Netease Inc (網易) is planning an initial public offering (IPO) in the US of its Youdao (有道) arm that could raise at least US$300 million, people familiar with the matter said, propelling its expansion into a crowded online education arena.
The company is working with Morgan Stanley and Citigroup Inc on the share sale with a goal to list as early as the third quarter, the people said, asking not to be identified as the information is private.
One of the people said that a deal could value Youdao at about US$2 billion, while another person added that the firm could file confidentially in the next few weeks.
Netease — Tencent Holdings Ltd’s (騰訊) closest competitor in the world’s biggest mobile gaming market — is delving deeper into adjacent sectors, from e-commerce to media content.
Its Youdao arm, founded in 2006, explored several business models before settling about five years ago on becoming an Internet education platform. It offers everything from online dictionaries to math courses and prep classes for important certification tests.
The company completed its first round of financing in April last year at a post-money valuation of US$1.12 billion, its Web site said.
Deliberations are at a preliminary stage and details of the share sale, including the fundraising size and timeline, could still change, the people said.
Representatives for Netease, Morgan Stanley and Citi declined to comment.
Netease is trying to court investors during a volatile time for raising capital, roiled by US-Chinese trade tensions and worries about a global downturn, but it wants to grab a bigger slice of a market that is projected to boom in coming years, and to make headway against rivals from New Oriental Education & Technology Group (新東方教育) to VIPKid and iTutorGroup.
Online revenue from children at nurseries and students attending kindergartens up to high school, also known as the K-12 group, could rise 38 percent a year through 2022, Bloomberg Intelligence cites iResearch as saying.
“Revenue contribution from online courses will likely increase for reputable tuition providers as more students from lower-tiered Chinese cities pay for access,” Bloomberg Intelligence analysts Catherine Lim and Sheng Tan Zhu wrote on Monday. “New digital teaching technology may raise the learning efficiency of online students and increase their academic performance, fueling stronger demand.”
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