Ladies and gentlemen, thank you for standing by, and welcome to First Quarter FY 2021 TAL Education Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the management's prepared remarks, there will be a Q&A session. Today's conference call is being recorded. I would now like to turn the call over to your first speaker today, Ms. Echo Yan, IR Director of TAL. Thank you. Please go ahead.
Thanks, operator. Thank you all for joining us today for TAL Education Group's first fiscal quarter 2021 earnings conference call. The earnings release was distributed earlier today. You may find a copy on the company IR website or through the newswires. During this call, you will hear from Chief Financial Officer, Mr. Rong Luo, Linda Huo, Vice President of Finance, and myself, IR of TAL. Following the prepared remarks, Mr. Luo and Ms. Huo will be available to answer your questions. Before we continue, please note that the discussions 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 are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in the public filings with the SEC.
For more information about these risks and uncertainties, please refer to our filings with the SEC. Also, our earnings release in this call includes discussions of the certain non-GAAP financial measures. Please refer to our earnings release, which contains the reconciliation of the non-GAAP measures to the most directly comparable GAAP measures. I would like now to turn the call over to Mr. Rong Luo. Rong, please.
Thank you, Echo. Good evening, and good morning to you all. Thank you for joining us today on this earnings call. Compared to the situations one quarter ago, we have been encouraged by the progress that the government and people in China have collectively made to keep the COVID-19 under control. We are still saddened by the strains that this pandemic has put on public and personal life, and ongoing challenges in many other countries. At TAL, during the first fiscal quarter, we continued to operate within the possibility and the restrictions as the overall situation evolved. With operational adjustments in place since February, we managed to mitigate the negative impact on our offline business of the first quarter by the growth in student enrollments in online courses and related revenues.
Net revenue growth in the first quarter was 35.2% year-over-year in U.S. dollar terms to $910.7 million, and 41.5% in RMB terms. Total normal price long-term course student enrollments increased by 72.1% year-over-year, mostly driven by the online enrollments as well as Xueersi Peiyou Small Class. GAAP income from operations was $35.5 million, a year-on-year decrease of 26.8% from $48.5 million. non-GAAP operating income of $68.8 million, decreased by 7.8% from $74.6 million in the same year-ago period. I will now turn the call over to Linda Huo, our Vice President of Finance. She will give you an update on our operational progress in the first quarter. Next, Echo Yan, our IR Director, will reveal first quarter financials. After that, I will update you on our business strategy and discuss our business outlook for next quarter. Linda, please.
Thanks, Rong. I will reveal the various revenue streams of our children business for the first quarter. Let me start with Small Class and other business, which consists of Xueersi Peiyou Small Class, First Leap, Mobby, and some other education programs and services. These accounted for 68% of total net revenue, compared to 77% in the fourth quarter last fiscal year. The revenue growth rate was 21% in U.S. dollar terms and 27% in RMB terms. Xueersi Peiyou Small Class, which remains our stable core business, represented 60% of total revenue in the first quarter, compared to 67% in the same year-ago period. The lower revenue contribution from Xueersi Peiyou was mostly due to the faster growth of xueersi.com online courses, which accounted for 25% of total revenue in the quarter, compared to 15% in the same period last year.
Net revenue from Xueersi Peiyou Small Class was up by 22% in U.S. dollar terms and 28% in RMB terms, where our normal price long-term course enrollments increased by 43% year-over-year. In the first quarter, almost all of Peiyou business continued to be delivered by online platform due to impact of the COVID-19 outbreak. In Q1, normal price long-term Xueersi Peiyou Small Class ASP decreased by 13% in RMB terms and 17% in U.S. dollar terms year-over-year. The decline was mainly due to the mix change of more lower-tier cities coverage, as well as the coupons offered to online small class customers who had to move from offline to online during the COVID-19 outbreak period. Our first quarter performance reflected stable growth of small class business across all cities in our geographic network.
Xueersi Peiyou Small Class revenue from the top five cities, which are Beijing, Shanghai, Guangzhou, Shenzhen, and Nanjing, increased by 18% year-over-year in U.S. dollar terms and accounted for 56% of Xueersi Peiyou Small Class business. Revenue generated from cities other than the top five grew by 27% in U.S. dollar terms. The other cities accounted for 44% of the Xueersi Peiyou Small Class business. Next, I'd like to discuss our Zhikang One-o n- One business. This business sector achieved year-over-year revenue growth of 5% in U.S. dollar terms and 10% in RMB terms. Zhikang One-on-One accounted for approximately 6% of total revenue in the first quarter of fiscal year 2021, compared to 8% in the same year-ago period.
