Shares of Gaotu, a Chinese online education firm, slumped nearly 20% on Monday as a previous influx of livestreaming viewers returned to rival East Buy’s Douyin channel after a recent screenplay dispute at the latter, which had driven users to seek alternative platforms, came to an end.

Why it matters: The 58% surge in New York-listed Gaotu’s share price last week has now been halved with the previous surge seemingly an exception that does not accurately reflect the sustainable growth prospects of Gaotu’s e-commerce business at present.

Details: China’s Gaotu was once a provider of after-school tutoring courses, but transitioned to the live commerce sector a year ago, in a similar move to East Buy, which found viral success after blending online language lessons with e-commerce. Gaotu witnessed eightfold growth in followers on Douyin in the last two weeks, taking it to almost 2.5 million followers on the TikTok sibling platform.

• The East Buy exodus began as a protest over a controversy surrounding Dong Yuhui, the most influential host on the platform. His fans were dissatisfied with the company’s Douyin account operator attributing a Jilin province screenplay read by Dong during a livestream to the collaborative efforts of the team. Fans insisted that Dong was the sole author and should be accredited as such.
• In the following days, Dong failed to appear on East Buy’s livestreams, prompting a large number of fans to flood rival Gaotu’s platform as a way of expressing their dissatisfaction with East Buy’s treatment of their live commerce idol. One user even stated, “I will only go back if Dong continues to appear in East Buy’s livestreams.”
• However, the week-long infighting came to an end on Monday night when East Buy CEO Michael Yu announced his decision to promote Dong to the position of senior partner in the company while committing to the establishment of a separate studio for the top influencer. That evening there were wildly contrasting figures for the two rivals: East Buy’s livestream featuring Yu and Dong saw them sell goods worth RMB 1 billion and hit a peak of 3.8 million simultaneous viewers; at the same time, Gaotu’s livestream had fewer than 5,000 viewers.

Context: Gaotu’s current stock price is still nearly 97% lower than its peak in 2021, when the Chinese government introduced a policy known as “double reduction” that dealt an unprecedented blow to private for-profit educational companies, and prompted them to seek rapid transformation to stay afloat. East Buy, a subsidiary of New Oriental, found unexpected success with a livestream last June as a host, who was once a tutor, taught English and simultaneously sold products, gaining significant attention on the internet.

• In November 2022, Gaotu was warned by the New York Stock Exchange as its stock price remained below $1 for 30 consecutive trading days. A month later, the company initiated its first livestream on Douyin under the name Gaotu Jiapin, mainly selling agricultural products and snacks. Its revenues for the third quarter were down by nearly 60% compared to 2020.