Youdao (DAO) 17 Nov 222022 Q3 Earnings call transcript

Good day and welcome to the Youdao 2022 Third Quarter Earnings Conference Call. [Operator Instructions] Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wang, investor relations Director of Investor Relations of Youdao. Please go ahead.

operator. you, Thank by discussion future the to contain statements, as forward-looking for Please of today the to established liability, from performance Safe intended U.S. Company, related the note Harbor will the which qualify are Private Securities Act. Litigation Reform the guarantees to and and are assumptions and factors. risks performance of statements are future Such uncertainties, other not subject certain

financial A those law. filings update of general does and to and Securities results to not with actual business and results these could the U.S. by and cause obligation release risk any this Youdao’s is the forward-looking risks included Some certain of the Company press materially discussion undertake are mentioned from of information, in factors control, Exchange this except affect today’s The beyond discussion. Commission. the required Company Company’s could in as differ that

certain will purposes management call, only. today’s also comparison During financial discuss measures, for non-GAAP

definitions results, earlier GAAP measures, of release issued and today. For the financial financial news of quarter see third please reconciliations non-GAAP results the financial non-GAAP to XXXX

As is at Besides, of replay ir.youdao.com. webcast corporate will being on conference conference call a a this be website recorded. available reminder, the Youdao’s

our to on call and Chief of President, our the of our is senior from to call Feng Zhou, VP highlights Finance. Strategy and Jin, turn Dr. of VP recent I Zhou strategic now direction. over Mr. our Joining Youdao’s Li, Mr. and review today Executive us Wayne Lei the Mr. Su, will Officer, management our Dr. Peng some Markets Capital

thank you all Thank participating for today’s And you, call. in Jeffrey.

is on and information and third quarter remind to in a like continuing strong financial are operating that stated. solid a non-GAAP this on all had would unless based numbers financial and mentioned basis, I Renminbi, otherwise We the begin, we with Before operations financial results. information presented specifically release everyone

year-over-year. RMB a a attributable RMB with services These over Our of devices. XX.X%, record-high net XX.X% of strong content X.X% gross Sales to of performances new climbed of smart improving record-high XX%. ratio Total digital to our gross the and million margin X.X margin up exceeding reached results XXX billion, revenues services year-over-year. reached were

For devices, been propelling from net in RMB record. Pen XXX.X out, Youdao units Dictionary smart the of smart first QX, have a the sold devices launched revenues XX newly to XXX,XXX million new

year revenues net tenfold fact, compared Dictionary In Youdao Youdao QX Pen series have XXXX with this Pen X was QX in from Dictionary launched. after grown

have units new YXX been XX,XXX this The of in August demand sold for Pad category. released first Learning Youdao also reflecting strong Smart out,

operating loss loss, XXX it by to narrowed with year-over-year In our XX.X%. million terms operating X.X% RMB of to margin narrowing

growing We of our top have lines while improved the margin structures same at their business time. the line

content Youdao operating their could example that adopt respectively. we Dictionary of and up services, in QX, including share A months. announced net the with to to during form a million For in Today a in costs for Youdao to repurchase Company up near their cover directors for Pen revenues Class board Pod, the XX of laws the Listening digital authorized of regulations and expenses, period and in its of the program XX ordinary applicable future USA ADS shares accordance has

long XX% technology will a of advanced be year-over-year, margin products. AI run. The XX.X%, of and on RMB year-over-year. XXX.X that the the Gross and X.X% more reached of confident With smart to in sector content revenue lines smart new of up up share bullish devices business. due make devices for launch growth our would us Smart like the are overview, I in XX.X% record QX. of to future learning We the unique gross devices application the in color around margin million that about QX, business reached new the mainly

is of XX, Pen Our our and new innovation. in R&D strength great showcase Youdao product flagship Pen, Dictionary a Dictionary