In this quarter, normal price long-term Zhikang One-on-One courses ASP was almost flattish in RMB terms and decreased by 3% in U.S. dollar terms year-over-year. Now, let me update you on our current capacity expansion strategy. We briefly slowed down our offline capacity growth plan in order to better deal with the COVID-19 near-term impact. During the past months, except in a few cities, the situation in China has been continuously improving. Alongside this progress, we have cautiously resumed our offline capacity expansion plan to cover the cities and areas which were already in our fiscal year 2021 annual pipeline before the COVID-19 outbreak last year. In the rest of this year and foreseeable future, we will continue to pursue healthy and sustainable learning center network expansion by following government guidelines and market demand. In Q1, we added a net 65 learning centers.
We opened 78 new Peiyou Small Class learning centers and five One-on-One centers, and closed 13 Peiyou Small Class learning centers, four First Leap, Mobby centers, and one One-on-One center. During this quarter, we added 685 Peiyou Small Class classrooms. We entered 20 new cities, which accounted for one new Peiyou Small Class learning center each. The new cities are Yueyang, Changde, Hengyang, Zhuzhou, Xiangtan, Zhanjiang, Zhuhai, Jiangmen, Shantou, Xiangyang, Yichang, Nanyang, Deyang, Wuhu, Liuzhou, Zunyi, Maotai, Xining, Baoji, and Baoding. In all, by the end of May 2020, we had 936 learning centers in 90 cities, of which 89 China cities and one Xueersi Peiyou learning center in the United States. Among the total 936 learning centers, 713 were Peiyou Small Class and international education centers, 91 were newly merged First Leap and Mobby Small Class, and 132 were Zhikang One-on-One.
As for Q2 of fiscal year 2021 until now, with the gradual work resumption in different cities and ongoing digital workplace practice, as well as the continued observation of COVID-19 impact, we had conditionally rented 10 Peiyou Small Class learning centers, and we expect to add a few more and close down some learning centers based on standard operations. These estimates reflect our current expectation, which is subject to change. Moving now to our online business. First quarter revenue from xueersi.com grew by 123% in U.S. dollar terms year-over-year, and 133% in RMB terms, while normal price long-term courses enrollments grew by 143% year-over-year to approximately 1.28 million.
Online contributed 25% of total revenue and 43% of the total normal price long-term enrollments this quarter, compared to 15% of total revenue and 31% of total normal price long-term courses enrollments in the same year-ago period, respectively. The accelerated growth in online business was supported by the current circumstances that drive the secular demand for online education, as well as sales and marketing efforts, and retentions of the previous quarters. In addition, in Q1, normal price long-term online course ASP decreased by 9% in RMB terms and 13% in U.S. dollar terms year-over-year, mainly due to the mix change of our diversified online course offerings. With that, I will now turn the call over to Echo Yan for the update on first fiscal quarter financial results. Echo, please.
Thanks, Linda. Let me now go through some key financial points for the first quarter of fiscal year 2021. Gross margin increased by 27.6% to $481.1 million, from $377 million in the same year ago period. Gross margin for the first quarter decreased to 52.8% as compared to 56% for the same period of last year. Selling and marketing expenses increased by 41% to $219.1 million, from $155.4 million in the first quarter of fiscal year 2020. Non-GAAP, selling and marketing expenses, which excluded share-based compensation expenses, increased by 39.6% to $211.2 million, from $151.4 million in the same year ago period.
The year-on-year increase of selling and marketing expenses in the first quarter of fiscal year 2021 was primarily a result from more marketing promotion activities to strengthen our customer base and brand, as well as higher compensation to sales and marketing staff to support more programs and service offerings. Other income was $42.1 million for the first quarter of fiscal year 2021, compared to other expenses of $31.3 million in the same year ago period. Impairment loss on long-term investments was $2.3 million for the first quarter of fiscal year 2021, compared to $50.6 million for the first quarter of fiscal year 2020. Impairment loss on long-term investments was mainly due to declines in the value of long-term investments in several investees.
