By Michael Kim
READ THE FULL QSG RESEARCH REPORT
Pre-market open on 6/6/25, QuantaSing (NASDAQ:QSG) reported F3Q25 (Mar) earnings outcomes. On a GAAP foundation, QSG reported internet revenue of $5.7 million for F3Q25, or $0.10 per ADS. That stated, excluding share-based compensation bills, adjusted EPS got here in at $0.11, or under our estimate of $0.18 (Exhibit 2). Relative to our mannequin, the miss primarily mirrored lower-than-expected revenues and working revenue partially offset by greater non-operating revenue (truthful worth changes associated to Letsvan and different long-term investments).
Specializing in the highest line, revenues for the third quarter of fiscal 2025 totaled RMB 571 million ($79 million), representing a 40% decline in comparison with the prior-year quarter. The year-over-year lower primarily mirrored declining on-line studying companies charges throughout monetary literacy, expertise upgrading, and recreation & leisure programs mixed with decrease enterprise companies charges, partially offset by greater different revenues. Adjusting for Value of Items Offered (COGS), gross revenue totaled RMB 474 million ($65 million) for F3Q25, translating into an 83% gross margin in comparison with 85% for the prior-year quarter reflecting QSG’s strategic shift.
Complete working bills for F3Q25 got here in at RMB 441 million ($61 million), down from RMB 805 million for the year-ago quarter. Gross sales and advertising and marketing, analysis and growth, and common and administrative bills have been down sharply across-the-board, as administration stays targeted on reallocating sources by the strategic transition.
Web revenue for the third quarter of fiscal 2025 totaled RMB 41.1 million ($5.7 million), up from RMB 14.6 million within the prior-year quarter. For F3Q25, adjusted internet revenue (excludes share-based compensation bills) got here in at $6.3 million, or $0.11 per ADS, in contrast with $4.4 million, or $0.08 per share, for the prior-year quarter.
After updating our mannequin for F3Q25 actuals, we’re taking over our F2025 and F2026 adjusted EPS estimates from $0.90/$0.85 to $0.83/$0.79. Our revisions primarily replicate the F3Q25 EPS miss mixed with barely decrease income assumptions. Whereas we see outsized progress potential for Letsvan as administration more and more leverages QSG’s advertising and marketing/distribution/operational acumen, we suspect it would take time for associated income progress to totally offset ongoing declines throughout the legacy on-line training enterprise.
Turning to profitability, our mannequin requires adjusted working and internet revenue margins to pattern greater from F3Q25 ranges, as senior officers stay laser-focused on sustaining optimistic money flows and optimizing useful resource allocations and Returns on Investments (ROIs).
Regardless of our lowered earnings outlook, we’re elevating our worth goal to $7.00 reflecting a decrease threat profile in gentle of the corporate’s ongoing transition to a decrease CAC/higher-LTV enterprise mannequin. Whereas the inventory has outperformed extra lately, we nonetheless see significant upside potential, notably as QSG’s distinctive enterprise mannequin, differentiated deal with the silver demographic in China, and long-term progress prospects more and more resonate with the funding neighborhood.
Following our evaluate of F3Q25 outcomes, we spotlight the next key takeaways:
1. Letsvan – one other progress lever to drag: As beforehand disclosed, QSG acquired a majority fairness curiosity in Letsvan for a complete money consideration of RMB 235 million. Letsvan primarily focuses on Mental Property (IP) incubation and gross sales of associated pop toys throughout on-line and offline distribution platforms in China and Southeast Asia. Whereas standalone revenues/earnings stay minor relative to QSG’s legacy companies, we search for robust/sustainable progress post-acquisition reflecting a number of highly effective catalysts together with:
- Trade progress: In line with latest research, Gross Merchandise Worth (GMV) throughout the worldwide toy market is forecast to rise from RMB 773 billion in 2023 to RMB 994 billion in 2028, representing a 5%+ Compound Annual Progress Price (CAGR).
- Increasing product portfolio: Letsvan maintains a strong portfolio, with 10 authentic IPs (along with licensing third-party properties). Trying forward, administration plans to launch two to a few new IP-based merchandise per 12 months by leveraging QSG’s incubation/cultivation framework.
- Broader distribution: Key distribution initiatives embrace more and more partnering with main toy retailers, and opening proprietary retail shops (following the success of the latest pop-up retailer launch in Beijing) to extend product visibility and improve gross sales. Moreover, senior officers stay targeted on additional constructing Letsvan’s on-line capabilities to enrich offline transactions.
- Geographic enlargement: Along with the corporate’s home market in China and more moderen entries into Southeast Asia (particularly Indonesia, Thailand, and Malaysia), administration plans to additional to broaden Letsvan’s footprint in North America over time.
- More and more leveraging QSG: In our minds, a key progress driver for Letsvan stays incorporating QSG administration’s experience throughout data-driven advertising and marketing, buyer engagement, digital infrastructure, and provide chain optimization to ramp up gross sales and enhance working efficiencies.
2. Ongoing deal with profitability: Whereas antagonistic seasonal developments impacted F3Q25 profitability, we search for margins to stay regular within the close to time period and pattern greater over time. Our optimism primarily displays ongoing initiatives to raised align the corporate’s value construction (together with open-ended headcount reductions), because the income mannequin evolves. Furthermore, Letsvan maintains greater margins, with additional progress doubtless more and more accretive to general profitability. From a enterprise perspective, on-line studying companies proceed to generate the lion’s share of firmwide revenues (82% in F3Q25), with the enterprise remaining worthwhile. Ought to phase revenues decline to the purpose the place the legacy platform turns into unprofitable for a protracted time frame, we suspect senior officers would transfer to shutter associated companies – reinforcing administration’s dedication to sustaining optimistic money flows.
From a capital administration perspective, administration stays targeted on optimizing useful resource allocations to maximise Returns on Investments (ROIs). Liquid belongings (money and money equivalents, restricted money, and short-term investments) totaled RMB 1.1 billion ($156 million) as of March 31, 2025, thereby offering flexibility to proceed to spend money on newer/higher-growth companies (although we count on CapEx wants associated to constructing our Letsvan’s infrastructure to stay manageable).
3. Silver demographic companies stay on observe: Whereas recreation and leisure course revenues as a complete have been down barely on a sequential quarter foundation, administration stays targeted on maximizing associated economics because it pertains to the silver demographic. To the purpose, retention/repeat buy charges stay excessive, and demand for built-in commencement journeys continues to ramp up. QSG now gives research tour applications incorporating 4 programs throughout 13 cities, with accelerating demand based mostly on 2025 gross sales up to now. Individually, QSG’s gross sales of well being/wellness merchandise concentrating on seniors stays regular, thereby deepening shopper penetration additional diversifying the corporate’s income profile.
SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to obtain our articles and reviews emailed on to you every morning. Please go to our web site for added info on Zacks SCR.
DISCLOSURE: Zacks SCR has acquired compensation from the issuer immediately, from an funding supervisor, or from an investor relations consulting agency, engaged by the issuer, for offering analysis protection for a interval of a minimum of one 12 months. Analysis articles, as seen right here, are a part of the service Zacks SCR gives and Zacks SCR receives quarterly funds totaling a most payment of as much as $40,000 yearly for these companies offered to or concerning the issuer. Full Disclaimer HERE.
