition through a private placement by issuing Class A ordinary shares. It expects the transaction to close in 1H 2021.

Last month, Needham analyst Vincent Yu reiterated a Buy rating on the stock with a $36 price target (76.4% upside potential).

Reacting to the company’s 4Q results, Yu said, “COE reported a strong 4Q on the back of strong student growth and concluded 2020 as its first profitable year as a public company. Notably, even though a large amount of VC/PE capital was deployed by unicorn start-ups for marketing investments during 2020, COE managed to gain share and maintain its leadership of the less crowded, K-12 online 1-on-1 English tutoring market.”

Shares have dropped about 21.8% over the past year.