After experimenting with new business ventures such as e-commerce live streaming and study tour projects, Gaotu Techedu Inc. (GOTU.US) has turned its attention to esports projects that attract young people, attempting to tap into the Gen Z customer market through cross-industry collaboration with esports. Recently, Gaotu officially announced a partnership with Wolves Esports Club, becoming its official learning partner, with both parties planning to engage in deep cooperation around global esports talent development.

Since the "double reduction" policy in 2021, many leading domestic K12 education companies have chosen to transform and seek second growth points, including popular paths such as AI hardware and e-commerce live streaming. However, Gaotu's "alternative approach" seems to have not received positive feedback from the secondary market.

After reaching a periodic high of $4.12 during trading on August 29, Gaotu's stock price has been declining steadily, touching an intraday low of $3.37 on September 24, marking a new annual low. Over the past month, the stock's maximum decline reached 18.20%.

**New Round of Consolidation Triggered by Cross-Industry Esports News?**

Similarly announcing the search for a second growth point, the secondary market's response to Gaotu's cross-industry esports venture was clearly less positive than when the company announced its AI transformation earlier this year, and there's also the possibility of major funds "taking advantage to consolidate."

On February 12, Gaotu officially announced its integration with the DeepSeek artificial intelligence large model, aiming to strengthen deep applications in multiple core business scenarios including teaching research, instruction, product development, and content creation. The company planned to gradually launch multiple optimization results and updated features over the following three months. During the 2024 annual earnings conference, CEO Chen Xiangdong repeatedly emphasized Gaotu's focus on and application of AI, clearly stating "firmly embracing AI strategy."

At that time, the industrial revolution triggered by domestic DeepSeek had already sparked "collective ascension" style bull market rallies in both A-shares and H-shares. Taking the A-share DeepSeek concept sector as an example, from February 5 to February 24, the sector's cumulative gain reached 42.75%.

Although the DeepSeek sector had already experienced a round of surging and pullback with popular stocks trading at high levels, speculation sentiment remained at its peak. Gaotu, which was previously undervalued but showing significant earnings recovery while also becoming a DeepSeek concept stock, became highly sought after.

On February 26, Gaotu's stock opened higher and continued rising, reaching the day's high of $3.4 within an hour and a half of opening, ultimately closing up 31.23%. The day saw massive volume of 15.1005 million shares with a turnover rate of 5.96%, significantly higher than previous levels.

In contrast, looking at the secondary market background when Gaotu announced its cross-industry esports venture, after reaching an annual high of $4.56 on May 15, Gaotu's stock entered a three-and-a-half-month period of sideways consolidation. Based on closing prices from May 16 to August 29, Gaotu's stock basically maintained a range of $3.5-4, with only a 2.36% gain during this period, maintaining a stable sideways effect.

Notably, during this process, major funds suppressed prices through partial position selling while absorbing selling pressure, keeping most chips inactive. The overlap between 70% and 90% chip concentration zones remained stable above 60%.

According to the chip distribution chart, regardless of how high-selling and low-buying played out, the overall average cost of chips fluctuated around $3.5. However, during the major funds' maintenance of sideways consolidation, not only did some bottom-fishing funds continuously engage in day trading below the $3.58 average cost line, but there were also some chips purchased in April with an average cost of only $2.5. Therefore, from the major funds' perspective, a new round of consolidation before subsequent price rallies was necessary, with August 26 being one such test.

During the sideways consolidation period from May 15 to August 29, a periodic bottom of $3.44 had already formed on July 7. Even during the bottom-testing process on July 30, the day's low only reached $3.45, not breaking the $3.44 bottom. However, on August 26, Gaotu's stock formed a long lower shadow, with the lowest price breaking through the above-mentioned bottom, testing $3.40.

Looking at volume, Gaotu's stock fell 3.70% that day with trading volume of 2.4971 million shares, second only to July 15 when it rose over 11%, and significantly higher than previous periods. This indicated that disagreements within the market were expanding, benefiting major funds' further accumulation.

However, after forming "two consecutive positive days" on August 27 and 28, Gaotu's stock volume began to shrink subsequently, showing obvious volume-less decline. Generally speaking, when stock prices break below the 60-day moving average, most investors would consider the stock approaching a periodic bottom area. The slight volume increase to over 800,000 shares on September 23 and 24 might be a signal of modest position building from outside funds.

But from the major funds' perspective, if stock prices further break down and create new lows, it could trigger panic selling from unstable holders. Therefore, ordinary investors should maintain attention to Gaotu's subsequent stock price movements.

**Fundamentals Expected to Support Periodic Value Recovery**

Although Gaotu's stock price has shown some volatility recently, even if there's further downside breaking creating a false bottom, the stock price will ultimately reverse, due to the secondary market not yet fully reflecting the company's business development situation after Q2 2025 results.

According to Gaotu's previously disclosed Q2 2025 quarterly results, the company achieved revenue of approximately 1.39 billion yuan (RMB, same unit below) for the period, up 37.6% year-over-year. This also marked Gaotu's sixth consecutive quarter of revenue growth exceeding 30%, and the revenue exceeded the company's Q1 2025 guidance upper limit of 1.32 billion yuan.

Notably, since Q1 last year, Gaotu has achieved revenue growth of over 30% for six consecutive quarters, with an average growth rate of 51.7%. Regarding Q2 2025 revenue growth, the company stated it was due to fully capturing strong market demand, with cash receipts continuing to grow year-over-year.

From cash receipts perspective, as of Q2 2025, Gaotu has maintained growth for 10 consecutive quarters, with an average growth rate of 46.4%.

Looking at segment performance, Gaotu's core revenue source is learning services, accounting for over 95% of Q2 2025 revenue, with remaining contributions from smart learning content and products (including supplementary materials). Learning services business is further divided into K12 non-academic training for K12 students, traditional business for high school students, and college student and adult business, with the first two contributing over 85% of Gaotu's revenue.

The earnings report showed that Q2 2025's overall revenue growth benefited from its K12 non-academic training business, which accounted for nearly 40% of period revenue and achieved over 100% year-over-year growth for the fifth consecutive quarter, with cash receipts also growing over 100%.

From cost and expense perspectives, with steady business investment, Gaotu's main business costs reached 473 million yuan for the period, up 50.9% year-over-year, mainly due to increased personnel costs from growing numbers of lead teachers and teaching assistants, plus increased rental costs, depreciation and amortization expenses.

This led to corresponding gross profit growing 31.6% year-over-year to 917 million yuan, while gross margin declined 3 percentage points from 69% last year to 66%.

For operating expenses, the company's total operating expenses were 1.158 billion yuan for the period, down slightly 0.2% year-over-year, maintaining relatively stable expense levels. Therefore, with revenue growth and stable expenses, Gaotu's Q2 2025 net loss narrowed to 216 million yuan, a 50% improvement from the same period last year, while operating net cash inflow reached 589 million yuan, with overall financial structure and development trends improving.

Additionally, as of the end of June 2025, Gaotu held cash and cash equivalents, restricted funds, short-term investments, and long-term investments totaling 3.824 billion yuan. Combined with positive operating cash inflows, its cash reserve situation remains solid.

Clearly, under current business development support, Gaotu has maintained relatively steady growth trends. However, Gaotu's current PS valuation has fallen to only 1.08x, far below the industry average of 1.78x, already in an obviously undervalued state. But judging from its secondary market performance, major funds' rally may still need some time.