Youdao (DAO) 24 Aug 232023 Q2 Earnings call transcript

Good day, and welcome to the Youdao 2023 Second Quarter Earnings Conference Call. 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 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, results GAAP issued measures of quarter financial today. and news For the financial -- second of quarter see third please earlier reconciliations non-GAAP XXXX the financial release non-GAAP to XXXX

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

Youdao's senior and Mr. our Wayne Joining us on Jin, Strategy Capital Markets; is Peng of and Finance. the call Executive Su, Dr. Li, Feng Mr. today VP Zhou, Officer; President; management from Chief our Lei Mr. our of VP our

to strategic to over Zhou direction. call review highlights of the turn Dr. now will our some I recent and

Thank today's participating call. in you, all and for Jeffrey, you thank

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

year-over-year net million, at increase XX.X%. a of In revenues reflecting billion, RMBXXX.X of XX.X% a year-over-year. provided by activities and from representing in stood XX.X%. RMBXXX year-over-year operating RMBX.X continuing million, cash Loss operations of marking to improvement Net came QX strong narrowed reached our XXXX, growth

on profitability. We path to are achieving clear a

services As and for leading both be our charge In R&D, by business rapidly current our segments, learning reaching marketing releasing devices, driver are progress the to growth, AI. of apply meantime, solid learning main and learning -- levels we service sales. record the AIGC in continue to online we're of making in services applications of generative education

to an by year-over-year improvement. the first in the positive an Loss key in in see XX.X% amounted marking the improving indicators. X.X% operations reduced activities year-over-year. revenues of we Net Net indicating RMBXXX million, year, trend cash operating year-over-year. In a increase half from financial RMBXXX.X to RMBX.X overall million, X%. used of half first billion, reached continuing

leading reaching For our rates of learning cash over in XX% record services high. operating RMBXXX services retention to exceeded was a the over sales digital area. million content RMBXXX for inflow segment. this QX million, across Customer

to In college addition X QX AI Application were Adviser leading Users Zhìyuàn page AI quick Tiánbào process. their to in selection tool, in our learning content, million [ph] support University students we to adopt over launched views. to Xìtǒng this an

reached over-year. rapid year-over-year. X.X the profit margin gross momentum last historical Moreover, maintained revenues an in from services by representing million points Online XX.X% growth a of the quarters. high, marketing percentage improved increase Net year- RMBXXX.X two QX,

These achievements were to algorithms. primarily by due platform AI to our ad advancements driven

specific topics technology proprietary leaders, used precise and in audiences matching AI placement. ad opinion XX%, resulting First, with accuracy identify the to key effectively more rates of we the and approaching products track

continue in driving The materials QX services digital by ad marketing gross over more to producing certain only the online content time second in improvement Second, by positive user for in production XX%, in costs drove the reduced materials which half. the services than but margin. also AIGC better and XX%, satisfaction, for not is reduced trend expected ad

add Regarding the courses primary and from June services schools front, our of XXth announced demand content the to will starting Ministry the their further to expand families. programming is that secondary this year, STEAM programming courses, This policy and for new new from expected on policy Education curriculum.

Programming hosted showcased primary the "Wisdom influence recently and in District field Beijing's the students in Youdao Xth programming. in Cup" school QX, Contest Computer for Haidian which secondary Youdao's of

retention the at Besides, performed addition, In Mind Go the courses a Sports Jiangsu approaching champion XX%. Games. advanced student programming retention won rate with and from both classes Go with well Championship in the for the QX, class

In devices total terms down year. in of year-over- of revenues smart devices, QX smart were by X.X%

June mostly & device marketing and Pod in consumer the in our a in control. budget months business, due sluggish to transitional Shopping spending years this Both for category. the and still sales Youdao Listening during consecutive recent and years JD.com period four topping sold are Youdao for number consecutive Pen We well chart both performed sales and for XXth on respectively Festival, of volume two stricter Dictionary units

Learning Listening Pen More to featuring additional August, Pod Listening Pro. Youdao "Chinese we Youdao and and Children's Cat XX In in "Collins further Listening," Pro recently, Youdao updated as users' OS, was enriching such addition, released experience. Pod support AI Encyclopedia" Reading" Youdao Big apps "Youdao Dictionary

We they believe of in as learning the for prospect are convenient, long-term and consumers. helpful affordable devices

is is drive And sales, we which and to things released be second One which two under have on optimization and focusing to marketing products, our will are to new growth more is QX. in We profitability. way.

