Larry Chen, ex-teacher-turned-billionaire hailing from a small Chinese village, is quickly losing his wealth status as shares in his online education business, GSX Techedu Inc., continue to plummet.
After investment firm Goldman Sachs Group Inc. downgraded GSX stock and cut is price target, the online education venture fell by 4%.
Its shares have fallen by 88% since January resulting to a reduction of US$14 billion from Chen’s assets, leaving him a net worth of only US$1.9 billion.
A combination of factors plagued Chen’s business. First, the online education industry found itself in trouble after President Xi Jinping said that after-school tutoring placed undue pressure on children. This prompted the country’s education department to make plans to form a division whose sole purpose is to oversee all private education platforms.
Per regulations prohibiting kindergarten and private tutoring schools to teach elementary curriculum, GSX was forced to shutter its preschool education business catering to kids aged 3 to 8.
Secondly, the business’ poor outlook last May saw the revenue forecast fall short of the average analyst estimate.
The final factor causing considerable damage to GSX was the collapse of hedge fund, Archegos Capital Management led by Bill Hwang, which cost several Wall Street banks over US$10 billion due to large leveraged bets on a number of Chinese and American stocks—including GSX and two US media companies—that went south after their shares dropped.
Last April, GSX along with three other education providers were fined $500,000, the maximum penalty for false or misleading prices to attract customers.
Chen began as a middle-school teacher before coming onboard New Oriental Education & Technology Group Inc. in 1999, where he eventually served as executive president. He left in 2014 to build GSX.