Income tax expenses was $22 million in the first quarter of fiscal year 2021, compared to $2.8 million of income tax benefit in the first quarter of fiscal year 2020. Net income attributable to TAL was $81.7 million in the first quarter of fiscal year 2021, compared to net loss attributed to TAL of $16.2 million in the first quarter of fiscal year 2020. Non-GAAP net income attributable to TAL, which excluded share-based compensation expenses, was $114.9 million, compared to non-GAAP net income attributable to TAL of $9.9 million in the same period of the prior year. From the balance sheet, as of May 31st, 2020, the company had $2,323.8 million of cash and cash equivalents, and $590.6 million of short-term investments, compared to $1,876.9 million of cash and cash equivalents, and $345.4 million of short-term investments as of February 29, 2020.
As of May 31st, 2020, the company's deferred revenue balance was $1,495.4 million compared to $968.4 million as of May 31st, 2019, representing a year-over-year increase of 54.4%. Deferred revenue primarily consisted of the tuition collected in advance of Xueersi Peiyou's small classes and online courses through www.xueersi.com, as well as deferred revenue related to other business. A final point concerns the share repurchase program that the board of directors had authorized on April 28th, 2020. By May 31st, 2020, the company had repurchased 185,000 ADS for a total of about $10 million. Company management also bought back 36,000 ADS in this period. Now, I will hand the call back to Mr. Luo to briefly update you on our strategy execution and provide the business outlook for the next quarter. Luo, please.
Thank you, Echo. Firstly, I would like to say that we are most grateful for the recent government progress in stopping the spread of COVID-19 in China. Thanks to the concerted efforts of our teachers, technology staff, all our employees, and the trust and cooperation from our customers and partners, we have been able to offer our tutoring services online and deliver some free online courses and technology services in support of the overall education continuity. Secondly, I would like to emphasize that to achieve the long-term success of our business requires a strong foundation, and this is more important than just pure near-term size of the business. We will aim to offer the best possible quality of goods and services, really understand and address the needs of our students, and satisfy the parents in different situations and at different times.
Based on this principle, our market share gain and profitability optimizations have to go hand in hand with our serious ambition for long-term quality success. Last but not least, even as the situation in China continues to improve, we will abide by all government policies and regulations regarding the protection of the national public health. We will always treat the health and the safety of our students and employees as our first priority and operate our business based on that priority. All in all, as one of the leading players with a long track record in education technology and service, we remain fully confident in our future development and education market opportunity in China. Let me turn finally to our business outlook.
Based on our current estimates, total net revenue for the second quarter of fiscal year 2021 is expected to be between $1,077.6 million and $1,105 million, representing an increase of 18%-21% on a year-over-year basis. If not taking into consideration of the impact potential change in the exchange rates between RMB and the U.S. dollar, the projected revenue growth rate is expected to be in the range of 20%-23% for the second quarter of fiscal year 2021. That concludes my prepared remarks. Operator, we are now ready to take questions.
Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. Once again, if you wish to ask a question, you may press star and the number one on your telephone keypad. Your first question comes from the line of Natalie Wu from CICC. Please ask your question.
Hi. Good evening, Rong Luo , Linda, and Echo. Thanks for taking my question. Just wondering for your next quarter guidance, 20%-23% year-on-year in RMB terms, how does that imply the growth of offline Peiyou and online xueersi.com respectively? How should we think about the margin going forward? In the long run, how should we think about the online business margin profile as well as the competitive landscape? Just curious if any change of your thoughts on longer-term prospect for online business given the dynamics in latest several months. Thank you.
Thank you, Natalie. I think in the first place, we need to clarify on the numbers. Q1, we grew our revenue in 41.5% in RMB terms, Q2, our guidance is 20%-23%. Here we need to take something into consideration. It's actually because of the scheduling issues, there is some revenue actually they shift from Q2 to Q1. Q1 number looks better than the real numbers, while Q2 looks a little bit smaller. I think one of the best way to look at our numbers is combine the Q1 and Q2 together, I think which is also quite similar for our other counterparts in this industry. If we combine them together, our first half revenue growth will exceed around 30%, 30%+ . Secondly, I think if we go deeper to different segment, we need to walk through some numbers one by one.