In them to apps even download Kit to ecosystem the only to pen and easy-to-use potential. with total support storage users Ximalaya using sales customize the feature They long-term, the already the market million system. to NetEase did translation volume due Frost to more of has were XXs content Many for Youdao world's XX tablets allows precision, X.XX dictionary learning make top with join dictionary unique XXX, created demand. Not According Recently, that launched It and fact, also learning AI developers more are possibilities. XXXX, with our and & Smart on-board, Xnd Kaishu precision units will liking other their learning, and design, enough improvements. Storytelling. stronger first operating we RMB in and better Development Software a pen all including Learning Sullivan, likely Dictionary Pad product, significant RAZ a smart on improved English, strong FM, creating offered providers in. our larger we In consumers apps education Music pad significantly includes billion. endless in reach whole-new Pens, over grow expected it September Youdao cannot XXX languages when XX.X pad to screen, of Cloud

AI year-over-year popular a Then XX% Our margin year-over-year, record-high this revenues consumers. a XX.X%. up net and for Pen. high-quality relatively XX.X% by to learning this of Youdao services. we RMB revenues Pad the to gross increased a the QX, as down accounted XXX.X turn from Net of Breaking Learning segment. time, than STEAM revenues flat personalized learning courses further, as of let’s Youdao of net with over in bit our million adaptive XXX% and more become Dictionary for feature has from very services learning reached Over received positive Smart from provides learning students expect feedback

of Jiangsu We continued to Championship held Sport of Chinese the QX, recognized Sports in Children’s the General highly which the make collaboration Association, progress Weiqi China. Weiqi In Youdao Go Chess course. National the the on Association and by Administration was with we Open

to mainly environment. the we in downward for adult a trend As courses, margins macro see gross year-over-year, due

to Their by increased our realigning areas growth Graduate over resources two over vocational XXX% this actively focus and entrance billings respectively. on school and segment. exams gross in bright XXX% are year-over-year courses are We spots.

we are operations is from forward, confident finished. year mostly QX. Looking our in regulatory The last changes transition in

For business, for the challenging by support diversified was It four possible a group. the kept innovating have quarters, last and in by our NetEase allowed parent from level portfolio, investment the market. in investment and our also to firm in our share we technology this times, AI product maintained and us gain made long-term

sustainable believe a and with towards drive are Going in good growth we portfolio we position and to strong profitability products achieve businesses. today forward, a of

tailwinds the details quick of consumers. STEAM Peng? and bringing that, call products smart on will We performance. to Su financial capitalize turn more to our more give digital content more With learning adoption our courses. devices, on services continues and including team the to over Our forward you Su services I to Peng look and to

you, I We hello everyone. further read you Dr. today through Thank our the press Zhou, details. to earlier will and quarter issued some of release presenting be XXXX. Today for financial encourage third highlights for

online USA from XX.X% Net of were of services the revenues XXXX. devices a sales period revenues were the popularity million. For represents were in the same the the the million, smart XXX.X third XXX.X third Net driven million, was the XXXX. Net the of parties’ advertisements quarter, from million, by were our quarter services up to This services the internet representing our RMB Reduction” from XXXX, a this increase in increase same USA XX.X% total increase Policy. our million, products attributable attribute XX.X in revenues the the to representing an XXXX. of RMB implementation The million, properties. launched increase XXX.X learning X.X billion, after or the We through from period USA same period XXX.X new RMB XXX.X in from growth from third XX% “Double in RMB net million, marketing XX.X% revenues from XX.X from increase USA or performance-based performance XXXX. initiated newly mainly or strong or

XXXX. million, total third XXXX. XX% XXXX. quarter services for XXXX, XXXX. RMB Gross quarter, third same for representing for for for quarter from third margin the profit period of a the increase Gross the third quarter in for the the was XX.X% the For USA of margin in of for was devices quarter third with was smart XXX.X gross with of Gross compared million, XX% our XX.X% same compared compared the period XXX.X XX.X% period XXXX, or for XXXX, learning was in XX.X% margin with online same XX.X% for marketing services the

quarter third million, marketing sales the with the XXX.X expenses quarter, compared RMB XXX.X year. million compared of third million, and with RMB of Research quarter, or expenses expenses With XXX.X period and RMB XXX.X XXX.X the million the For million, were third operating development for last the compared million, USA our were quarter same third RMB XXX.X XXX.X million for XXXX. RMB RMB that, of XXXX. with in in were total

