March 2020

OMO, the New Era of Online Education

2

China offline K-12 AST market is projected to grow at 9% CAGR,

while the premium sector is expected to grow at 16%

169(30%)146

(28%)

109(25%)

349(74%)

475

324(75%)

373(72%)

2018

126(26%)

2019 2020

395(70%)

2021

196(32%)

416(68%)

2022

Premium CAGR +16%

Non-premiumCAGR +6%

433

518

564

611CAGR+9%

Premium after-school tutoring (AST) sector grows much faster than the entire market

Source: Frost & Sullivan: China’s K-12 After-School Tutoring Market Study (March 2018)

China K-12 AST Market Size (2018 – 2022F)

RMB billions

Rising awareness and preferences for

individualized learning

Consumption upgrade by increasing

number of Mid-Class families

Rising willingness to pay for premium

services

The premium sector presents the most attractive segment in the offline space

~RMB 200bn

premium market

Notes: 1) Premium tutoring services refers to either 1-on-1classes priced at or above RMB 200 per session or small group classes priced at or above RMB 120 per session, according to Frost & Sullivan2) Numbers were projected back in 2017, when it only included limited size for online AST sector as it was still at nascent stage. For example, it predicted less than RMB 10bn online revenue by 2022. An updated projection for online sector by the same vendor is provided on next slide

Drivers of premium market growth:

3Source: Goldman Sachs Research, Frost & Sullivan, CITIC securities

20

15

20

13

20

18

20

16

20

14

20

17

20

19

E

20

20

F

20

21

F

20

22

F

2

20

23

F

Online Small Group Class & 1v1

Online Large Group Class

121 3 6

30

64

119

197

277

367

China online AST market size

55% CAGR

China online AST market penetration

1.0%1.3%1.8%2.9%

45.0%

15.7%

4.7%

9.5%

23.4%

32.4%

39.0%

20

16

20

13

20

14

20

15

20

17

20

18

20

19

E

20

20

F

20

21

F

20

22

F

20

23

F

Online AST as % of total AST market*

RMB billions

CAGR @

52%

CAGR @

58%

China online AST market expects much faster growth at 55% CAGR

driven by rapid consumer adoption and increased supply

* Forecasts were made before the COVID-19 outbreak, numbers may be higher due to potentially higher online adoption

4

While all three segments present attractive growth potential, the online large class segment

is relatively crowded, while the other two segments still at early stage

Each online formats satisfies 2 of the 3 key consumer preferences: convenience, effectiveness & price

There are three major online segments, each offers differentiated

value propositions thus create growth potential

Effectiveness

PriceConvenience

Online

1on1 Class

Online

Small Group

Class

Online

Large Class

5

Both offline and online models are facing their own challenges

Online ModelOffline Model

X License requirements for centers

X Coverage limitation (~3 kilometers

from centers)

X Capex and local management

requirements

X Ramp-up time requirements (3yrs to

stabilize)

X Impact by online penetration

X Fierce competition

X Learning results not ideal due to limitation

on engagement level, thus still challenged

to meet K-12 score improvement

requirements, the main industry demand

X High customer acquisition cost due to high

cost and low conversion rates in online

channels

X Profitability largely not proven… so far

only few online large class models

profitable

6

OMO model combines advantages of both online and offline

models

OMO Model

Online teaching/service +

Offline experience center

Offline Model

Pure offline

No online presence

Convenience

Interactions /

Services Quality

Acquisition Cost

Expansion Pace

For

custo

mer

For

Com

pany

High, student

Can learn at home

High, offline real

person interactions

Online services

also available

Relatively low,

Offline centers help

lower CAC

Light offline centers

serve as experience

center for acquisition

and service functions

Low, student

needs to visit

offline center

High, offline real

person interactions

Low CAC

Slow, requires

license approval

= best

= worst

Combines advantages of both

online and offline models

Online Model

Pure online,

No offline center

High, student

Can learn at home

Low,

only online

services

High, acquires

customer online

leads to high CAC

Fast, can expand

nationwide quickly

7

Better

Teacher

Convenience

Customer Needs

希望加频的同时希望节约往返校区的时间

/

Customer Types

Existing Customer New Customer

More frequency while

also save commute

time:

Weekday online

courses

Same city but long

distance from

OneSmart center:

OMO model

Better teacher

For high school

students*

OMO model

* Online education suitable for high school students because:

