Ladies and gentlemen, good evening and thank you for standing by for New Oriental's fourth fiscal quarter and fiscal year 2015 earnings conference call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the call over to your host for today's conference, Ms. Sisi Zhao, New Oriental's Investor Relations Director. Ms. Zhao, please proceed.
Thank you. Hello, everyone, welcome to New Oriental's fourth quarter and fiscal year 2015 earnings conference call. Our financial results for the period were released earlier today and are available on the company's website as well as on newswire services. Today, you will hear from Stephen Yang, New Oriental's Chief Financial Officer. After his prepared remarks, Stephen will be available to answer your questions. Before we continue, please note that the discussion today will contain forward-looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. New Oriental does not undertake any obligation to update any forward-looking statements except as required under applicable law.
As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on New Oriental's investor relations website at investor.neworiental.org. I will now turn the call over to Stephen. Stephen, please.
Thank you, CiCi. Hello, everyone, thank you for joining us. I'm pleased to be able to provide an overview on both the fourth quarter and full fiscal year 2015, which we ended on a quite positive note. We conclude the final quarter of the fiscal year with a continuing steady recovery in both top-line growth as well as student enrollments. We believe we highlight the strength of the business as well as our success in driving forward the growth strategy we launched in early fiscal year 2015. Introduced in the first quarter this year, our optimized market strategy is allowing us to focus on maintaining a balance between top-line and bottom-line growth, as well as building out our online/offline integrated education ecosystem. Our decision has proven right, our investments are beginning to pay off.
I'd like to sum up our key achievements in fiscal year 2015 by citing three key areas. First, we made good progress in expanding our footprint. We successfully further penetrate our existing market where we see the greatest growth potential to drive up margin. We added learning centers, expand others, increasing our office in cities with the most potential. Second, we had a very good success with adding to and upgrading our major products, which then, in turn, had a positive impact on revenue growth. As one example, with respect to K-12 all-subjects after-school tutoring business, we continue to upgrade this, and it has become the key revenue driver. It achieved revenue growth about 15% for the fiscal year and also had a significant enrollment increase.
For further detail, note that our U-Can program, which is part of the business, achieved more than 22% revenue growth for the full fiscal year. This was achieved despite the negative impact from the uncertainty of the Gaokao reform at the beginning of fiscal year 2015. Third, we made great strides in following our integrated ecosystem and pushing forward into the online space. We're making a lot of progress in developing an online presence, and one that will be well integrated with our offline offerings. We believe our offline/online integrated program is more advanced than anything else that's being offered in the marketplace, as it truly address the needs of both students and teachers. This will surely further set us apart from our peers going forward. Among all of our offerings in this area, our new Pop Kids English program was a shining star during the fiscal year.
Since its launch in the second quarter, we have registered two consecutive quarters of positive revenue growth and student enrollments have significantly taken off. Judging by the very positive feedback from students in the market, we expect the product to achieve double-digit revenue growth in fiscal year 2016. Also, the other business line of our O2O system, U-Can Visible Progress Teaching System, expands reach to more than 40 cities by the end of this year. With a superior O2O integrated ecosystem, we'll be more able to increase customer stickiness, improve our pricing power, and eventually, we'll create new revenue streams through the provision of value-added learning services. As you can see, we had a busy year, and although we did face challenges, particularly at the start of the fiscal year, we made great progress pushing forward our overall optimized market strategy.
I want to take a minute to address our efforts to enhance shareholders' value during fiscal year 2015. As we reported, we completed the share repurchase program in March 2015. In an eight-month period, we repurchased nearly 3 million ADS for aggregate consideration of $59.4 million. Further to this, as you will have seen in today's press release, our board of directors has approved a special cash dividend of $0.40 per ADS to be paid on October 7th, 2015, which will be another $63 million capital return to shareholders funded by surplus cash on the company's balance sheet. We believe that even while investing for long-term growth in both 2015 and 2016, we're able to deliver direct value back to our shareholders via buybacks and dividends. Let me turn to a short overview for the fourth quarter revenue results.