the year. of margin for operating XX.X% loss Our last quarter XXXX, same compared of with the third period was XX.X% in

the XX.X operations year. third per period of million from RMB basic USA operations ordinary net last million, same of was Basic XXX.X X.XX, operations from with last loss shareholders net quarter for ADS ordinary diluted attributable of for and or for Non-GAAP USA RMB operations XXXX, diluted attributable quarter quarter RMB same third shareholders continuing X.XX, USA million, the loss compared the was ordinary X.XX. loss for RMB period continuing or million RMB was shareholders continuing was quarter our continuing For third X.XX. our with loss the the RMB year. or to from from for XXX.X XXX.X USA net attributable to XX.X net or XXX.X the compared ADS to million, million, XXXX of third Non-GAAP per and

USA operating used XXX.X quarter. for cash net million, or activities in the million, continuing XX.X RMB was third Our

totaled our USA XX, our and end go of restricted million, our services, mainly XX, please your cash, as to our as questions. deferred XXX.X RMB remarks. RMB or at prepared generated or XXXX. XXXX, We the now Thank attention. the with were This compared cash liabilities, At Operator, period, contract RMB USA ahead. our sheet, of you of would the equivalents, revenue your short-term time XXX.X concludes to cash, call million. X.X for September from open XXX deposits, consist of like XXX.X Looking million, investments December billion million, learning balance which

comes Instructions] Our Brian with Citigroup. Gong from question first [Operator

Congratulations on solid results. the

saw revenue what's I I transition? at rapid the third to the the and in should future? look we contributors how the our And in increased main the quarter may know trend So roughly growth

content drivers technology as R&D, QX as you -- for smart and this so are based both So for strength And data know. our quarter devices in services are growth, growth. X our for main on

content service So digital are well. doing

are mostly prerecorded they that they're learning So the services STEAM or STEAM interactive or we -- mostly content they with contains the -- content is online before, compared offer difference courses. video

our with live As are mainly. courses courses before, they

So is the different. form

So last it's after a new year. product

QX, strong digital maintained content So momentum. in have services

with So over in reached RMB RMB XXX million compared over QX. XXX sales million

So basically quarter-to-quarter. doubled

while XX% margin So XX% also over from gross QX rose in QX. to over in

operating cover over can net services from their on revenues costs more So QX. in digital and expenses

So bottom this our in line this quarter. improvements supports

Devices high Smart a of second, in growth million, RMB you MXXX with are comes QX. record see, revenues So at, healthy year-over-year also as operating can metrics. Moreover, XX% a this up

QX. cover from So expenses Pod, Listening can X also in and and net own Youdao Youdao costs their products, for Dictionary revenue Pen they these

So Dictionary XX launched one is product in that's August. Pen pretty important

Pen with Pen generation the over equipped So Dictionary system, supports of smart operating translation this online operating Dictionary system. is of languages XXX world's first new and

or release, quickly. dictionaries both out its already after selling JD.com of first Tmall, Dictionary Pens batch top electronic the So seller XXX,XXX of and on it's units the

Pad recently, and of another Learning product YXX the of launch more XXX. launch is the also Youdao So Smart

So also months. this the sold tablet entry YXX marked our market XX,XXX in learning out about batch and first of into units the X

category. So confident gives our teams that this in more

steady plan learning our flow in products new this new -- growth devices sustainable category. a So product to have of is smart to drive

So recently after QX.

new more Smart just learners professionals. XXX, Learning X Pen Youdao and That I is more for launched Pad we products. also, PX mentioned. advanced And So Youdao Dictionary

an improve with precision and AI users learning Pod speaking Also new learning Listening upgraded with and in with advanced further more line with Youdao textbooks. both English lastly, helps and content dashboard the skills Chinese. experience in that the version and listening So Chinese English AI of improves technology

Pens. November units Dictionary is on pipelines this year, of than in So Dictionary Singles so Yes. more Pens XXX,XXX we festival over Day strong given the the Youdao XX shopping XXX,XXX Youdao sold

