Why Tarena International Inc. (ADR) Stock Plunged Today

What happened

Shares of Tarena International Inc. (ADR) (NASDAQ: TEDU) plummeted 22.1% on Tuesday after the China-based professional education services provider announced disappointing first-quarter 2018 results.

Tarena’s quarterly revenue climbed 22.1% year over year to 406.3 million yuan (roughly $63.4 million), and translated to an adjusted (non-GAAP) net loss of 145.7 million yuan, or 2.59 yuan (roughly $0.40) per American depositary share (ADS). Analysts, on average, were expecting a significantly narrower loss of $0.07 per ADS.

Image source: Getty Images.

So what

Still, Tarena Chairman and CEO Shaoyun Han noted that it achieved solid revenue growth above the high end of the company’s financial guidance despite seasonal fluctuations caused by Chinese New Year.

To explain the bottom-line miss, CFO Yudou Yang stated that Tarena added 16 new centers during the quarter within its professional education business, which meant increased expenses related to hiring new teaching staff and developing new courses ahead of student enrollment.

“However, by the end of the quarter, these investments increased our seat capacity to 58,959, representing a year-over-year increase of 11.6% with a utilization rate of 68% and has laid a solid foundation for revenue growth in the future,” added Yang.

Now what

Tarena expects total net revenue for full-year 2018 to arrive between 2.3 billion yuan and 2.45 billion yuan, good for growth of 16.5% to 24.1% from 2017. The midpoint of that range is roughly in line with consensus estimates.

So while it’s not terribly surprising to see Tarena stock pulling back today given its earnings miss, it’s hard to blame the company for making investments with the aim of driving longer-term growth. As those investments begin to yield fruit in the coming quarters, I suspect Tarena’s pullback could be short-lived.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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