Revenue was up by 14.4% year-over-year to $328.8 million. Was mainly driven by the enrollment recovery. Total enrollments for the fourth quarter increased almost 35% year-over-year. As we said in the previous call, the Chinese New Year holiday occurred later than usual in 2015, delaying enrollment for spring classes and resulting in a shift from the third quarter to the fourth quarter. Also, students chose to enroll in the summer class earlier than before, resulting in a shift from the first quarter of fiscal year 2016 to the fourth quarter of fiscal year 2015. Our key revenue driver, the K-12 all subjects after-school tutoring business, grew almost 21% year-over-year to about $164 million, distributing 48% of our revenues for the quarter. The U.K. business saw an increase of about 27% in gross revenue and a significant 65% growth in enrollment.
As discussed earlier, we started a new customer loyalty program to encourage repeat business, and for the fourth quarter, this resulted in deferred revenue of about $5.3 million, which is expected to be recognized within two years without any additional expenses associated with such revenue. Including this, our top-line growth would have been 16.2%. As mentioned, the dampening effect on revenue will just be temporary. Starting in April 2015, the company decided to narrow the scope of the program to include only K-12 business for select cities. That said, we expect the dampening impact to reduce starting in the first quarter of fiscal year 2016.
With respect to the key factors of pricing on an apple-to-apple basis, which is GAAP revenue divided by total teaching hours, ASPs increased by about 10%. Breaking down on an hourly basis, planned ASP for U.K. increased 5%-10%, and ASP for the overseas test prep program increased about 15%. For our POP Kids, we are focusing on getting the market share and capturing potential growth right now, so we continue the strategy of not increasing ASP much until we gain further penetration into the market. Let me walk you through our performance across individual business lines. As mentioned, our K-12 all subjects after-school tutoring business continued to have strong momentum. We recorded gross revenue growth of 21% year-over-year for the fourth quarter and 15% for the fiscal year.
With the improved offerings of POP Kids and our advanced teaching methods, we expect K-12 to continue to drive our business growth. Breaking it down a bit further. U-Can middle and high school all subjects after-school tutoring business achieved a gross revenue increase of approximately 27% year-over-year for the quarter and 22% for the fiscal year. The enrollment grew significantly, around 65% year-over-year for the quarter and 29% year-over-year for the fiscal year. For the fourth quarter, our new POP Kids program business continued steady recovery, with gross revenue growth of 6% and enrollment growth as much as 48% year-over-year. This is an outstanding result as we have achieved two consecutive quarters of positive revenue growth following the revamp of this program. Our overseas test prep and consulting business achieved growth of more than 14% year-over-year for the fourth quarter and 11% for the fiscal year.
Finally, revenue growth of VIP personalized class business increased significantly by 31% year-over-year in the fourth quarter, and increased 19% for the fiscal year. Now let me get to some more specifics on progress we made in the fourth quarter and fiscal year with our optimized market strategy. Let me first touch on our core offline business. In the fourth quarter, we fully expanded in existing markets, adding a net of two learning centers. For fiscal year 2015 as a whole, we added a net of 21 learning centers, bringing our total learning centers to 724, and expanded certain existing learning centers by adding a total of over 11,000 sq m of additional classroom area. As for our online business, we invest roughly $12 million in the fourth quarter and $39 million for the fiscal year to continue to drive this forward.
There are many untapped opportunities in the online education market in China, and we're preparing ourselves to provide students and teachers with the best and most interactive resources, and truly enhance our value for the customers. We believe no one in the China education service market is better positioned than us to capture this market growth. Before I go into details of progress we made during the quarter and the year, just to briefly recap all three levels of our online platform. The level 1, also the core of our online system, is an O2O two-way interactive education system across all of our business lines. The level 2 is our pure online learning platform, koolearn.com, and supplementary online education products under the New Oriental brand. The level 3 of our ecosystem is for New Oriental to take minority shareholdings in online education companies that complement our own online education offerings.
Let's start with O2O two-way interactive education system, which we will roll out and upgrade in the first quarter of the fiscal year across all major product lines, aiming to extend New Oriental's traditional offline classroom teaching offerings to online education services. We launched the U-Can Visible Progress Teaching System into over 30 cities in September 2014, and it reached more than 40 cities by the end of the fiscal year 2016. This is a unique online platform that helps students to study after class, but in a measurable and enjoyable manner. It's one of the key offerings that set us apart from our peers in the market. I said earlier, as we roll out the newly revamped Pop Kids English program, Shuangyu, our POP Kids program reported 6% revenue growth and a drastic increase, 48% enrollments in the fourth quarter.