progress our AI. discuss with let's Then

the In language proprietary in always As for Ziyue a innovations. we from starting model announced have and of have growth believe optimized leading presented deployed capabilities and proud language China, in large six we technology a applications applications, second technological We education for successfully great our innovation and large education it AIGC been our in models provider us. July quarter. opportunity

making in in-application subscription, fees. and most XXX% this one over We adopting AI Ziyue's feature I believe writing of AIBox applications, to in happy area suggestion, like we growth am correction, of report progress fastest among already of summarization. and features are the grammar subscription growth LLM and sentence in business refinement, convenient, translation solid Translation, provides has driven in year-over-year the China. Youdao the that very nearly year-over-year XXX% AIBox

launched the China talk in language spoken In improve learners well, Echo language first fun large English provides and technology, learner to acquisition. really to July, we human one-on-one. is language teaches she digital feedback very coach named the model helps understands And Echo. thanks to, also the high-quality and their

to later reviews far enthusiasm debut are Echo business drive weeks the receiving its Conference Youdao made to from became X great X Echo launches The XX ago, Echo and coming generally and AIGC more we -- Shanghai, Dictionary our the Intelligence available at so World and in the Artificial in audience weeks Pro. media. in great -- growth months. Pen expect

technology believe provides That potential ahead, the our learning among we business could for models. across effective language of summarizes operations Looking education experience, large knowledge of guidance for the integration the in subjects. verticals great QX. be throughout learning and top personalization process, This

our a high this At is year two-fold. level, strategy

Firstly, we prioritize driving healthy content growth by digital offering services. high-quality

to accelerate AI efforts and made dedicate products our of integration our services. teams both QX we into generative significant In the areas. in Secondly, progress

high. technological address in user to products users. our learning delivering The committed strengths we the products user and that capabilities, demand for and services exceptional continuously Leveraging are understanding, content of creation, remains needs high-quality our consistently

of revolving NetEase and XX, from the US$XXX the have to loan like maturity both to date facility, until proposed drawn share loans to the extend the a approved Group XXXX. facility amendment already the Youdao it, would including I million Finally, aforementioned March

million. amendment we demonstrate Thank an management. repurchase that and from the addition, by In foregoing an increase amount of the confidence These Youdao's Board has authorized Directors US$XX program additional announced the approved support to to NetEase long-term from you. the total the

Peng update financials. And to on is now you give Su an our

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

million, digital For billion, representing performance revenues the same XX.X% a compared increase period in total RMBX.X learning million, period from RMBXXX.X services from the US$XX.X the were revenues same in from driven US$XXX.X the million, of Net increase our the primarily net by or of period were sales content a strong XXXX. XXXX. same XX.X% representing with second XXXX, quarter, services or

smart a from advertisements the to from our in representing online same intelligent million, the products in the RMBXXX.X devices period quarter parties’ from XX.X% properties. attributable marketing the based revenues learning The of were million, RMBXXX.X XXXX. X.X% internet US$XX.X or period for million, down our increase US$XX.X XXXX. for services primarily demands were performance second decreased through the to million, third mainly the was Net increased increase demands in due same XXXX, from Net or revenues

of quarter total was the compared for second XX.X% increase of XXXX. RMBXXX.X same For XX.X% a million, or profit representing margin in million, was the XXXX. quarter the services XX.X% learning with second the period from for US$XX.X second Gross quarter, our for gross XXXX,

devices same period smart XX.X% was for the period for quarter in of in margin marketing of Gross for second for for online XXXX, XXXX. quarter for the XXXX. XXXX, compared margin XX.X% services with was second XX.X% with the the same XX.X% Gross compared

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

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

shareholders same million was continuing ordinary US$XX.X of million, operations year. attributable for Non-GAAP with the the million, the RMBXXX.X For year. last same period to or US$XX.X our net second last loss period RMBXXX.X million, attributable of shareholders to for million, operations continuing ordinary RMBXXX.X of compared was quarter quarter XXXX, or with compared million loss from the net second for RMBXXX.X from

ordinary per from diluted the US$X.XX. XXXX of or ADS net continuing loss ordinary or to attributable RMBX.XX, second to shareholders basic RMBX.XX, was attributable the diluted continuing loss from second Non-GAAP US$X.XX. ADS and was net for shareholders for per quarter operations operations quarter Basic and

RMBXXX operating Our by the million, net quarter. was US$XX.X for continuing second or million, cash provided activities

RMBXXX consist deposits, learning liabilities, totaled the deferred our XXXX, of US$XXX.X the or XXXX. the investments cash were services, our compared million, as RMBX.X RMBX.X time million, from Looking end at which sheet, equivalents, period, balance short-term billion, with December of cash, At generated June cash, revenues our US$XX.X million. as our XX, of and restricted or of XX, contract billion mainly

prepared would Operator, your our concludes please for your call the you ahead. now remarks. go This open We like attention. to to questions. Thank

Brian first will And Instructions] Gong question [Operator from ahead. with our come go Please Citi. today

half Good on evening will our you. applications in management. plan the will year, business launched I a Thank AIGC technology. Thanks impact be this for have taking our second they very on on view? have in quick and one my of What questions. AI what your

language large proprietary Hi, Ziyue, in Yes, our model Brian. is we Feng Zhou. Yes, for this education announced July.