So growth drivers that's of of an overview QX. for

from question next comes Hongyi CICC. with Cao Our

Congratulations growth on the face We the good but performance. loss. Youdao revenue, of see the operating strong can still net

strategies for what my factors? So loss-making are improving our is, the question

very a That's question. natural

is profitability businesses. mainly new These towards products courses, driving loss significant and our Pad and profitability of each These plans that priority the loss say from for STEAM product would have area Learning we include makers. a operating QX for X I here. are digitization education in first, Youdao solutions. So Smart early-stage device us. the for The came Yes,

So let that me break little bit. down a

are bright a fast, STEAM growing we feature. they and courses, they our So have believe

this seeing are every we are continuous to of offerings For over we're month. and The more mature our doing And segment, Go return optimize the courses. STEAM tactics. investments marketing what is courses improvements in all product

Our chess other still STEAM in programming, days. courses early they and mostly Chinese such as music science their are painting,

investments areas, they we made the So are these off. in paying

courses. leader over online compelling Go app Go accumulated has in That's it's the China. Steam users it's So Youdao million in already and X.X learning the and for

is strategic opportunity through a market a business. business early a hardware based it Smart generational from technology-centered content-based is and the in it transformation is AI For going Pad, here the learning that and product pad for The us learning stages. adaptive is Learning to a

We of start, and advantage XXX, off are a good believe they a have good we very future. the YXX and this us. they taking And importantly, products, a investment bright are very transformational X and it first for is to opportunity,

digitization As services for the solutions, in progress recently here. the There education third are our products our reduced resources and here. category, we

board schools was education them. analytics campus schools our solution So enter started with released to digitalization Vision and like and

slower ago. than or However, spending solutions challenges, different digitalization has been been the X macroeconomic expected. due has to years our we from projections on landscape X Yes,

goal our and to this find resources with is better positions product less achieve profitable challenging in growth. here So environment

operating makers able RMB in XXX all also loss to we've RMB improving Operating also So operating to we add if million our loss million all together, X.X% cash profitably the XXX in narrow operating that's margin all, to our loss business outflow with these improved been net and year-over-year. -- QX. X

time, forward, while, at question. drive the I plan business the that Going is growing the profitability. the same answers to operate hope prudently towards

Our next question comes Jefferies. from with Thomas Chong

in second we I Would the confident prospect half think QX, share In mentioned expectations? QX please your are you year. we that of this of

results, QX. Yes, you operating numbers. QX financials have the and I seen they QX solid in us And yes, think give our confidence

So billion XX% QX, net X.X year-over-year. up RMB revenue reached in so

one giving XX.X%, year So revenues our respectively. to you academic the even and by to the revenue QX recent last compare is increased QX XXXX, net without of business, thing still if in and effect QX disposal X.X% AST

for So and key we keep in focusing QX, on healthiness the will of our financials operating sure. indicators. That's

season is sales QX learning for X is positive services, and for the the have over to financial digital As retention STEAM well on margin content other courses, in released flow past have Besides and which metrics. quarters. expected QX services in cash -- the a QX gross effect performed

December devices, QX with festivals. season of typically XX XX November smart terms In is the and the shopping

Douyin Tmall, November the shopping the well JD.com XXX Our sales in RMB and million year-over-year. with performed smart of sales over up during aggregated devices XX festival XX%

in years JD.com. terms in for Dictionary retained X Tmall and Pen, in category both Youdao position its So the has leading consecutive sales in of

one Youdao category this Listening Pod in also ranked sales in number JD.com. in

announced I I authorized Today, the to term anything think the future for for have think basically this repurchase short business, program well of QX. Yes, million. in long-term. share Directors that and do the reflects you us to have me. the confidence all It up both bodes Peng, adopt Su add? in Board in XX in USA the the for near management's all to that's we

