New Oriental's VIEs Drive 99.8% of Revenue Amid Regulatory Scrutiny

TL;DR

**NWOEF's heavy reliance on its VIE structure is a ticking regulatory time bomb, making it a risky bet despite strong revenue contribution.**

AI Summary

New Oriental Education & Technology Group Inc. (NWOEF) reported that revenues contributed by its consolidated affiliated entities accounted for 99.8% of its total net revenues for the fiscal year ended May 31, 2025, an increase from 99.2% in fiscal year 2024 and 99.5% in fiscal year 2023. The company operates primarily through Variable Interest Entities (VIEs) in China due to foreign direct investment restrictions in educational and value-added telecommunication services. These VIEs, including New Oriental China and Beijing Xuncheng, are controlled via contractual arrangements such as equity pledge agreements and exclusive option agreements, allowing their financial results to be consolidated under U.S. GAAP. As of May 31, 2025, the company had 1,580,288,613 common shares outstanding. Key risks include the reliance on these contractual arrangements, which are not as effective as direct ownership, and potential changes in PRC laws and regulations affecting private education. The strategic outlook emphasizes continued operation through this structure, with a focus on educational programs and services, and livestreaming e-commerce through its majority-owned subsidiary, East Buy.

Why It Matters

This filing highlights New Oriental's continued reliance on its Variable Interest Entity (VIE) structure, which generated 99.8% of its revenue in fiscal year 2025. For investors, this structure carries inherent regulatory risks in China, where direct foreign ownership in education is restricted, potentially impacting long-term stability and control. Employees and customers are directly affected by the operational continuity of these VIEs, which deliver the core educational services. In the competitive landscape, this structure could be a disadvantage compared to companies with direct ownership, as it introduces a layer of legal and operational complexity that could deter some investors.

Risk Assessment

Risk Level: high — The risk level is high because 99.8% of New Oriental's total net revenues for the fiscal year ended May 31, 2025, were contributed by consolidated affiliated entities, which are Variable Interest Entities (VIEs). The filing explicitly states, 'the contractual arrangements is not as effective as direct ownership in providing us with control over the VIEs.' This significant reliance on a legally complex and potentially vulnerable structure, subject to PRC regulatory changes, poses substantial operational and financial risk.

Analyst Insight

Investors should exercise extreme caution and thoroughly assess the regulatory environment in China regarding VIEs. Consider diversifying away from companies with such structures or demand a higher risk premium for holding NWOEF shares, given the inherent control limitations and potential for adverse policy shifts.

Financial Highlights

debt To Equity

N/A

revenue

N/A

operating Margin

N/A%

total Assets

N/A

total Debt

N/A

net Income

N/A

eps

N/A

gross Margin

N/A%

cash Position

N/A

revenue Growth

N/A%

Revenue Breakdown

Key Numbers

• 99.8% — Revenue contribution from consolidated affiliated entities (Increased from 99.2% in fiscal year 2024, highlighting reliance on VIEs for fiscal year ended May 31, 2025.)
• 1,580,288,613 — Common shares outstanding (As of May 31, 2025, reflecting the company's capital structure.)
• US$0.001 — Par value per common share (Resulting from a one-for-ten share split effective March 10, 2021.)
• 1:10 — ADS to common share ratio (Changed from 1:1 to 1:10 effective April 8, 2022.)
• RMB7.1991 — Exchange rate to US$1.00 (Used for convenient translations from Renminbi to U.S. dollars as of May 30, 2025.)
• HK$7.8409 — Exchange rate to US$1.00 (Used for convenient translations from Hong Kong dollars to U.S. dollars as of May 30, 2025.)

Key Players & Entities

• New Oriental Education & Technology Group Inc. (company) — Registrant and Cayman Islands holding company
• New Oriental China (company) — Variable Interest Entity (VIE) in PRC
• Beijing Xuncheng (company) — Variable Interest Entity (VIE) in PRC
• East Buy Holding Limited (company) — Majority-owned subsidiary listed on Hong Kong Stock Exchange
• Zhihui Yang (person) — Executive President and Chief Financial Officer
• Michael Minhong Yu (person) — Founder and Executive Chairman, 99% owner of Century Friendship
• Century Friendship (company) — Shareholder of New Oriental China
• Dexin Dongfang (company) — Party to contractual arrangements with Beijing Xuncheng
• Beijing Decision (company) — Party to contractual arrangements with New Oriental China
• Beijing Pioneer (company) — Attorney-in-fact for Century Friendship