In the first place for the Peiyou Small Class business. Here, we need to be very careful. Peiyou Small Class means our traditionally offline business models. In last quarter, because of COVID-19 outbreak, all of this offline learning actually is delivered through our online platform. For this kind of Peiyou Small Class business, I think we have experience and we are continuing to experience the same challenge and same pressures, same as other companies in this industry. We need to wait for what's going on of the COVID-19 outbreak. We're very happy to see, coming into this quarter, with the government efforts, we can put well under control, and we have seen most of our new cities, actually, they have start operate gradually.
Compared to the normal time we have in the previous years, where we don't have any kind of the virus issue before, actually, the recovery is still slower. We are in the same industry, and we are in the same situation. We are happy to see we are gradually come back to normal, but this kind of recovery need to be very cautious. Because in any time, we need to put the safety and health of the teachers and students as the first priority, and we also abide by all government policies and regulations to reopen our schools gradually.
In general, based on what we can see today, if the pandemic will not be getting worse in China in the second half, then probably we can say, based on the information we have today, the second half growth will be better than the first half for the Peiyou Small Class business. Secondly, we also need to talk about something about the Peiyou Live business. Peiyou Live is a online offerings affiliated to the Peiyou Small Class. This business this year is continued to grow quite well. Last year, if you guys can still remember, the Peiyou Live grow more than I think triple-digit growth. This year in Q1, they are also over 100% growth. Based on number what we can see today, the Q2, they will maintain the similar trend.
In the third place, the Xueersi Online School, which is also our 25% revenue for this quarter and continue to grow 143% in enrollments in Q1 and 133% in revenues in Q1. Based on the numbers we have today, they are also pretty much on track to achieve around triple-digit growth in the second quarter, plus or minus in a small range. In general, I think our growth for Xueersi Peiyou Small Class and the Xueersi Peiyou Live and the Xueersi Online School is pretty much on track as what we say last quarter. If we go down to the bottom line, I think same as before, it's a little bit difficult to give clear guidance about what the bottom line will be. We have some colors or directions can draw attention.
We encourage you guys to pay attention to the headwinds possible in our business in the profitability studies. Number one, the Peiyou Small Class business. Same as what I say just now, we are very happy to see everything is under control. More than 90% of the cities, actually, they start to resume the business gradually. Not the same as what we did before, better than what we have in last quarter. This will take some time. The whole recovery will take some time. If we don't see any kind of unexpected kind of the virus outbreak again, we will probably can see the situation will be getting better in second half. Specifically for my Q2, the challenge and the pressure is still there.
Especially you probably can see that we also entered some new cities, 20 new cities in Q1. This kind of the profit pressures for Q2 for the Xueersi Peiyou Small Class business will still be there. Secondly, about the One-on-One. I think even today, our Q1, we have the normal price long-term enrollments in Q1 for Online School is around 1.28 million, which means 143% year-over-year growth in enrollment studies. Even in the 1.28 million divided by the big market potential of the total K-12 numbers in China, actually, that's still a very immature numbers. We still believe there is a huge potential or maybe kind of the market opportunity ahead of us. For online, that's still a market share gain.
Way to achieve more market shares in the online space, we need to invest at least in the following areas, but not limited to the following areas. Number one, we need to continue to invest in technology. Frankly speaking, I think few years ago, when we just opened our Xueersi Online School live business, we don't imagine someday we will support millions of students at the same time doing the live learning platform. Today, that is what happen every day. The enrollment growth of the Xueersi Online School is still very healthy and very high. This kind of challenges on the technical platform will be even bigger than before. We need to maintain our investment and even increase a little bit more our investment in technology studies to make sure our technical platform can be very highly competitive in this market.
Secondly, we need to also invest in the teachers and the teacher assistants. Under today's model, we still need teacher assistants to support the students to have the better learning experiences. The online learning sometimes is not simply moving the students from offline to online. Actually, that's a brand new learning models. Besides the very good master teachers we need to have, we also need to build a very strong teacher assistant team to support them. Here, even during the COVID-19 periods, we continued to progress to hire more teacher assistants for our online team. Today, the number is much higher than before now, and we get ready for the high traffic coming in the summer. In the third place, we also need to invest the necessary sales and marketing dollars to make sure we can achieve more new students in the coming summer.
I think we have been running this strategy the past two years, so we have a lot of lessons learned. We will always balance on the possible students we can touch versus the efficiency of the overall efficiency and efficacy of these kind of investments. We have a system ready to evaluate ROI by different channels, and we need to change or adjust due to the different channels' performance real time. This kind of the necessary sales and marketing investments is also important to help us to make more people know us and try to attract more people to try our products. We will use our high-quality products to improve the conversion rate, and finally make sure the lifetime value work.