We both are growth. breakthrough short-term this and drive to leverage future looking technology to

plans So for we and have for coming the longer months both also the term.

year, six So in launched human the Echo. we've named short-term, AI and coach applications the Translation, including language digital cetera. our AIBox et already X.X, for

line and devices So more new work deploy of these applications and first with business start us of apps the capabilities. growth is these to services, drive for our to to

in QX. is as growth it in early So fact, already driving as

AIBox coach over and Pen the first language Youdao X.X of And this subscriptions. base XXX% model drove [ph]. We've as coach Echo in discussed example, large already latest For language Dictionary Pro, nearly year-over-year in grammar growth XXX% is in Echo, zero launched launched translation instruction of also month. in subscription with our human we QX English the human feature digital earlier China. just language XX fees year-over-year March growth

groundbreaking So this lot liked is feedback. from our product. by is a our a It customers

first In the also instruction is its AI Grammar of in our devices. kind learning feature

new engaging. really two us these tell helpful really and they that they Our features users like are because

We we will on them features continue example, months. launch to coming over and on the other upgrade plan to platforms, these for monetize And phones.

features will too. be other phones and on Echo So

by been of AIGC's because strengths to observation helpful. products for true is growth that products pay This from willing of the they're like tremendous Midjourney the be One shown consumers ChatGPT. them, has to and of really are our and useful

model to be could directly they go indirectly need products, to instead feature not through So monetize these the we one. day do kind use of from monetized

So, cycle investment this of shortens products. these the

plan help we we in We're for. new of our only grammar, English other language that there launch based that this M running AIGC applications also other the that applications. really There share more can not provide subjects AIGC aspects are learning entirely I am are with, and to happy QX year. should to products

more now familiar have work applications. are teams these accumulated -- language the with Our experience substantial in and how their models

quickly more applications. So we are to and able build iterate

year. this QX in come will applications more So

the of a project. So off we in good short, to are start

entered the early already it we So has market long-term and close, driving and great is it potential.

AI to of of industries, more the as our as opportunity productivity further a technology to know, well potential we lot increase transformative and it learning looking for process. as allow the represents education ahead, all sector, education much has a the So overall generative other the personalized

the So we our -- are aim future in also to growth. drive with studying early long-term

purpose, that is basic important. technology what's we more the for So believe is important scenarios. the application And LM

looking we're game, and in our because a at different into scenarios education we are As more the of lot teams early have experience. the

we we in already the can So this we maintain believe enjoying area. lead that early have

bullish thank large keep And you. education. in combining innovating about models So era. overall, Yes, we language we this will are in

very That's helpful. you. Thank

Please Our ahead. come next question today of CICC. will go Kelly Wang [ph] from

questions. my management. Good Thank Wang is for taking CICC. evening, Caini This from you

Dictionary things Pod Pro, the smart terms month. Pen Youdao earlier in So Pro XX this the we have listening released and of devices,

an this more a the in us new feedback devices? Thank also, the So quarter, saw you on slight revenue this which a mind would this? this of And might for sector give you. devices provide maintain prospects we decline does the user in smart update business confidence long-term in management smart still as color on

This thank Feng you. again. Yes, this Zhou, is is

XX that Pod Pro this launched you As earlier Pen mentioned we Youdao Dictionary the month. and Pro Listening

quick provide So a let update. me

this analysis five ultra features language and flagship product. long XXX the instruction, human series. popular For Pen, three and most grammar video, time, day, the English Pro popular coach our the is were standby lab XX test from Dictionary And the

features from user very got these popular features The most four we feedback. the liked are these users So much.

that among the the what's language exciting is popular most for is AIGC us So coach actually features.

number the feature. three It's

it's the So popular the most of one features.

by of for by the So XX, -- the we're up than over XX August, first our more activations that days were Pen happy to of Dictionary XX% year share new popularity and XX driven Pro year.

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first is this the same That's also in last for higher activation XX the year. in period So year days than August.

in discussed released devices prepared will we be And have as I remarks, QX. in new to

QX So we year. are our this bringing new customers to more forward looking in products to

new product. So quick that's on a update

over affected the Now market although the the demand thinking in regarding electronics cycle. the weakness -- let's devices, consumer compared some to discuss due other current The macro was mostly our for Recently environment. learning extent. also to industry to exhibited smart relatively resilient categories

monitoring We optimizing are continually market conditions and the our operations.