FAQ

Risk Factors

• Reliance on VIE Contractual Arrangements [high — legal]: The company's operations are heavily dependent on contractual arrangements with its VIEs, which are not as effective as direct ownership. Any adverse changes or invalidation of these contracts by PRC authorities could significantly disrupt operations and financial results.
• Changes in PRC Laws and Regulations [high — regulatory]: The private education sector in China is subject to evolving government regulations. New policies or enforcement actions could impact the company's business model, service offerings, and profitability, particularly concerning curriculum, fees, and operational standards.
• Dependence on Key Personnel and Management [medium — operational]: The success of New Oriental relies on its ability to attract and retain qualified teachers and management. High turnover or inability to recruit effectively could negatively affect the quality of education and student enrollment.
• Intense Competition in Education Sector [medium — market]: The Chinese education market is highly competitive, with numerous domestic and international players. Maintaining market share and pricing power requires continuous innovation and adaptation to student needs and market trends.

Industry Context

New Oriental operates in China's highly competitive and regulated private education sector. The industry has faced significant regulatory shifts, impacting traditional tutoring services. Companies are increasingly diversifying into areas like online education, vocational training, and related e-commerce ventures, such as New Oriental's East Buy, to navigate these changes and find new growth avenues.

Regulatory Implications

The company's reliance on VIEs exposes it to significant regulatory risk in China. Any changes in PRC laws regarding foreign investment in education or the enforceability of VIE contracts could severely impact its business model and financial performance. Compliance with evolving educational policies remains a critical operational challenge.

What Investors Should Do

1. Monitor regulatory developments in China's education sector.
2. Assess the sustainability and growth potential of the East Buy livestreaming e-commerce business.
3. Evaluate the risks associated with the VIE structure.

Key Dates

• 2025-05-31: Fiscal Year End — Reporting period for the financial statements and operational performance, showing 99.8% revenue from VIEs.
• 2025-05-30: Exchange Rate Reference — Provided exchange rates (RMB 7.1991 to US$1.00, HK$7.8409 to US$1.00) for financial reporting convenience.
• 2022-04-08: ADS to Common Share Ratio Change — Ratio changed from 1:1 to 1:10, impacting the number of shares represented by each ADS.
• 2021-03-10: Share Split — One-for-ten share split effective, changing the par value per common share to US$0.001.

Glossary

Variable Interest Entities (VIEs)

Entities used by foreign companies to legally operate in industries with foreign ownership restrictions in China, controlled through contractual agreements rather than direct equity ownership. (New Oriental's primary operating structure, accounting for 99.8% of its FY2025 revenue, making its financial results dependent on these contractual arrangements.)

Consolidated Affiliated Entities

Refers to the VIEs whose financial results are consolidated into the parent company's financial statements under U.S. GAAP. (Highlights the significant portion of New Oriental's revenue (99.8% in FY2025) derived from these entities.)

American Depositary Shares (ADSs)

Securities traded in the U.S. that represent shares of a foreign company. (The ratio of ADSs to common shares (1:10) is a key detail for investors understanding share equivalency.)

Equity Pledge Agreements

Contracts where the equity interest in a VIE is pledged as security for the performance of contractual obligations. (A key contractual mechanism used by New Oriental to control its VIEs and consolidate their results.)

Exclusive Option Agreements

Contracts granting the VIE holder the right to purchase the equity interests in the VIE under certain conditions. (Another critical contractual arrangement enabling control over VIEs for financial consolidation.)

Year-Over-Year Comparison

The fiscal year ended May 31, 2025, shows an increased reliance on consolidated affiliated entities, with their revenue contribution rising to 99.8% from 99.2% in the prior year. This highlights the continued importance and potential risks associated with the company's VIE structure. While specific financial metrics like revenue growth, net income, and margins are not detailed in the provided excerpts for comparison, the trend indicates a deepening dependence on the VIE model for revenue generation.