The new program is designed to provide the most interactive learning resources and create more personalized learning experience based on students' own study records and interests. 38 cities in China are using these new programs, and more to come because pushing out improved offerings is our focus in 2016. We have full confidence that this advanced POP Kids offerings will strengthen New Oriental's brand awareness in the highly competitive education service market in China and help us capture extra growth. The O2O two-way interactive education system for the domestic test prep program was being used in six cities by the end of this quarter, and we are testing the O2O overseas test prep program in seven cities so far. For the level 2 of our online education ecosystem, we have seen continued growth in koolearn.com and other supplementary online education products.
In the fourth quarter, koolearn.com generated net revenue of $9.1 million, representing a 26% increase year-over-year. The number of registered users increased more than 67% year-over-year, and the number of paid users increased over 138% year-over-year. The number of cumulative registered users has reached more than 10.7 million. Cool.cn, our own live broadcast open platform for both New Oriental and third-party teachers, achieved about 515,900 registrations in the fourth quarter. DONUT, a series game-based mobile learning application for children, recorded over 22.5 million downloads in the fourth quarter, up from 7 million in the third quarter. Leci, an English language vocabulary training application we launched in late 2014 for mobile phones and tablets app, recorded over 2.4 million users by end of fourth quarter. This is more than double from the results we had for the third quarter.
Turning to the third level of our online education ecosystem, we have invested in select online education companies with a minority stake, and we're constantly looking for new opportunities that will not only complete our own offerings, but also support our goal to achieve O2O integration. In December 2014, we made an investment in Golden Finance, the largest finance training school in China, providing both offline and online test prep courses, including CFA, ACCA, CMA, and CPA, as well as some corporate training programs. As of the end of the fourth quarter, the school was opening in four cities. Later in March 2015, we made investment in Roborobo, the largest robot-making education company in China, targeting young learners aged from 4 to 15. By end of the fourth quarter, it had about 50 self-owned learning centers and over 70 franchise learning centers in nine cities in China.
Together with our previous investments in Kouyu100.com, AO7.com, Trina, and Juesheng.com, we're in the process of building our O2O integrated educational ecosystem and create more opportunities to partner with other new online education companies to enhance our product offerings and strengthen our leading position in China's private education market. Now, let's quick look at some of the key financial metrics for the fourth quarter. Operating costs and expenses for the quarter were $306.3 million, a 17.7% increase year-over-year. Non-GAAP operating costs and expenses for the quarter, which excludes share-based compensation expenses, were $301.1 million, a 17.4% increase year-over-year. Cost of revenue increased by 20.8% year-over-year, to $137.5 million, primarily due to the increased teachers' compensation for more teaching hours, and product R&D costs of our pure online education platform, koolearn.com. Selling marketing expense increased by 3.3% year-over-year to $53.3 million, primarily due to the increase in selling marketing staff compensation.
General and administrative expenses for the quarter increased by 21.7% year-over-year to $115.4 million. Non-GAAP general and administrative expense, which excludes share-based compensation expenses, were $110.4 million, a 21.4 increase year-over-year, primarily due to increase in R&D expenses and HR expenses related to the development our online/offline integrated ecosystem. Total share-based compensation expenses, which were allocated to the related operating cost expenses, increased by 32.1% to $5.2 million in the fourth quarter of 2015. Income from operations for the quarter decreased by $26.9 million to $22.5 million. Income from operations would have been about $27.8 million if not for the accounting effect for the company's new customer loyalty programs. Non-GAAP operating income decreased by 20.2% to $27.7 million for the quarter. Operating margin for the quarter was 6.8%, compared to 10.7% in the same period of the prior fiscal year.
