Tencent linked to JV with New Oriental

The share price of leading Chinese Internet company Tencent Holdings spiked after media reports were published Tuesday about cooperation between the company and New Oriental Education and Technology Group Inc.

Tencent is being linked with a joint venture (JV) deal with the US-listed private educational services provider in the online education sector, according to media reports circulating on the Chinese online community Tuesday.

However, a PR staff member of Tencent, who declined to be named, told the Global Times Tuesday that the company has no comments about what she said was a market rumor.

A staff member with New Oriental's investor relations department declined to comment on the 'rumor,' when reached by the Global Times via telephone on Tuesday.

The market reacted by sending Tencent's share price to $HK578 on Tuesday, 5.76 percent up from the previous trading day on the Hong Kong bourse.

Yu Minhong, chairman of the New York-listed company, made some comments related to online education about a week ago on his Sina Weibo, a Chinese Twitter-like microblog platform.

"I accept online education as a challenge to traditional class teaching, but I think it is more complimentary than challenging," Yu wrote on his Weibo March 10, noting that a fusion of the spirit of education and that of the Internet is needed to improve the quality of education.

Yu also refuted reports that New Oriental was facing any problems, claiming that his company "is doing well."

New Oriental has its own online unit, koolearn.com, which sells teaching materials as well as online courses, primarily in the form of record-broadcast.

"The company's online unit only contributed a small percentage of its total revenue, and it makes sense to cooperate with a strong tech firm to boost its presence in the fast-growing sector," Liu Dongmei, an analyst on online education with iResearch, told the Global Times Tuesday.

The majority of the content offered on New Oriental's website is recorded, and measured with today's market expectation, it lacks the same interaction as a live broadcast and fails to meet the varying needs of customers, Liu said.

Liu noted that a JV with Tencent will give New Oriental a huge user base, tech-savvy tools, and field-proven platforms, and will be very promising, considering the huge potential of the online education sector.

According to New Oriental's latest quarterly financial report ending on November 30, 2013, the company's operating revenue stood at $208.3 million, while the whole year revenue for its online unit was merely $30 million.

"For Tencent, a JV is a great way to catch up with rivals Baidu and Alibaba, who have already entered this market with their platforms," Liu said.

Zhang Yi, CEO of Shenzhen-based market research firm iiMedia Research, told the Global Times Tuesday that Tencent is cashing in its vast user base resource it has amassed with its QQ and WeChat instant messaging services.

"Many of the users of Tencent's instant messaging tools are young people, who are potential customers of New Oriental's services," Zhang said.

Chinese e-commerce giant Alibaba Group consolidated its online education resources into Taobao Classmates or xue.taobao.com, in December 2013, and reported a user volume of 1 million from January to March, news portal sohu.com reported, citing data released by its Taobao online platform.

Xue.taobao.com is an online marketplace for both company and individual retailers, selling contents ranging from English teaching to belly dance course.

The report also said educational purchases on Alipay, the online payment arm of Alibaba, reached 1.05 billion yuan in 2013 with an average spending of 278 yuan on online courses.

China's largest search engine Baidu Inc also introduced its online education platform in January, providing video teaching content.

Being able to cooperate with a leading offline education firm like New Oriental is definitely a great start for Tencent, according to Liu.

Since 2013, Tencent has experimented with online teaching functions via its QQ instant messenger, the most popular messaging software in China by user base, as well as online payment tools, completing the ecosystem of online education, according to Liu.

Zhang said Tencent is leveraging its cash capital advantage to partner with leading companies in different sectors which could provide a safe haven for the company during the next decade.