China's Tencent Slashes Wager on Koolearn Stock That Soared 684% in Edtech Frenzy

Tencent Holdings Ltd. slashed its stake in a Chinese education technology firm that staged an eye-watering rally in the past two weeks, as investors debate whether the sector’s surge is sustainable. 

The mobile gaming giant reduced its holdings in Koolearn Technology Holding Ltd. to 1.6% from 9%, according to a Hong Kong Exchange filing late Monday. Koolearn surged 684% in just nine trading sessions through June 16, as its foray into livestreaming e-commerce created social media buzz and market excitement after the sector was knocked down in Beijing’s sweeping tech crackdown last year. 

The stock whipsawed on Tuesday to close 3.1% higher, having lost 41% in the previous two sessions.   

“This is a very negative signal for those who speculate on such theme, especially as Tencent has sold such a major portion,” said Steven Leung, executive director at Uob Kay Hian (Hong Kong) Ltd. It is “too early” to call Koolearn’s transition to livestreaming business a viable option for other education names, he added. 

Tencent said it sold Koolearn shares on June 15 and 16 at an average price of HK$9.62 and HK$9.68, respectively. The stock closed at HK$17.5 on Tuesday. 

Koolearn and its parent New Oriental Education & Technology Group led a surge in edutech stocks this month, as traders bet the combination of livestreaming, teaching and e-commerce may enable a turnaround of the beleaguered sector. Video clips of Koolearn’s tutors selling agricultural products while teaching English via online platforms have gone viral, spurring the rally. 

Some analysts view Tencent’s reduction as part of its shift to lower exposure in areas that are subject to Beijing’s regulatory clampdown. 

“I think it is quite reasonable for Tencent to optimize its investment portfolio and book some profits,” said Redmond Wong, market strategist at Saxo Capital Markets.

Yet worrying signs are growing for the sector. China’s state-run Farmer’s Daily on Monday called on livestreaming platforms to share more profits with peasants. 

“I don’t know whether their businesses are sustainable. Most of the rally might be driven by retail investors,” said Kenny Wen, head of investment research at KGI Asia. “For the stocks that surged lately, I’m very cautious.”