Larry Chen, the former school teacher from a poor Chinese village who became one of the world’s richest people, is closing in on losing his billionaire status as shares in his online-education business slump.
GSX Techedu Inc. fell 6.8% at 11:45 a.m. in New York after Goldman Sachs Group Inc. downgraded the stock and slashed its price target. The shares have plunged 88% since late January, wiping almost $14 billion from Chen’s fortune and leaving him a net worth of about $1.8 billion, according to the Bloomberg Billionaires Index.
The Chinese firm has been buffeted by a range of issues, including the country’s crackdown on the online-education sector, a weaker-than-expected results outlook and the implosion of an investor, Bill Hwang’s Archegos Capital Management.
“Policy risk is the No. 1 concern right now,” said Tommy Wong, an analyst at China Merchants Securities International Co. based in Hong Kong, who rates the stock a buy.
A spokesperson for GSX declined to comment on the share plunge or Chen’s wealth.
The Chinese education industry is under increased scrutiny after President Xi Jinping suggested in March that a surge in after-school tutoring was putting immense pressure on China’s kids. The country’s education ministry plans to create a dedicated division to oversee all private education platforms for the first time, people familiar with the matter told Bloomberg.
GSX is shutting its pre-school education business for children ages 3 to 8 in response to regulations banning kindergarten and private-tutoring schools from teaching the elementary school curriculum, spokeswoman Sandy Qin said this week.
The company is laying off employees as a result, Qin said, while declining to say how many people are losing their jobs. Chinese media reported earlier that the company is cutting almost a third of its staff.
In April, GSX was among four private education providers fined the maximum penalty of 500,000 yuan ($78,356) for using false or misleading prices to lure customers.
It’s a major headache for Chen, who owns about 44% of GSX, at a time when his company’s shares were already being hit by a weaker-than-expected outlook. In late May, GSX gave a second-quarter revenue forecast that missed the average analyst estimate. Its shares tumbled.