Gaotu Group, once a poster child of China’s booming online tutoring sector, entered 2026 still wrestling with the fallout from years of rapid expansion and regulatory upheaval. The company reported a year-to-date net loss of RMB 239.1 million and an adjusted loss of RMB 200 million at the end of 2025, even as third-quarter revenue rose 30.7% year-on-year and cash intake grew 11.2%. The numbers show revenue momentum but underline a persistent failure to translate top-line gains into sustainable profits.
The roots of Gaotu’s malaise lie largely in the “double reduction” campaign that began in 2021, which sharply curtailed paid extra-curricular tutoring for school-age children and forced major providers to reinvent themselves. Gaotu pivoted toward adult and higher-education markets and diversified into live commerce, sports partnerships, esports and AI-driven products. Those moves expanded the firm’s footprint, but they intensified operational complexity at a time when internal compliance and quality controls were weak.
The company’s governance and compliance problems have been conspicuous. During 2025 multiple Gaotu subsidiaries were fined or ordered to cease operations for running unlicensed offline classes, illegal publications and other violations. Local enforcement actions – including forced refunds and dismantling of teaching facilities – exposed a management apparatus unable to police a sprawling, fast-growing network of businesses.
Reputational damage has been amplified by consumer and labour complaints. Online complaint platforms list thousands of grievances about refunds, opaque return procedures and aggressive sales tactics, while frequent substitution of promised teachers and poor after-sales service have eroded trust. The firm was also rocked by the widely reported death of a young sales employee in Zhengzhou, which reignited scrutiny of a workplace culture critics say tacitly rewards long hours.
Gaotu’s publicity around philanthropy and disaster relief provides a counterpoint to its commercial troubles. Founder Chen Xiangdong helped establish the Gaotu Public Welfare Foundation and donated RMB 8 million in 2025; since 2014 the group says it has invested more than RMB 100 million in education-focused charitable work, including book donations, school supplies and teacher training in rural areas. Those activities bolster Gaotu’s social profile but have not insulated it from criticism over customer service or inside-the-firm practices.
The company’s attempt to rebrand itself as an AI-first education provider has so far produced underwhelming market traction. Gaotu now touts a portfolio of AI products, from adaptive-English tutors to AI-assisted graduate-exam tools, but its R&D spending remains modest: operating expenses for the third quarter of 2025 were RMB 1.22 billion, of which only RMB 162.9 million went to R&D while sales and marketing consumed the lion’s share. Market metrics show little evidence that Gaotu’s AI applications have gained meaningful user adoption.
Other diversification bets have been mixed. A livestreaming commerce arm briefly rode viral moments in 2023 but later underperformed and was suspended before a partial relaunch, while celebrity-linked courses – notably a 2025 English offering marketed around film star Daniel Wu – produced a short-lived spike in sales but left customers disappointed by the limited personal teaching time and underdeveloped AI companions. Partnerships with national sports teams and an esports club reflect a strategic desire to reach younger adults, but they have yet to translate into scale or profitability.
Investor returns have been poor since Gaotu’s 2019 U.S. listing, with only two profitable years (2019 and 2022) and no dividends paid. Management has kept up a positive public tone: Chen has increased his personal stake and the company has bought back shares, while leadership publicly reiterates a goal of returning to profit. Yet persistent losses, shabby ESG disclosure (the firm has not produced an ESG report since listing) and a low MSCI ESG grade (CCC) point to risks that transcend cyclical weakness.
Gaotu’s predicament matters beyond one company. It highlights the enduring consequences of China’s post-2021 regulatory reset in the education sector, where former growth models have been rendered obsolete and operators must now meet tougher standards for licensing, consumer protection and corporate governance. For investors and partners, Gaotu’s path forward will hinge on whether it can tighten compliance, invest credibly in product and tech, and repair trust with customers and staff — tasks that require discipline and time, not merely grand strategic declarations.