Key Financial Figures

• $0.001 — Exchange Common shares , par value US$0.001 per share** 9901 The Stock Exchange
• $0.01 — ich each common share of par value of US$0.01 each was subdivided into ten common sha
• $1.00 — F were made at a rate of RMB7.1991 to US$1.00 and HK$7.8409 to US$1.00, the respectiv
• $7.8409 — at a rate of RMB7.1991 to US$1.00 and HK$7.8409 to US$1.00, the respective exchange rat
• $1 — RMB7.1991 to US$1.00 and HK$7.8409 to US$1.00, the respective exchange rate set fo

Filing Documents

• d138902d20f.htm (20-F) — 3825KB
• d138902dex81.htm (EX-8.1) — 11KB
• d138902dex121.htm (EX-12.1) — 10KB
• d138902dex122.htm (EX-12.2) — 10KB
• d138902dex131.htm (EX-13.1) — 4KB
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• d138902dex151.htm (EX-15.1) — 5KB
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• 0001193125-25-216394.txt ( ) — 15847KB
• edu-20250531.xsd (EX-101.SCH) — 2480KB
• d138902d20f_htm.xml (XML) — 2412KB

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS 2 PART I 3 ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 3 ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 3 ITEM 3. KEY INFORMATION 3 ITEM 4. INFORMATION ON THE COMPANY 65 ITEM 4A. UNRESOLVED STAFF COMMENTS 113 ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 113 ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 133 ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 140 ITEM 8. FINANCIAL INFORMATION 142 ITEM 9. THE OFFER AND LISTING 143 ITEM 10. ADDITIONAL INFORMATION 144 ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 158 ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 158 PART II 163 ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 163 ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS 163 ITEM 15.

CONTROLS AND PROCEDURES

CONTROLS AND PROCEDURES 163 ITEM 16. [Reserved] 164 ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT 164 ITEM 16B. CODE OF ETHICS 164 ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES 165 ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 166 ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS 166 ITEM 16F. CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANTS 167 ITEM 16G. CORPORATE GOVERNANCE 167 ITEM 16H. MINE SAFETY DISCLOSURE 167 ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS 167 ITEM 16J. INSIDER TRADING POLICIES 168 ITEM 16K. CYBERSECURITY 168 ITEM 17.

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS 169 ITEM 18.

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS 169 ITEM 19. EXHIBITS 169

SIGNATURES

SIGNATURES 174 i Table of Contents INTRODUCTION Unless otherwise indicated and except where the context otherwise requires, references in this annual report on Form 20-F to: "we," "us," "our company" or "our" refers to New Oriental Education & Technology Group Inc., a Cayman Islands company, its predecessor entities and subsidiaries. We conduct our operations in China through (i) our PRC subsidiaries, (ii) the variable interest entities with which we have contractual arrangements, and (iii) the subsidiaries and/or schools of the variable interest entities. The consolidated variable interest entities are PRC companies conducting operations in China, and their financial results have been consolidated into our consolidated financial statements under U.S. GAAP for accounting purposes; "New Oriental China" refers to New Oriental Education & Technology Group Co., Ltd., formerly known as Beijing New Oriental Education & Technology (Group) Co., Ltd., which is a domestic PRC company and a variable interest entity of our company; "Beijing Xuncheng" refers to Beijing New Oriental Xuncheng Network Technology Co., Ltd., which is a domestic PRC company and a variable interest entity of East Buy; "East Buy" refers to East Buy Holding Limited (formerly known as Koolearn Technology Holding Limited), a Cayman Islands company and our majority-owned subsidiary, whose shares are listed on the Main Board of the Hong Kong Stock Exchange under the stock short name "East Buy" and stock code "1797"; "VIEs" or "variable interest entities" refers to Beijing Xuncheng and New Oriental China, both of which are domestic PRC companies in which we do not have equity interests but whose financial results have been consolidated into our consolidated financial statements in accordance with U.S. GAAP; "consolidated affiliated entities" refers to New Oriental China and its schools and subsidiaries in China and Beijing Xuncheng and its subsidiaries in China; "CCASS" are to the Cent

FORWARD-LOOKING STATEMENTS

FORWARD-LOOKING STATEMENTS This annual report contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. You can identify these forward-looking statements by words or phrases such as "may," "will," "expect," "is expected to," "anticipate," "aim," "estimate," "intend," "plan," "believe," "is/are likely to" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to: our anticipated growth strategies; our future business development, results of operations and financial condition; expected changes in our revenues and certain cost and expense items; competition in each type of educational program, service and product we provide; competition from other livestreaming e-commerce players; risks associated with our offering of new educational programs, services and products, and private label products on our livestreaming e-commerce platform; the expected increase in expenditures on education in China; and PRC laws, regulations and policies relating to private education and providers of private educational services. 2 Table of Contents You should read thoroughly this annual report and the documents that we refer to herein with the understanding that our actual future results may be materially

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