Non-GAAP operating margin, which excludes share-based compensation expenses for the quarter, was 8.4%, compared to 12.1% in the same period of the prior year. Net income attributable to New Oriental for the quarter was $35.2 million, representing 17.9% decrease from the same period of the prior year. Capital expenditures for the quarter were $11 million, which were primarily attributed to opening 26 new learning centers and renovations at existing learning centers. Turning to the balance sheet, deferred revenue balance, which is cash collected from the registered students for courses and recognized proportionally as revenue as the instruction are delivered. At the end of the fiscal year 2015 was $501.2 million, an increase of 31.6% as compared to $380.8 million at the end of the fiscal year 2014. I'd like to talk just a bit about our overall outlook for fiscal year 2016.
During fiscal year 2016, we will continue to implement optimized market strategy to further build on the improved foundation we have laid over the past year. As part of this, we will have four key areas of focus. We will continue to expand our offline business. We aim to enter three to four new cities where we identify the most growth potential and open 30 to 40 new learning centers for our K-12 after-school tutoring business in existing cities that are driving both revenue growth and margin expansion. We will continue to invest heavily as we did in fiscal year 2015. Fiscal year 2016 will also be an investment year as we work to fully build out our integrated offline, online ecosystem. We will continue to invest, spend about $50 million in the fiscal year.
We consider this investment essential to help to strengthen our market dominance. We are fully confident that all of these efforts will bring higher growth and sustainable profitability in the long term. We'll focus on additional quality improvements for all of our offerings. We'll hire better and more senior management, teachers, R&D, and IT staff for our offline business, upgrade content, and be innovative with our products. This is to ensure we have the premium offering in the China markets. To achieve this, they expect the total compensation for school heads, business line managers, and key R&D and IT managers will increase by more than 30% year-over-year. We will drive further operating efficiencies. We remain keen on improving operational efficiency and cost control across the organization, we'll continue to focus on this.
With this strategy as our guide for the year, we expect to achieve double-digit annual revenue growth. At the same time, the strategic investments will continue temporarily damping our overall operating margin. We believe our fiscal year 2016 operating margin will be slightly lower than in fiscal year 2015. This means that we would like to highlight that our operating margin for our offline business has been experiencing steady recovery over the past three quarters. With respect to the first quarter of fiscal year 2016, specifically, we anticipate total net revenue to be in the range of $441.3 million to $457 million, representing year-over-year growth in the range of 12% to 16%. About $5.3 million revenue will be deferred resulting from the company's customer loyalty programs. If not considering that, the product revenue growth rate is expected to be in the range of 13% to 17%.
All in, we're excited about the future and believe we are taking all the right steps and are on the right track to achieve sustainable profitability over the long term and to consistently create value for our shareholders. This forecast reflects New Oriental's current preliminary view, which is subject to change. At this point, we will take your questions. Operator, please begin.
Thank you, sir. The question and answer session for this conference call will start in a moment. In order to be fair to all callers who wish to ask questions, we will take one question at a time from each caller. If you have more than one question, please request to rejoin the question queue again after your first question has been addressed. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the pound or the hash key. We have the first question from the line of Vivian Hao from Deutsche Bank. Please ask your question.
Hi, management. This is Eileen Deng, asking a question on behalf of Vivian Hao. We have a question regarding the POP Kids. We note that this segment's enrollment growth was quite encouraging. We would like to get management's explanation of the forward-looking trend for fiscal year 2016.
Okay. The student enrollment for POP Kids is quite strong. I think it's mainly driven by our good overall product. The students will give us very positive feedback for our product. We are taking the market share now. Going forward, I think for the next whole year, I would like to guide the student enrollment for the POP Kids about 10%-15%, with the price increase 5%-8%. I think the revenue of POP Kids will grow by 15%-20% next year. Does that answer your question?
Yes. Thank you. I'll get back to the queue for my next question. Thanks.
Okay, thank you.
We have the next question from the line of Cynthia Meng from Jefferies. Please ask your question.
Thank you, management. We have one question. Is the lower gross margin a result of lower pricing or more it's because of the increasing mix shift towards a K-12 business?
I think the gross margin was decreased by 2% this quarter. The first reason is that we spent more teaching hours in this quarter. That means the VIP class contributes the percentage of the total revenue more than our small and big classes. This is the first reason. The second reason is for our pure online company, koolearn.com. They spent $2 million to $3 million more than we expect before this quarter. They are the two reasons that drive the GP margin. Going forward, I think the gross margin will keep flat or a little bit lower in the next fiscal year. I think the positive thing for the gross margin is for our rental expenses, it is only increased by 10%. It will be lower than the revenue growth.
