Executive Summary / Key Takeaways

• Specialized Market Focus: ATA Creativity Global (AACG) distinguishes itself as a leading provider of creative arts education, with a core emphasis on portfolio training, research-based learning, and overseas study counseling, catering to a growing and diversified student population in China and internationally.
• Strategic Shift to Value-Added Offerings: The company is successfully pivoting towards higher-value, project-based programs and diversified educational services, which are driving revenue growth and improving gross margins, as evidenced by significant increases in these segments in the first half of 2025.
• Operational Efficiency and Narrowing Losses: AACG has demonstrated strong cost discipline, leading to a notable reduction in operating expenses and a narrowing of operational and net losses in the first half of 2025, indicating a clearer path towards profitability.
• Technological Integration for Future Growth: Strategic cooperation with Oasis Star Educational Technology to integrate AI into services, coupled with completed internal system development, positions AACG to enhance offerings, improve service delivery, and potentially gain a competitive edge in a rapidly evolving educational landscape.
• Modest Growth Outlook with Strategic Expansion: While anticipating a return to normalized growth levels with full-year 2025 revenue guidance of RMB 276 million to RMB 281 million (3% to 5% year-over-year increase), AACG is actively expanding its geographic footprint and international partnerships, particularly in emerging markets, to sustain long-term growth.

The Canvas of Creative Education: AACG's Strategic Evolution

ATA Creativity Global, founded in 1999 as ATA Inc. and rebranded in September 2019, has established itself as a specialized international educational services company focused on cultivating and enhancing students' creativity. Based in Hefei, China, AACG operates within a dynamic and increasingly competitive global education market, particularly in the creative arts and overseas study sectors. The company's core business revolves around providing comprehensive portfolio training, experiential research-based learning, and crucial overseas study counseling services, delivered through a network of training centers and online platforms. This specialized focus allows AACG to carve out a distinct niche, appealing to students aspiring to pursue higher education and careers in creative fields.

The company's strategic journey has been marked by a continuous evolution of its offerings and operational approach. A significant shift has been the conscious effort to encourage students to enroll in project-based programs within its portfolio training services. These programs, lauded for their efficiency, flexibility, and customizability, have become a dominant contributor to portfolio training, accounting for approximately 76.7% of total credit hours delivered in the second quarter of 2025. This strategic emphasis aligns with broader industry trends favoring personalized and outcome-oriented learning experiences.

AACG is also strategically integrating artificial intelligence into its service delivery model, a critical technological differentiator. Through a strategic cooperation with Oasis Star Educational Technology, AACG aims to leverage AI technologies and cloud platforms to upgrade existing offerings and enhance service delivery. This initiative, alongside the completion of its internal ACG system development in the second quarter of 2024, is designed to fuel long-term growth by providing better products and services to students. While specific quantifiable metrics for AI's impact are not publicly detailed, the strategic intent is clear: to improve operational efficiency and introduce innovative learning experiences, such as the AI training camp at Alibaba (BABA) and new projects focused on computer design, which inherently involve digital tools and potentially AI-driven methodologies. This technological roadmap is foundational to AACG's strategy, aiming to bolster its competitive moat and enhance its market positioning.

Navigating a Competitive Landscape

The creative arts education market, particularly in China, is characterized by intensified competition, a trend AACG's management has acknowledged following the release of pent-up demand in 2024. AACG operates alongside larger, more diversified education giants such as New Oriental Education & Technology Group (EDU), TAL Education Group (TAL), and Gaotu Techedu (GOTU). While these competitors offer broader curricula, including K-12 education, test preparation, and language training, AACG's strength lies in its specialized focus on creative arts.

AACG's competitive advantages are built on its established network of training centers and deep expertise in creative education. This network fosters strong customer loyalty through in-person interactions, potentially leading to recurring revenue and improved pricing power in its niche markets. Against online-centric competitors like Gaotu Techedu, AACG's physical presence offers a more personalized and hands-on experience, which is particularly valuable for creative disciplines. Its expertise in creative education also enables faster innovation cycles in specialized programs, differentiating its offerings from the broader approaches of companies like New Oriental.

However, AACG faces vulnerabilities due to its comparatively smaller scale, which can lead to higher customer acquisition costs and potentially lower margins when competing with larger players. Regulatory risks inherent in the Chinese education sector also pose a challenge, potentially impacting strategic execution and leading to revenue volatility. Financially, AACG's latest TTM (trailing twelve months) ratios reflect its current stage, with a Gross Profit Margin of 52.66% and an Operating Profit Margin of -11.13%, indicating that while its core services are profitable at the gross level, operational expenses still lead to losses. In comparison, New Oriental and TAL Education Group, while not directly comparable on all metrics, generally exhibit stronger overall financial health and larger market capitalization, suggesting greater scale and potentially more robust profitability. AACG's current ratio of 0.19 also points to immediate liquidity challenges compared to more established players.