All in all, we need to consider investing online space, in technology space, in the teacher perspective, and in the sales and marketing perspective. This kind of investment will also give us some kind of pressures, especially in Q2. Again, I think we're running this business for a long time, and today, the situation is much more difficult, sorry, much more different than what we are, maybe five years ago. Five years ago, when we're first doing a lot of things in the online space, in a dual-teacher model space, maybe there is not that many followers that would try the learn from us. Today, the competition is always there. We probably can see some of the private companies get a lot of money, and so we are still need to maintain our competitiveness to make sure we are well ahead of the whole industry.
Again, even we pick the top five online players in this area, we calculate their numbers together, actually, still, this kind of the online students divided by the total numbers in K-12 population, that's still a small percentage. I think we still have a lot of market potentials we can go. Today is too early to talk about head-to-head competitions. What we need to do more is actually we are doing to ourselves to make sure how we can improve our operating efficiency to maintain the healthy level of our investment and balance our growth drivers, both in online, dual-teacher models, TAL Live, and Xueersi Online School, to deliver a well-paced growth and to deliver a healthy and sustainable growth in the long run. Thank you, Natalie.
Got it. Very clear. Thank you, Rong Luo.
Your next question comes from the line of Mark Li of Citi. Please ask your question.
Hi, Rong Luo. Congratulations on the results. I want to ask a bit more on the online. Because I remember, last year, you mentioned you mostly focus in the products of online in the strategy. It seems like for the Xueersi Online growth has been stronger than what we expected in recent quarters. Looking back for the online summer promotion, do you think what we make right in this summer promotion, and looking ahead for the second part of it, and maybe for the upcoming quarter, what do you focus on the strategy for this year compared to last year? I just want to hear a bit more. Thank you.
Thank you, Mark. I think if we recap some numbers, last year, our Xueersi Online School revenue growth is around 86%-87%, close to around 90% net zero last year. This year, Q1, we grew by 133%. Q2, we're pretty much on track to around the triple-digit growth, ± in a small range. I think part of the reason is because of the market change. In the past few months, most of China students are forced to stay at home and pay the online offerings. Which accelerate the online popularity to the students and the teachers. We, as one of the leading players in the online education player, we also got some benefit from there.
If you guys can do into some other online players in this market, actually, that is quite common, not only for us, but also for the whole industry. This, I think, the market environment is a very important reason we need to be very honest about that. Secondly, I think, right after we're running the business for a few years, especially for the online for a few years, I think we have tried to improve our competitiveness of the products. You know, sometimes the online education is not a kind of the magic. Actually, they require a lot of the detail, operations, and efforts. That's not simply say we're just moving students from offline and online. We're just moving them from a classroom to a screen, then everything okay. That's not the case. Actually, we need to redesign a lot of process.
We need to restructure the way how we touch the students. How we persuade the students to rest in our platform, how we invite them to try our pilot class, and how we can make sure the online interactions is better than offline to make sure students feel actually they are learning in a very interesting classroom, even that is virtually online. We also need to restructure the way, how we can train our teacher assistants, how the teacher assistants interact with students and their parents to make sure they can effectively help the students to get in touch with the online offerings and get along with them in a much longer time. We have a lot of details over there.
We continually invest our energy and our investments in the technology perspective, which help us to make sure our systems and our process can be improved to deal with this kind of fast-growing enrollments. I think that's something we are doing that in the past, maybe three or five years, and we will continue to do that in the foreseeable future. Only we invest in technology, only we invest in the platform, only we invest in the products, that's the only way we can serve more students. That's also the only way we can serve more students in an affordable way, which is maybe more important. You probably can see that our ASP of all offerings, blending offerings, is also decreasing. That is not because we reduce the price. That's because we try to offer more online products and more affordable price products to the students.
The continuing investment in the technology and in all the platform, in the products, is something we continue to do that. I can't say we're doing right or wrong, but that's something we need to do. We also, I think, in today's online education, the teacher assistant is very critical, and we need to have enough teachers and teacher assistants to support students. Which is also a lot of efforts now. Frankly speaking, if you need to hire thousands of students as the teacher assistants, that's not easy. We need to make sure our whole system work effectively, so we can hire enough students and train the students to make sure they can deliver the high-quality service to the parents and the students to make sure that the teaching qualities can be secure.