Even though we capped VIP class by 30% of the total revenue, the fact is the revenue of VIP class contribute more and more. The next year, I think teaching hours will be a little bit more than this year. I think the gross margin will be flat or a little bit lower, slightly lower.
Okay, thank you.
Does that answer your question?
Yeah, thank you.
We have the next question from the line of Alice Yang from Macquarie. Please ask your question.
Hi, this is Stephen. Thanks for taking my question. This is Alice from Macquarie. I have a question about your 2Q guidance. As the cash enrollment grow around 35% year-on-year in this quarter, I assume most of them will be realized and accounted, as revenue in the next quarter, given on average three months cost span. I don't know whether it's right. If it's right, why you guided, relatively speaking, a conservative 2Q revenue growth? It's only 12%-16%. Is that the ASP sort of reason? Thanks.
Okay, Alice. The student enrollment is quite strong, which is increased by 34% this quarter. I think it's mainly due to the timing difference, which has two events. The first one is the Chinese New Year for this year is late. That's why the student enrollment growth for the last quarter was flat, was zero growth. The other one is that more and more K-12 business students choose to enroll summer class earlier than before. Even with this timing difference, the student enrollment is really quite strong. On apple-to-apple basis, I think the student enrollment is increased by 8%-10%. With the price increase to 5%-10%, that's why we guide the revenue of the fourth quarter by 12%-16%.
Understand.
Does that answer your question?
Sure. I just want to clarify one point. When you say, if we compare in an apple-to-apple basis, enrollment increased by 8%-10%. What does it mean, apple-to-apple comparison, 8%-10%?
What I mean is you should exclude the timing difference, like the Chinese New Year and early enrollment in Q1. You can compare the three quarters in total.
Oh, I understand. Got you.
So-
Thanks.
Yes.
We have the next question from the line of Annie Xie from Brean Capital. Please ask your question.
Hi, Stephen, CC. Thanks for taking my call. Could you provide some color on the underlying dynamics of your overall average selling price? It just looks like it dropped considerably this quarter. Kind of what trends can you anticipate going forward, I guess, by the different segments? I know you've touched on the overall.
Okay. I think your question is about the price increase. On an apple-to-apple basis, we calculate the ASP by the GAAP revenue divided by the total teaching hours. The apple-to-apple ASP increase is about 5%-10% in this quarter. Going forward, the numbers will be same. The ASP will be increased by 5%-10% overall.
Any sort of very different kind of dynamics in each of the different segments, or were you seeing generally a strong ASP growth in all of the products?
What I mean is, the overall ASP increase will be lie between 5%-10%, but for individual business lines, for the overseas test prep, the ASP increase will be over 10%. For the U-Can, the ASP increase will be at 6%-10%. For POP Kids, the price increase will be at 5%-10%. For the adult English, the price increase will be at 5%-10%. Overall, it's 6%-10%.
Okay, that's very helpful. Thank you.
Okay, thank you.
We have the next question from the line of Fan Liu from Goldman Sachs. Please ask your question.
Hi, Stephen and Sisi. Congratulations on the summer result. It is very encouraging that K-12 enrollment grew by 57% year-on-year this quarter. Would the management share with us the drivers behind, i.e., which grades or which subject or which regions witnessed the outperformance? If excluding the effects of late CNY timing, what would the normalized growth look like? Also, we also know that the revenue growth of the overall business, K-12, and the POP Kids are all lack the enrollment growth accordingly. Could the management share with us the reason behind this? Is this more attributable to the decreasing paid course hours of the student? How should we think about the trend going forward? Thank you.
Okay. Our K-12 business growth very strong in this quarter. In terms of the grades, I think the U-Can is much better than the POP Kids. The U-Can got the student enrollment growth by more than 60%. I think for the subjects, the non-English class grows faster than the English classes. As I said earlier, if you compare to the student enrollments and price apple to apple, the student enrollment growth will be at 16%-20% for the K-12 business, with the price increase about 5%-10%. I think going forward, the K-12 business will get the revenue above 20%, going forward.
