Sep. 10, 2020
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe. Dear SEC, GSX Techedu has provided financials that defy any semblance of reality. Examples are below: Impossible profit margins Gross profit margin of 78.1%, which is higher than Google ever achieved in the history of their earnings. Only one time in their last fifty quarterly reports did Google achieve a 70% margin, but GSX has achieved it every quarter since they've gone public. GSX purports to have "remained profitable for the eighth consecutive quarter" while Netflix lost money for their first *five* years totaling ~160M and Amazon lost money for its first 17 straight quarters as a public company. Unrealistic growth GSX listed this as their "7th consecutive quarter with net revenues growth by more than 350%" but Google, Facebook, Amazon nor Netflix could grow nearly that fast. Facebook stated in their S-1 before their IPO that their "annual revenue grew 154% from 2009 to 2010 and 88% from 2010 to 2011." GSX is almost triple! Google's S-1 shows quarterly growth above 350% only twice (in Q1 and Q2 of 2002). Then quarterly growth drops below 250% and never comes close to the numbers GSX reports. Unreasonable Hiring growth GSX states they went from 3,736 tutors on December 31, 2019 (as stated in Annual Report) to "over 10,000 tutors" as told to investors on the most recent earnings call. That means it took five years to get to ~3,700 tutors but only six months -- in the middle of pandemic -- to hire ~6,300 tutors However, LinkedIn and MaiMai show less than 600 total employees despite claims that they have 16,000 employees Puzzling Low Amounts of Capital Raised Despite being the fastest growing online education company that came with no brand recognition, GSX has raised very little capital. For example here is what their competitors raised: Yuanfudao raised 2.7B Zuoyebang raised 1.33B VIPKid raised 1.1B DaDa raised 860M Raised Zhangmen raised 500M Koolearn raised 394M iTutorGroup raised 320M GSX raised 258M 51Talk raised 112M Not only did GSX raise a fraction of the others they spent 42M on stock repurchases (over 15%!) GSX did not have the brand-name of TAL or EDU, who have been in the market for 20-30 years, but were able to acquire customers at a fraction of the cost "Famous Teachers" - Fake profiles, fake reviews, cheaper options GSX listed the profile below as one of their top 20 famous teachers. It's fake! Here is one of their famous teachers offering a class for 2,399 but QQ offers the same teacher + class for 960! The teacher reviews are fake. How do we know? For Ms. Chen Jun, the reviews talk about "his wife" and refer to him as "Mr Jun" -- the bots don't know her gender Also there are many examples of the same "review" being repeated verbatim over and over. GSX Warns in their S-1 Filing about Lack of Financial Controls & Fraud "In connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2017 and 2018, we and our independent registered public accounting firm identified one material weakness in our internal control over financial reporting. If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud." (Page 26) "One material weakness that has been identified related to our lack of comprehensive accounting policies and procedures manual in accordance with U.S. GAAP." (Page 26) "Proceedings instituted by the SEC against Chinese affiliates of the “big four” accounting firms, including our independent registered public accounting firm, could result in financial statements being determined to not be in compliance with the requirements of the Exchange Act." (Page 27) GSX has provided numbers that are fraudulent. Citron, Grizzly and MuddyWaters Research have already shown that GSX fakes users. Please take corrective actions to stop this fraud from continuing.