Su This Peng. is

Zhou comment more the after think for expectation we added our Dr. Just about one QX. the

invest categories services enough products the see the with also and server as in. market the in the the new find and capabilities of the the well customers' we growth the why the business potential we rest change. -- have in after about initiatives, confident we smart in the growth we And conserves expect from as And new see the are the think learning confidence. to business, policy this might still of devices digital we of about also, sector you whatever new that's you maintain momentum we we but If the our feel great demand. And we and the

balance more the market long the the promising cash -- from us almost capabilities market as feedback billion RMB flow look revolving and our you we X we sheet feel about hope that will in million do the and in If from I the run. to sheet, net have as and in at our XXX for USD waiting that still about see invest well have the balance your school the gives question. about answers that we the

comes question from Macquarie. Huang Our Linda next with

regarding devices very tablets a launched successful second the the we is question because learning My in for the learning quarter.

share how you just especially the future addressable mentioned So us product, very about -- think can with about the do you this you sizable management, for the market.

market explain that long-term? the So is also regarding pricing in what products kind the with us size us can strategy? you what capture product the the Maybe share the can of management your for with we and And can we strategy? back hope

there Pad Su released remember, education we Frost and we first sales Sullivan, time confident released said we are new last August X as in about of Smart the -- RMB and demand and products. actually And in it's is because products market. -- of about Learning our total we tablets And AI feel with And released mentioned. we pad expected to it's million, smart just mentioned in we great we and and XX units confident call, last -- been XXXX in expect upgraded been all, we I Youdao, we category. and the more our August, we think to right that above in about out now, for features as YXX, student if And our of more I & is maps, recently, think Youdao our have that the still -- functions and products million we according first Sullivan the Peng. learning -- the up reach the next-generation on students you Pad, likely demand build learning the This to And of will of about strong that we expected for volume provide this our see AI different try will for from it's think, suitable And of services XXX highly the released units. more map think more definitely think, precession batch individual called the we student on road we that's, new we based technology. and and be have sold for about road just to XX,XXX diagnostics, be of has Youdao kind reflecting Learning about in and we customer

now about we the see -- products. see growth about and a the right early that's the very from how sales week. So stage of our right for we about at will confident production, even fast we smart demand to much product now, -- tablets our see market account why market right see lot now, it's still think of a And feel week we the finally, But by market.

think the the think and and expectation product we in market. more part services -- the upgrade our will we the investing strategy and our way products So to upgrade features this -- our about diversified whatever that's market successful we our will shows strategy, our That's for I customers. product that and to provide what's and of keep this

Yes.

points. few So add let me a

learning addressable market are probably the than Dictionary larger Pen. tablets of than larger first, So

either you or look larger. numbers, XXx if Xx different it's maybe So at Xx,

for experience as if AI-driven into of said, at so can are And look Whenever pen. good Pen, with to our the come we position with that, from the of like tablets that's the up we to -- with recent very also, AI good market. very swipe will years, a you can single the -- be its shares we position we reason lot our example, that's experiences quick of good Dictionary So up useful a Pen. translation And we can few take it. last scan for -- a a Dictionary like of it's the And this, can Dictionary our for I market actually PX, the so come Pen in at in be an product. very we is multiple consumers up lines hands for get we from whenever a experiences really think the

reputation, there experiences are be other product to and our our good using will in have already costs that will X have have do a we going products first will And patents, for is we that are want Things is everything. quick work and bring to one. we make favor. lower product the learning have the pretty users. point marketing the So And that to And just I That's as you seen. new pad.

already already, SKUs that's And and experienced. and our So have gaining that's more been released teams last than have faster year we year. more X because different this

chain We learning have properties, intellectual everything. know-how of hardware. gaining we and And more patents more supply more getting in the are also

of content in so building We seen Dictionary have of initiative. Pen OS in are place, that already And we ecosystem the we have we innovate as more an can providers also faster.

also that's Yes. well. So going

So leading with we I tablet to lot in achieve effort can be at from to position a team, learning of position are the a to we that, the of think good course, market. with a -- able

of more add number about sales Linda, to our back go point of and And the just Dictionary can Pens, our to spent of and you X one XXx here. almost units. Yes, see in of strategy we see if terms to that so just increase you years

I think the So is for long-term is investment. us for a we -- market think expect we tablets also strategic AI

our in tablets. we not -- And be will -- we copy smart our are that's expect our we Dictionary patient. strategy -- to successful in We Pen