Maybe you have heard of some class with a very low price in the market, but it is only for the size class for the grade 1 and grade 6, small number of the total classes. The overall price increase for the K-12 business is 5%-10%, on an apple-to-apple basis. Does that answer the question?
Actually, the revenue growth of the overall business and also K-12 and POP Kids are all lower than the enrollment growth. The output is decreasing. What's the reason behind that? Because hourly rates are still growing. For ASPs still grow by 5%-10%, then what's the reason behind the output decrease? Is that because of the decreasing paid course hours of the students?
I think that currently you see the price decrease for the K-12 business. The first reason is the timing difference, like the late Chinese New Year, and people enroll the summer class earlier. Second reason is in the summer, we will arrange some short-term classes compared to last year. That's why you'll see the price decrease. Like I said, on an apple-to-apple basis, the hourly rate of the price will be increased by 5%-10%.
Okay, got it. Thank you.
Okay. Thank you.
We have the next question from the line of Leon Shi from J.P. Morgan Hong Kong. Please ask your question.
Yeah. Hi. Thanks. Congrats. The question is, if all these enrollment growth and all these enrollment numbers you're talking about, and even for the full year enrollment of 289,600 student enrollment, do these include pure online and very low ASP, like non-physical courses, or are these all live courses for your enrollment?
Hi, Leon. Our enrollment is only calculated for our offline student enrollment, not calculating the online and very low ASP students.
I mean, like for U-Can, for instance, the huge difference between your apples to apples, 8 to 10, and your actual 65% enrollment growth, that's just purely all of this timing difference? There's no other reason?
As I said, the first reason is timing difference. The second reason is in the summer, we have some short-term classes. I think the ASP changes some structural or some mixture shift. Yeah.
Let's just say for the summer courses, and I'm enrolling at the end of May, right? I would be counted as an enrollment even though the sales and the short courses start is mostly in the one Q? Is that how it works? Like if I sign up on-
Yes
May 29th, I'm counted as one enrollment even though the courses is mostly in one Q. Is that how it works?
Yes. Almost all the short-term class will happen in one Q, in the summer classes.
Okay. If I signed up in four Q, you just count it in four Q, right?
Yes. If you sign in four Q, we reported the enrollment in Q4, but we report the GAAP revenue in the coming Q1.
Okay. That's how you get this huge difference. Okay. That's fine.
Yes.
Okay, thanks. Thank you.
Okay. Thank you.
We have the next question from the line of Tian Hou from TH Capital. Please ask your question.
Hi, Stephen, Sisi. One question is related to your royalty program. You put that in place a couple quarter ago. The purpose of that is really to increase the renewal rate. I wonder what you see today compared with the time before you put this program in place. That's the question.
Yeah. Okay, go ahead, please.
One more question.
Okay.
There's one thing. In the market, I think there is a very tremendous uncertainty among investors, which is a lot of Chinese companies Go private. However, some company, when they go private, they either purposely lower the price or whatever they do. Would that make investor concerns? If every single Chinese company planning to go private and just purposely lower the price, then no one will ever buy China stock, right? Definitely it's not good thing. I would like to have a clear answer from the management. What's your plan for your stock? Two question. Thank you.
Okay. The first question is about the loyalty program. We launched the loyalty program in last October. In March, we narrowed down from the old subject to K-12 business only. After the execution of the customer loyalty program, we are seeing the student retention rates get higher by 1%-2%. The loyalty program help us to strengthen the stickiness of our students. Going forward, I think the loyalty program will help us. For second question, we're seeing a lot of U.S. Chinese ADRs announce the privatization plan this year and plan to release in A-share markets someday. New Oriental has no plan to privatize. Our goal of the whole company is to focus on the business and create shareholder value continuously in long term.
That's very helpful.
Does that answer your question?
Thank you.
Okay. Thank you, Ken.
We have the next question from the line of Alvin Jiang from Morgan Stanley. Please ask your question.
Hi, Sisi and Stephen. Thank you for taking my question, and congratulations on a strong quarter. I want to have a quick question on the competition. Do you think the price war in Tier 1 cities, especially in the after-school tutoring market, is going worse this summer? I noticed there are a lot of attractive promotions from both you and your competitors, like online 一元班 and on U-Can 50 一元班. Do you have such a concern? This kind of price war will impact the margin in long term? Thank you.