1. Lower tier city students demand for higher quality teachers often gathered in the largest cities of China such

as Beijing and Shanghai

2. College entrance exam is more standardized countrywide in China;

3. Students more self driven thus more concentrated when doing online classes

OMO model helps offline players address incremental demand, helps

expand into areas where offline centers cannot yet cover

• Online and offline integrated

• Leverages ~430 offline learnings

centers in 20+ provinces

• Convenient for students at long

distance to our centers or students

prefer online education

• Choices for higher quality teachers

located in the largest cities of China

OneSmart OMO

model

8

OneSmart OMO model: integrated with offline business and offers

supplementary and compelling value proposition

Offline Center

Online Platform

Show-room

Feedback & Services

Customer

acquisition

ConsultancyStudent

Assessment

Teaching

Customer Demand Products Unit Economics

OneSmart

Offline Model

Prefer effectiveness of onsite

1on1 tutoring

1on1 format and typically

focused on one or two

subjects

Proven unit economics (Per Student

OP Margin >25%) and margin

expansion driven by new center

ramp-up

OneSmart OMO

Model

1. Time and convenience

2. No limitation on distance

3. Cover more lower tier cities

4. Choices of high quality teacher

1. Offerings of more subjects

2. 1on1, group and large class

formats

3. Choices of shorter term

packages

1. Unit economics comparable to

offline model: some discounts to

offline pricing, offset by rental

savings, higher teacher utilization

rate and similar acquisition cost

2. Profitable growth … not to burn

money for scale

Supplementary to offline business to capture larger market demand

OneSmartAPP

Offline and Online

integrated

Teaching &

Services

OneSmart OMO Model

8

9

City Tier

Positioning

Higher

Lower Higher

Tier 1 & 15 Largest Tier

2 Cities

OneSmart Offline

& Weekday Online

Tier 3 Cities

OneSmart

Online OMO

Tier 2 Cities

OneSmart Offline

& Online OMO

OneSmart Business Line / City Tier Matrix

OMO offerings provide a much larger addressable market, creating

largely increased growth potential for OneSmart

OneSmart Offline Business

Note: Tier-1 includes 4 cities, Tier-2 includes 45 cities

• Upgrade to more premium Elite products to drive

incremental growth

• Growth strategy is to scale up the top 20 cites to

achieve city level operations efficiency and

economy of scale

• Incremental growth and margin expansion driven

by ramp-up of the 237 new centers opened in

FY18 & FY19

Growth Strategy

OneSmart OMO

• Expand our offerings to cover students located far

from our currently limited center network in tier 2

cities

• Possibility to enter tier 3 or even lower tier cities

where we have not entered yet

While OneSmart will continue to grow its offline business to strengthen its leading position in the offline

premium sector, it will strategically focus on OMO model to capture much enhanced addressable market

10

OneSmart OMO products satisfy the demand of majority students

Online Small Group Classes

－ Two versions: premium and regular

－ Initially focused on students from 4th grade to 9th

grade, expand to 10th through 12th graders

2

Overseas Studies Test Preparation and Consulting Classes

－ Online 1on1 and small group test preparation

classes for students who plan to study abroad

－ The consultants also help students through the

school application process

3

Young Children Classes

－ Online small group classes for Primary School &

Kindergarten

－ Mainly English Language and Math programs

4

Online Personalized 1on1 Classes

－ 1on1 Online classes for K-12 tutoring

－ Focused on middle and high school students

1

Source: China student population data based on NDS data and Goldman Sachs research

High School

Middle School

Primary School&

Kindergarten

OneSmart OMO Products Map

24million

47million

104 million

By Student Grades

By Market Segmentation / Affordability

Premium Market

Mass to high-end market

Online K-12 Personalized

1on1 classes

Premium K-12 small

group classes

Regular K-12 Small

group classes

Online Large classes

Young Children Classes

Online K-12 Small Group Classes

Online K-12 personalized 1on1 classes

Overseas Studies Test Preparation and Consulting

48 million

China Student

Population in 2019

OneSmart Online

Products

Note: OneSmart also plans to roll out a online large class as a complementary product SKU

Young Children Classes

11

OneSmart OMO model’s advantages and quality control

High quality delivery

Customer acquisition

Management system

OneSmart OMO Methodology

－ Customer acquisition through offline channels, i.e. learning centers, AI experience centers

－ Additional acquisitions through online channels, i.e. private online traffic channels (WeChat public account, WeChat Mini Programs, and online APPs)

－ Other customer acquisition channels shared with offline businesses, i.e. cross selling, telemarketing, etc.

－ Unified application user platform--- OneSmart Online

－ AI powered teaching system is based on years of teaching research and large digitized notes and quiz database

－ Online teaching management platform and quality control mechanism built from years of offline operations

－ Online based customer relationship management tools learnt from offline experience

－ Localized teaching & research team (mostly for middle school students)

－ Higher quality star teachers for high school students

－ Personalized premium services

Thank You