I think, continue to improving the operating efficiency and make sure we can optimize the different detailed operating process is a must-do job. We continue to make efforts every quarters and even every year. Looking into summer, what we can say is, actually, what I disclosed today is the Q1 results. Most of the numbers actually is the spring term numbers. The Q2 numbers for summer numbers will be displayed in next quarter. In general, we can see that we're pretty much on track with our growth targets right over there. For the summer, I think we don't have anything special we need to draw attention, but continually, we need to make sure we pull product quality as the first priority. We need to make sure our online offerings can fill the student's needs, and that people will feel satisfied about our product offerings.
They feel they pay the money, and the money is worth the efforts they pay. All of this is the detail works. We don't have any metrics, or we don't have any shortcuts, to create success. There is not that much kind of secret. All we need to do is hands down, do everything, every details as good as possible, and continue to improve. On the other side, we need to keep eyes open. We see a lot of school counterparts in this industry, and we learn a lot from them, not only in the marketing, branding, product design, and a lot of spaces. We are very happy to see we are lucky in this industry. We have more counterparts who also devote their energies and time in this industry, and they have a lot of new creative features, which we can learn from them.
That's something we'll do in the future years. All in all, we don't have any metrics. What we need to do is stop talking that much, but hands down, do our job harder and harder than before. Thank you, Mark.
Next question, please.
Your next question comes from the line of DS Kim, JP Morgan. Please ask your question.
Hi, everyone. Good evening. Thanks for taking my questions and congrats on the good results. First, I have two questions, if I may. First, on margin, may I check why gross margin this quarter went down 300 basis points despite bigger contribution from Xueersi Online, i.e., OP margin was a big positive surprise, just trying to understand why GP margin was lower versus the mix, and wondering whether this is because of a big drop in Small Class margin segment or something else. I have one small follow-up after this. Thank you.
Thank you for your question. I think for the gross margin for Q1 is a little bit decline is because when we're moving the Peiyou Small Class students from offline to online, which is quite successful, most our students actually moved there. One thing we need to draw attention is actually in the second quarter, when we try to retain the students from spring term to summer term, actually, the retention rate is quite good. It's even a little bit higher than last year. These efforts work. When we're moving the students from offline to online, actually, we provide some kind of price coupons to them, so which will deduct a little bit in revenue, so which will make the gross margins of the Peiyou Small Class a little bit lower than before.
I think that's the most important reasons that we have for the gross margins, why they are a little bit different. Can I clarify, your second question is about OP margin?
Yeah. No, I think you already kindly explained all that. Thank you. If I may follow up on other point, this is more medium term, how are we going to balance Peiyou offline and Peiyou Live, given now the lines between the two are a little bit blurred since COVID? Are we, in the future, thinking of matching online price to that of offline, essentially replacing Peiyou offline with the Live? Are we going to keep two segment completely separate or complementary to each other and try to serve different group of students? That's all. Thank you again for taking my question.
Yes. Frankly speaking, I think the best answer to this question should be go to ask the parents. Actually, our different drivers, our growth models, actually, the fundamental drivers to them actually is the needs from this market, the needs from the parents, and needs from the students. I think the past several months of the COVID-19 outbreak, I think that it's a special time. That is the first time for all of us. It's very special and maybe it's very unique. We can't just use the three months or four months experience to decide what we need to do in the coming three or five years. We carefully evaluate and observe what's happening in the past three or four months, especially we are seeing more students, they choose the online offering.
We need to make sure, is that a temporary phenomenon or that is a forever phenomenon? Today is too early to make the judgment call. In the second quarter, I think today, same as what we run in the company before, it's very good. The Xueersi Peiyou Small Class and the Xueersi Online School business, actually, they're running separately. The Peiyou Small Class business, they are covered city by city. You probably can see that in Q1, we covered the other 20 new cities. The total number is around 90 cities, around 90, including one in the U.S. The Peiyou Live is highly connected to the Peiyou Small Class business. The Peiyou Live is our complementary service to them, so they will focus on how to provide the better service to the offline students.