Okay. There's a lot of noise about the price war. Someone called the price war recently. Maybe you have heard the New Oriental provide the very low price with the CNY 50 or CNY 10 in the market. It's only for the grade 1 and grade 6. For some cities, in the science class, like the math or the chemistry. I think the purpose of this is to attract more students to try our new O2O products. The total number is quite small. It's very small. I don't think this will hit the margin because I think the impact is very tiny. Okay.
Okay, thank you.
Does that answer the question?
Yeah, I think it's very helpful.
Okay.
We have the next question from the line of Jialong Shi from Credit Suisse. Please ask your question.
Hi. Good evening, Stephen. This is Ang, thanks for taking my call. My question is actually somewhat related to a previous question. I read from Chinese media, which quoted your chairman, Michael Yu, as saying New Oriental may consider to spin off some of your business segments in the future, then list those business segments separately in Chinese A-share market. I just wonder, what are the business segments that most likely get listed in Chinese A-share market? Thank you.
Okay. Thanks, Jialong. Yeah, as I answered Ken's question, New Oriental has no plan to privatize or go public in the A-share market. Also, we don't have any plan to spin off any subsidiaries to go public till now. That's my answer.
Okay. Can I ask another follow-up relating to your K-12 program?
Okay.
I just wonder if you guys provide any sort of a breakdown of your U-Can revenue by top three cities and their respective growth rates.
You mean in this quarter or going forward?
For Q4.
I'm sorry.
For Q4.
For Q4. Okay.
Right.
The middle school, high school student enrollment is increased by 68%, and the GAAP revenue is increased by 28%. You cannot calculate, just use the GAAP revenue divided by the student enrollment to calculate the ASP.
Right. What is the revenue breakdown by top three cities? What are the top three cities for U-Can?
Of the cities, Beijing account for 24%, 25% of the total revenue. The second one is Shanghai. Shanghai is seven percent of the total revenue. The third one is Xian. Xian is five percent of the total revenue.
Five percent. This is for U-Can.
Five percent of Xian.
This is for U-Can, right?
Yes.
What are the growth rates?
Not only for U-Can, for the overall business, yeah, also.
For the overall business.
Yes.
What are the breakdown for U-Can program, the top three cities?
We don't disclose the revenue growth rates by cities.
I see.
Can I disclose by the K-12 business, by cities?
Sure. Sure, yeah. That would be great.
Okay. Beijing is 24%, the first one, and the second one is, I think it's Shanghai. The second one is the Xian. It account for 8% of the total revenue of K-12 business. The third one is Shanghai. Shanghai is 5%-
I see.
For K-12 business. We don't have the number of the U-Can business. Yeah.
I see. I just wonder, what are the growth rates for each of these three cities?
For the K-12 business, Beijing is increased by more than 15%, and Xian grew by 30%. It did a very good job. Shanghai increased by 24%-
Twenty-four
because of the low base number. Yeah.
Okay. Yeah. Thank you very much.
Okay, thank you.
We have the next question from the line of Andrew Orchard from Nomura. Please ask your question.
Hi, thanks for taking my question. I have a question with regards to your enrollment outside of your K-12. I think based on my calculations, we saw your test prep and English adult enrollment pick up this quarter, and that's, I think, been a reversal of the trend that we've seen over the last few quarters. Can you give us some disclosure on why that's the case? Thanks.
This is mainly the timing difference. Overall, if you look at the number going forward, the student enrollment of the adult English and domestic test prep will be decreased by 15% year-over-year. With ASP increased by 5%-10%, the GAAP revenue will be decreased by 10%. We have the same situation in last three years in a row.
Got it. Sorry, the 15% downwards for the next quarter or this current quarter?
For next whole year. Yeah, 10%-15%.
Right.
10%-15% down year-over-year student enrollment.
Got it. Okay, thank you.
Okay. Thank you.
We are now approaching the end of the conference call. I will now turn the call over to New Oriental's CFO, Stephen Yang, for closing remarks.
Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact me or any of our investor relationship representatives at CiCi. Okay, thank you. Thank you, guys.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.