Larry Chen one of the wealthiest tycoon began his career as a middle-school teacher before joining New Oriental Education & Technology Group Inc. as executive president in 1999. In 2014, he quit to launch GSX.
Larry Chen, a former schoolteacher from an impoverished Chinese hamlet rose to become one of the world’s wealthiest tycoon. He is on the verge of losing his billionaire title as his online education firm struggles.
In New York trading on Wednesday, GSX Techedu Inc. slumped 4% after Goldman Sachs Group Inc. downgraded the company and lowered its price objective. According to the Bloomberg Billionaires Index, the stock has dropped 88 percent since late January. This wiped over $14 billion from Chen’s fortune and left him with a net worth of $1.9 billion.
The Chinese company has been battered by a slew of challenges, including the government’s crackdown on online education, a weaker-than-expected earnings projection, and the collapse of a major investor, Bill Hwang’s Archegos Capital Management.
“Policy risk is the number one issue right now,” said Tommy Wong, an analyst at Hong Kong-based China Merchants Securities International Co., who rates the stock as a buy.
A GSX representative declined to comment on the stock’s drop or the fortune of the tycoon.
According to GSX spokesperson Sandy Qin, the company is closing its pre-school education business for children aged 3 to 8 as a result of legislation prohibiting kindergarten and private tutoring schools from teaching the elementary school curriculum.
As a result, the firm is laying off staff, according to Qin, who declined to indicate how many individuals will lose their employment. According to Chinese media, the corporation is laying off about a third of its workforce.
What happened to GSX’s shares?
GSX was one of four private education companies given the maximum penalty of 500,000 yuan ($78,356) in April for luring consumers with incorrect or misleading charges.
When the value of some of those equities dropped, banks wanted collateral. Hwang was not able to give collateral, so he sold significant blocks of GSX and other stock. In a single day, the GSX fell by as much as 56%.
Chen’s fortune had recently tripled to $15.6 billion in less than two weeks as GSX’s shares soared. That was despite the fact that the company was under investigation by the Securities and Exchange Commission in September. Short-sellers such as Carson Block’s Muddy Waters questioned the company’s operation.