Especially, they will provide more localized content to them, and that's our purpose for the Peiyou Live offerings. That is part of the Peiyou Small Class. While Xueersi Online School, since it's beginning, it's a broad strategy. We want to use this offers to cover the majority of the whole markets. They will pay attention to the general contents and general features and the general subjects. We prefer they can cover more students, especially how to serve the lower tier city students in the long run. Based on what we have today, we still encourage the Peiyou Small Class and the Xueersi Online School to run in their own directions and to try to penetrate and try to attract different parents, because the parents, the needs are different.
Not 100% of the parents, they like offline offering, but also it's not 100% of students or the parents they like online offerings. We need to make sure we can have that diversified offerings to we can support different needs of the students. Again, today, no matter it's offline or online, our overall number of students actually is very small. The market share is maybe low single digit. It's too early to say we need to combine them together or we need to do something else. What we need to do is focus on our strategy and continue our current executions, working harder and harder to make sure we can deliver quality growth in the long run. Thank you.
Thank you. That's very clear.
Your next question comes from the line of Sheng Zhong of Morgan Stanley. Please ask your question.
Hi, good evening. Thank you for taking my question. My question is about your online business. Can you give us a roughly number how much of your students now is from lower tier cities for online learning? I think previously you mentioned that you are doing some trial of different business models in lower tier cities to see which are the best models. Can you share some color, some observation with us, and the company thinking about the future strategy in the lower tier cities? Thank you.
Thank you, Zhong Sheng. I think it's always a very important question, how we can penetrate the lower tier cities. In last year, if you guys can still remember, I think last year for our Xueersi Online School enrollments, we have around 20% of students coming from the lower tier cities. This year, the situation has a little bit change, especially right after the outbreak of the COVID-19. We're running some free class promotions and classes to the students all over China. We also optimize our products to try to attract more students from the lower tier cities. What we can see is actually then for the new students, and especially for the promotion students, more and more of them are coming from the lower tier cities.
I think, even today, I don't have a perfect answer to say, "Hey, that's the best strategy to penetrate the lower tier cities." We don't have a shortcut yet. We're happy to see that with our continued involvement of our products, and we are seeing more and more students actually are coming from the lower tier cities in the past few months. This trend will continue in the coming few quarters. Again, what I want to say is actually, the students who live in the lower tier cities, compared to the students who live in the big cities, they are the same. They have the same demand, they have the same needs, and they have the same ambition, try to be more competitive. They want to learn better, and they want to have better life.
What we need to do is, when we go into the lower-tier cities, we need to find a very important way to how to make our offerings more affordable, but the teaching quality should always be the same. We need to treat the product quality as high priority when we go in there. We need to make sure what we teach, they really heard that. We will continue our current offer now, and we will evaluate our data, and especially the lower-tier city students' data to continue to evolve our products to fit their needs. All in all, what I can say is we are good to see more and more students in our online platform, actually they're coming from lower-tier geographies, and this trend will continue in the coming four quarters. Thank you, Zhong Sheng.
Thank you.
Your next question comes from the line of Felix Liu of UBS. Please ask your question.
Thank you for taking my question, and congratulations on the strong Q1. My question is on the deferred revenue side. I see your deferred revenue is around $1.5 billion, while the guidance for the next quarter is, I think, a little bit below that. Could you help us understand the difference here, since I think the government doesn't really allow prepayment for too long, right?
Yes. Thank you for your question. Deferred revenue growth is impacted by our faster growth of online business, as well as the consolidation of a newly acquired online One-on-One English tutoring service provider. The consolidation start from May the first this year, hope this answer your question. Thank you.
Okay. Thank you very much. Just to follow up on that, what is the timeline for recognizing this increased deferred revenue from consolidation? What is the typical period to fully recognize this?
Who should?
I think these acquisitions happen in the Q1 this fiscal year. I need to give more color about that, actually, because they have higher numbers in the deferred revenue perspective, but it's going to the net revenue because that's depending on their consumptions one by one. Actually, the revenues to our P&L, the net revenue perspective is immaterial.
I see. Thank you very much.
Your next question comes from the line of Alex Xie from Credit Suisse. Please ask your question.
Hi. Hi, Rong Luo. Thank you for taking my question. I actually would like to ask about your thoughts about the online Small Class model. I think in the last quarter, you provided the online Small Class model to millions of students and got good retention rates, as you just mentioned. In the future, are you going to keep some online Small Class offerings in your previously large class dominated Peiyou Live? Did you see a demand or do you have plan to do online Small Class in the hub cities, say, to attract the surrounding cities as a way to, say, penetrate into some lower tier cities? Do you sort of see the potential in that? Thank you.
