“One million (users) is a very achievable number over the next few years,” says Cloud Nine Education Group CEO Michael Hunter
Angela Harmantas | April 26, 2017 | SmallCapPower: When it comes to expanding their English as a Second Language (ESL) business, China is a secondary market to Cloud Nine Education Group Ltd. (CSE: CNI).
“We don’t need to be in China to hit our short-term target of one million users,” said Michael Hunter, CEO of Cloud Nine. “It’s a huge opportunity but it certainly isn’t the only opportunity.”
Cloud Nine develops and distributes a cloud-hosted, digitally-focused ESL curriculum for schools in Canada and internationally. Founded in 2013, the Company sought to capitalize on the growth and expansion of the ESL market worldwide, which is estimated to generate nearly US$35 billion annually. A self-styled “textbook disruptor,” the Company’s cloud-based model can incorporate current events into the curriculum, allowing the course material to grow and expand in real time; a capacity that text books are not able to replicate.
So how does a company generate revenue without entering the largest market for ESL education? Simple – by addressing the nearly 1.5 billion people who are studying English outside of China. For Cloud Nine to hit the million-user milestone, there are any number of countries on their own that could meet that standard individually or collectively. “One million is a very achievable number over the next few years,” Mr. Hunter said.
Right now, the Vancouver-based company’s focus is on Mexico and Brazil – two large, easily accessible markets in their own right. The combined population is 350 million people with, generally, low ESL skills and each country is investing heavily in addressing the growing demand for digital-based education. What’s more, both countries offer direct flights to Canada and easy-to-obtain student visas. While the price of the program is adjusted according to region, students generally pay about $10 per month for access to Cloud Nine’s ESL curriculum, making it competitive with the costs associated with textbook-based programs.
The Company recently signed an agreement with the Michoacán state government in Mexico to provide ESL studies to 75,000 students under a Mexican government scholarship program that would see students travel to Vancouver and attend Cloud Nine College, the Company’s wholly-owned subsidiary. This could open the door for Cloud Nine to sell its ESL Program directly to the three partner institutions, which collectively have nearly 600,000 students across the state and translating into millions of dollars a month in revenue. “If we are able to become a registered ESL provider in the state of Michoacán, it allows us to open the door towards integrating our curriculum into their general studies program,” Mr. Hunter said. “We’ve achieved the first step in our development plan, now we need to replicate that success in the next stage and position Cloud Nine for significant growth in sales and the resulting revenues.”
After Mexico and Brazil, Cloud Nine is hoping to tackle the rest of Latin America before addressing the behemoth markets in Asia. Japan alone spends close to US$5 billion per year on English studies, and South Korea and Taiwan are also spending heavily on ESL programs.
And then there is China, which is very much a part of Cloud Nine’s global expansion plan. It is a competitive market, but a highly lucrative one for ESL companies. A prime example is New Oriental Education & Technology Group Inc. (NYSE: EDU), which provides education and test preparation programs to Chinese ESL students, is valued at close to US$10 billion. “We’ve seen companies build up 13 million users for their product, which for us would translate to $1.3 billion in revenue a year,” said Mr. Hunter. “Because our product is so scalable, our EBITDA is over 30%. It’s exponential growth.”
For Michael Hunter, Cloud Nine is both an investment opportunity and a passion project. His own education is in international relations and Asian linguistics. He has studied French, Mandarin and Swahili. After a stint as an ESL teacher, he spent 25 years in the junior mining space, raising over $100 million in capital and completing two significant liquidity events. Now Mr. Hunter sees huge value in the ESL market.
“The space has so much room for Cloud Nine to grow, meet its potential of billions of dollars a year in revenue and share valuations in the double digits. Investors have the opportunity to realize exponential growth in their portfolios as we expand into this massive market that is so untapped right now.”
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