CHINA BRIEF | Edtech firm GSX a ‘near-total fraud’ says Luckin short-seller

Following a slew of scrutiny by various research firms, Chinese online education startup GSX Techedu (NYSE: GSX) been hit on May 18 by a negative report by short-seller Muddy Waters, a market intelligence and investment company best known for its short position of Luckin Coffee last January.

In the report, Muddy Waters says it is “highly confident that at least 73.2% of the 54,065 users in the analyzed classes are bots,” and calls GSX a “near-total fraud.” The short-seller also points out that GSX CEO Chen Xiangdong has pledged at least USD 318 million of stock, making GSX shares risky.

GSX responded to the report this morning on Weibo (NASDAQ: WB), a Twitter-like Chinese platform.

“The company believes the report contains inaccurate and disorderly data sources and demonstrates a lack of understanding of GSX’s business,” Chen posted. “We will provide a full rebuttal of Muddy Waters Research’s allegations in detail in the near future.”

GXS reported on Wednesday hyper-growth in both net revenues and net income for the first quarter of 2020. It booked USD 182 million in net revenue with a 382% increase year-on-year (YoY), with net income growing 336.6% YoY to USD 21 million.

This article is part of KrASIA’s “China Brief” section, where KrASIA’s reporters will provide quick daily updates about the tech ecosystem in China.