Financial Performance: A Path to Narrowing Losses

AACG has demonstrated a clear trajectory of improving financial performance, particularly in narrowing its losses, driven by strategic operational efficiencies and growth in value-added services. For the second quarter of 2025, total net revenues increased by 8% year-over-year to RMB 55.9 million, up from RMB 51.8 million in the second quarter of 2024. This growth was primarily fueled by a combined revenue increase of over 50% from overseas study counseling, other educational services, and research-based learning services. Gross profit for the quarter rose by 10.2% to RMB 28.3 million, with gross margin improving to 50.6% from 49.6% in the prior year period.

The first half of 2025 continued this positive trend, with total net revenues increasing by 11.8% to RMB 111.7 million from RMB 99.9 million in the first half of 2024. Gross profit for the six-month period grew by 12.8% to RMB 53.7 million, and gross margin improved to 48.1% from 47.7% in the first half of 2024. These improvements underscore the success of AACG's strategy to emphasize higher-value offerings and enhance service delivery.

Crucially, the company has made significant strides in cost discipline. Total operating expenses decreased by 9.4% in the second quarter of 2025 to RMB 42.1 million, representing 75.3% of net revenues, a notable reduction from 89.8% in the prior year period. This decrease was attributed to a RMB 2.6 million reduction in sales expenses, a RMB 1.5 million decrease in general and administrative expenses, and a RMB 0.3 million decrease in research and development expenses following the completion of the ACG system development in Q2 2024. As a direct result of higher revenues and reduced operating expenses, the loss from operations in Q2 2025 narrowed to RMB 13.7 million from RMB 20.8 million in Q2 2024, and net loss attributable to AACG narrowed to RMB 10.8 million from RMB 16.8 million. Similar improvements were seen in the first half of 2025, with operating loss narrowing to RMB 30.5 million from RMB 42.4 million in H1 2024, and net loss attributable to AACG narrowing to RMB 24.1 million from RMB 34.7 million.

For the full year 2024, AACG reported total net revenues of RMB 268.1 million, a 21% increase from 2023, exceeding its guidance. Gross profit for 2024 increased by 23.2% to RMB 141.3 million, with gross margin improving to 52.7%. While the company reported a net loss of RMB 36.1 million for the full year 2024, the operational improvements in 2025 suggest a positive trend towards profitability.

In terms of liquidity, as of June 30, 2025, AACG held RMB 34.7 million in cash and cash equivalents. While this provides some operational flexibility, the company's current ratio of 0.19 indicates a need for careful cash management and continued focus on improving cash flow generation.

Outlook and Growth Catalysts

Looking ahead, ATA Creativity Global anticipates total net revenues for the full year ended December 31, 2025, to be between RMB 276 million and RMB 281 million. This represents a year-over-year increase of approximately 3% to 5% from full year 2024, signaling a return to normalized growth levels after the significant rebound experienced in 2024. Management expects portfolio training to remain the primary revenue pillar, supported by increasing contributions from all other business lines.

The company's strategic focus for the remainder of 2025 is on driving organic expansion across all business segments, enhancing cost discipline, and improving overall efficiency to bolster bottom-line results. Key initiatives include continuously improving current offerings and introducing new programs that cater to evolving student demands, such as career-oriented and interdisciplinary projects with a focus on computer design. AACG is also expanding its international partnership network, observing growing student interest in regions like South Korea and Northern Europe, in addition to traditional markets. The opening of the ACG Japan Center in January 2025 and the London Center in September 2024 exemplifies this geographic expansion strategy.

Operational efficiency remains a priority, with efforts to streamline business by strategically allocating marketing resources to higher-performing campus locations, maintaining a lean sales team, and utilizing cost-efficient student acquisition channels like online marketing. The organization of online group classes led by popular teachers is also aimed at maximizing classroom utilization and expanding access to quality education. These initiatives are expected to contribute to improved profitability for the balance of 2025.

Risks and Considerations

Despite the positive operational trends, investors should consider several risks. The intensified competition in the creative arts education market, particularly from larger, more established players, could pressure AACG's market share and pricing power. The normalization of student demand in 2025, following a period of pent-up demand, means that growth rates may moderate, requiring sustained innovation and marketing efforts to attract and retain students.

Furthermore, the company's guidance and assumptions are based on current business initiatives and preliminary views of existing domestic and international market conditions, which are inherently subject to change. While AACG successfully regained compliance with Nasdaq's minimum bid price requirement in August 2025, the initial notification in May 2025 highlighted the importance of maintaining robust financial performance and market confidence. The company's relatively low current ratio also suggests that careful management of working capital and cash flow remains critical.

Conclusion

ATA Creativity Global is strategically positioning itself as a specialized leader in creative arts education, leveraging its unique portfolio of services and a clear roadmap for growth. The company's pivot towards high-value, project-based learning, coupled with its commitment to operational efficiency and the integration of AI technologies, underpins its investment thesis. While facing a competitive market and the challenges of normalizing demand, AACG's consistent efforts to narrow losses, expand its geographic footprint, and innovate its offerings demonstrate a resilient and forward-thinking approach. The successful admission results for its students and industry recognition further validate its educational quality. For investors, AACG represents an opportunity in a niche education sector, with its future performance hinging on continued execution of its multi-track growth strategies and the effective realization of its technological advantages to drive sustained profitability in the long term.