English learning company LAIX fears growth slowdown amid WeChat’s tightened rules

LAIX’s apps relied heavily on user acquisition via WeChat Moments.

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Shanghai-based LAIX, which features an artificial intelligence-powered English-learning app for adults called Liulishuo, disclosed Tuesday that it made RMB 276.4 million (USD 40.3 million) in revenue in the second quarter this year, up 104% year-on-year.

That’s a slowdown compared to a revenue growth rate of 161.7% year-on-year achieved in the first quarter and the 195.1% growth rate in the fourth quarter of 2018.

The company went public in the United States in September last year, raising more than USD 71 million via its initial public offering.

LAIX attributed its second-quarter revenue growth primarily to its enlarged paying user base. It had 138.8 million total registered users as of June 30, with 0.9 million purchasing courses and services in the second quarter of 2019, compared with 0.7 million in the same quarter in 2018.

However, its paying user growth may have already peaked before it turned profitable. In the first quarter of this year, it had 1.1 million paying users, while in the last two quarters of 2018, the number was 0.87 million and 1 million respectively.

The company said its net loss in the second quarter narrowed slightly to RMB 87.8 million from RMB 89.9 million for the same quarter last year.

Yi Wang, CEO of LAIX, commented in the Q2 earnings release that growth of the company’s Liuli Reading, an online reading platform, and DongNi online courses were negatively affected by the tightening of WeChat’s Moments sharing policy.

Caixin Global reported in May that WeChat named Liuli Reading as a prime culprit for encouraging users to share their learning status on Moments, a social network within WeChat for its users to share content. Users who did so for 80 days to receive a free physical book in return, resulting in WeChat complaining that this move has “severely” affected the user experience within the app.

Wang said the company expected the impact on revenue growth to continue during the remainder of the year as WeChat’s policy reduced word-of-mouth user acquisition.

LAIX predicted its revenue in the third quarter to be between RMB 230 million to RMB 250 million, which would represent a year-on-year growth rate of 27.4% at least and 38.5% at best. That means its growth in the third quarter will slow dramatically compared to the 104% growth rate in the second quarter and quarter-on-quarter speaking, there will be a decrease.

In addition, LAIX revealed along with the earnings release that its CFO Bin Yu is planning to resign for personal reasons but did not announce an immediate replacement.

After the earnings release, LAIX’s stock price dove 22% to close at USD 6.25 on Tuesday.