So exactly special this for expect category. that's what we

right strong categories. markets. expect various our from just from lot stage, have at the beginning, we're very That's new we and feedback the at we receive -- so in this stage can we Thank to and you. it's investment of now, expectations and And demand just a positive

Lian from Huatai question next Duan with comes Securities. The

we our for saw strategy challenges. is courses In adult improving business? some the face What quarters, recent

is, given strategy factors we to There as the pandemic, question Lei improvement. entrance your is that digital get skill better their courses macroeconomic Jin. This and job. Yes, education, interest-related are graduate the face adult preparation students school courses have chance the exam challenges. segment the and from yes, such the And vocational adjust to our

a have million is the from of seeing There grow entrance profitability of number years double XX% further demand year-over-year high registers the to because higher it and and been a graduate school booming We for record higher exam. from this year X.X means XXXX, likely is growth better. number the education in the coming

our for have XX% years. As post-graduate Youdao total resumes of recruitment the campus accounted over for candidates X

college Our subject course we graduate personalized on key is factor. school service, choosing suitable entrance as a focused a know is exam and

So assistant based offer application the desk] big college data academic consulting our to recruitment. own on device performance of their tailor-made AI the students [regular service a and

We pandemic and are OMO summer experience services, comprehensive especially conditions the online camp. learning offline in the in a create

China MOOC. most the of consistent and direction especially have students study APPs we skill QX, year-over-year. improvement with focus. It China, including came Dictionary XXX% gross traffic of over University policy acquisition, the employment. increased over college for government's billings is from the digital other and boosting organic this in user of In popular Youdao terms In the Vocational is education XX

a youth learners and design in web virtual data Our analysis digital driven provide training log could a browser skill process, easily where include PC. practice on system and mainly with

been could system and and be already guidance Tutor other learners has operations by up environment convenience. also have training and in replayed. the recorded feedback system, the virtual set the online the can With

from the year-over-year see in XXX% we this system, gross billings the With easy-to-use case approaching growth QX. can of

next comes Your Chan question Daiwa. from with Candis

margin evening for congrats set been Good on solid see Learning quarter, We about that strong indeed has Services XX%. to this the very at gross actually the results. close management, of Great. of

be So trend I would wonder be for will on whether the quarters? next this sustainable any learning of margin great. following colors the the year? services margin And level in That

your Thank Candis. is you Wayne. for question, This

to seeing from quarter-over-quarter, for skill for from contributed economic quarter You're higher gross revenue improved margin at XX% services. which and our XX%, digital mainly X the the margin benefit base up around content the arrived

period the double margin experienced We service during are similar last quarter, transition, decreased reduction last of transitional year policy pleased relatively which low services a gross revenue directly we to release return we our after in got last learning gross due see a quarter. last for base In the as the the level margin to since to year. the resulted performance

with With sales launch increased digital with services million over XXX increased since quarter, QX. reached relevant quarter margin this X of the new in quickly gross our the from content along services very in RMB XX% and XX% and over

With economic and the benefit for good to enjoy our further margin year. expect new services, we gross of expansion next the skills or on higher whatever QX

very Although services But will it. revenue learning in our the are as expect long business fluctuation in run, of its as well we growth confident gross margin.

of performance the margin. from some devices from XX% around which as contributed a of XX% other learning increased Just with year, same XX for to Smart quarter, this well. gross last smart our the like gross mainly margin add In color to of the Devices higher carry period services gross margin, sales which to Actually, for gross I'd margin the

advantage has technology which higher technology the content our devices. for gross But note, learning reached brings us innovation, product be at the more has AI also good we in margin price. premium advanced and Youdao believe will smart a and achieved

your all. that's Thank questions. So you for

back the like management conference This to closing the concludes over question-and-answer turn would comments. I to any our session. for

joining again Thank today. for you once us

Relations China out you reach us Investor a day. the to Youdao If Have contact great feel any to TPG please in or questions, or at U.S. have free directly, further

The for now you Thank conference attending has concluded. today's presentation.

You may now disconnect.