Thanks, Alex. I think last quarter, we moved for the students. We delivered the Peiyou Small Class through our online platform. Actually, we have to do that because of the COVID-19. We are good to see the retention rate is pretty much okay. We also see some challenges from that model. I think today is too early to say whether we will do some significant kind of the strategy changes in the Peiyou Small Class business, because that's only through four months. With a lot of cities come back to normal, we are also seeing a lot of students and the parents, they are coming back to our offline schools now. I think whatever decision we will make need to depending on the parents' satisfaction rates, whether they will continue with us in the longer term.
Today, we see some preliminary positive signs or results, but the time is only two to three months. It's too early to judge, or it's too early to draw the conclusion. We will continue to run our business in this way, and we will also resume our offline business in the cities. It's come back to normal. We will leave more time to the parents and the students, and we're based on the feedback of the market, and we're based on the feedback of the customers to make the decisions. Our strategies always evolve based on this kind of new dynamics in the market. Thank you.
Got it. Thank you.
Your next question comes from the line of Lucy Yu of Bank of America. Please ask your question.
Thank you, Rong Luo. I got two questions. First is on expansion strategy. I've seen that you've entered more new cities this quarter. Possibly there could be some delay from the previous quarters. Going forward, what's the strategy of offline expansion? Will that be largely concentrated in new cities, like what we have done or more of that will be existing cities? As you mentioned, penetrating to new cities will dilute or at least pressure our margins in the near term. Whether we will continue to do that or scale back new cities a little bit and focus more on margins. That's question number one. Number two is on the revenue forecast of around 20%. As you mentioned, that the xueersi.com is likely to grow at triple digits in the following quarter, as well as the Peiyou Live will also grow at triple digits.
It looks like the rest of the business will be under huge pressure, then we will arrive at 20%. Otherwise, it will be much higher than that. Could you please help us to understand better of your revenue forecast? Thank you.
Okay. I think, for the geographic expansion, actually, we're pretty much on track with our plans last year. This plan has been stopped a little bit by the last several months' COVID-19 outbreak. Today, we gradually resume back to our pace. Again, we'll be very cautious about that. We need to spend few more time to look into what will happen of this kind of pandemic in China in the coming few months. In Q1, we have entered 20 new cities, and we have adding around 65 new learning centers. In Q2, by the end of today, we have rented around only 10 new learning centers. I think this is highly depending on what's happening of the virus in the coming four months. Based on what we see today, if everything still were under control, we probably can say we'll be more positive about that.
Around your question about the new cities or current cities, first speaking, I think we will maintain our similar pace to enter new cities. Last year, if I remember correctly, we have entered around 15 new cities. The year before last year is around 13-14± . This year in Q1, entered 20. That's pretty much on track. We continue to enter the sizable number of the new cities every year. We also continue to optimize our current cities' efficiencies, and based on the different KPIs, especially the seat fulfillment rates and all other KPIs to decide to add new learning centers. I think we're running our new network expansion strategies pretty much same as what we did in the past. Considering we have COVID-19 right over here, so in the most recent quarters, we will be more cautious than before.
In the long run, we will still try to enter more new cities as what we can see in the past. The revenue forecast, I think I have talked about it in the beginning, but I can recap a little bit. In the first place, I don't suggest you guys only look into one single quarter numbers, because actually because of scheduling issues, we have some benefits in Q1, so made the Q1 numbers better than before, and we have some kind of loss in Q2. If we combine the Q1 and Q2 together for the whole first half, our growth rate is more than 30%+ . Specifically, yes, you are right, we have higher growth in the Peiyou Live, higher growth in the Xueersi Online School. We have some challenges or some pressures of the Xueersi Peiyou Small Class business.
That's because if you go back to our Q1 typically is March, April, and May, our Q2 is typically June, July, and August. When the students and the parents, they decided to register my Q2 classes, the summer term classes, actually, the time should be around April and May. If you can still recap the stories in April and May, I think at that time, a lot of parents and even the whole society are still a little bit worried about the virus, and a lot of people hesitate, or maybe they don't make a decision yet. I think Q2 is a challenge quarters, and growth rates also were under pressure. I think we have made work of it now. If everything can get better and better, probably second half will be better than first half for the offline perspective. Thank you.
Thank you, Rong Luo.
Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now all disconnect.