for QX on return profitability. out satisfaction and costs. user our and user satisfaction QX, investment moved QX, now we we focusing and In profitability. things, and reduced on are sales low Right of channels Two

also at lower objectives approach profitability. year-over-year this towards believe So overall slightly the the to device right good our contributed is actively XX companywide new and the example, for growth price us. given We're experience, because, low We moving very and this Dictionary profitability RMBXXX, of very points revenues. this product market, sustainable in Pen one. relatively for The good price has the a adjusting also is priced

one of So example adjusting price covering, this cover. kind our points is we of

So the now, XX along is popular very XX with very Pro. popular the right flagship

So that's of summary current practice quick regarding smart operating a our devices.

our And and the costs this user of process very best importantly, focusing we R&D actively and business, not discipline. products, absolute by growth. also, with with satisfaction on We're also all doing scale sales driving profitability our and are marketing managing

indicates this a rate, the observed ahead that relatively I few growth. significant to size learning over is overall trend the for opportunity market long-term, the last the penetration do believe there. representing upward have years looking market in Now, growth devices And a low

are about this a report to base, to from opportunity. be in is in released brand devices our like strong question. The Yes, large design a this in and answers also increase the language expansive RMBXX.X of by is We Society estimated long-term to learning advanced [indiscernible] China, and of according size in models. the July slowdown leading the believe we hope Internet your is poised research technologies Yes, RMBXX.X that commitment optimistic Youdao year. to I capabilities, XXXX. an temporary, space XXXX product market to billion so the user billion with projected

features released comments. only year. think efficient the language. is added we learned address most added Yes. or language I'll to features -- of it to English they a we not with used functions most It's the learn the the efficiently. this we one Pen just And more function Dictionary as program service the Caini, XX time instructing Peng. of the because and and the will interactive after about point also in past That's students is And only Echo, right the And totally the different program. like Dr. innovative, be the Enhance now Zhou's student Pro we grammar well Dictionary the hardware Pen innovative think all the -- the contract training useful dictionary as learn same the for when compared

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So pathway. compared with will different we the totally [indiscernible] think be products about

expect still the to about the hardware. [indiscernible] our you. into models are language lack of absolute of in mid-term. large our more features confident Thank can in products, we we automation So And future we enable

yes, Yes, later QX. more I mean, exciting Yes. products,

we forward Thank clear. you. them. to it. And Got look very That's

is question Our Jefferies. from go ahead. Please next Thomas Chong of

revenue the half in key Furthermore, from My the Thanks, is this quarters. year? what three my the What rapid the for behind past are later of you. marketing driving over the Thank direction side. taking questions. services online for management was good regarding growth Hi, online evening. the question practice marketing

online Jin. is growth. services has fourth which already robust a marketing nearly with quarter, growth online for of And The two is QX. QX Lei have a drive that RMBXXX exceeded the the million. factors three for mainly there surge the quarters are in Hi. Internally, revenue This row XXX% marketing

margin Firstly, improved the the major accuracy advancement reach AI [Indiscernible] has our users platforms. platform. various the of technology of effectively across and can ad

their relevant deliver clients nearly help faster allow the accurately and to us to identify Our accurate of AI technology use with of rate the QL associated reach and achieving audience advertising XX%. enable This processed us accurate. more [ph], highly target streams our

improved ad Secondly, more we we the people and advertising young data based consumption Externally, gaming, under abilities goods. and analytics in sluggish and despite cosmetics XX convincing This that [ph] is can enhance a environment, strong the platform. aged still and and wellness of more fast upgraded performance. materials consumer there optimize moving resulting XX advertisement our between the consumer among a in traffic effectiveness and our on

Our ad clients of purchasing to would young capitalize like the intent people.

are a people our we Youdao, for products, deep and using lot young them. understanding a As of of have

focus half the two year, directions will we In second key ad. on with

will we demand. focus strong on ad a Firstly, marketing. is oversee This

in and to With capabilities recommendation worldwide, reaching reaching [indiscernible] technology language We and brand countries translation, directly resources, billion experience in in-house intra our have regions. this AI connect Those our network more expansion. terms are XX and the in Chinese X overseas of with X over advantage [indiscernible] field. users than we million can

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ahead. today question Daiwa. of go Candis will Chan come next Our from Please

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Great. Thank very much. you

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Securities. from for questions. Duan management. evening Lian my Thanks Huatai taking Good

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AI ongoing the R&D half expenses investments result increase year. of in a in in in significant With second this the

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education not believe we investment, we prudent it is for our continue all is more R&D of focused on investment terms widespread In and and are scenarios.

just our about investment in in instruction from large Zhou, applications As fixed [ph]. on as language based translation such and recent an AI mainly English AIGC Dr. grammar focused mentioned

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technologies applied devices. in AI smart is planning services been in such and learning and our has Youdao implementing technology, widely

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the continue of expect the to effectiveness application side improve. will We

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perspective those expense R&D projects, that so to half expect which we preferred Thank investment all AI. eliminating significant example, can savings helpful. project. the year, the our will you. year-over-year we increase For AI a allocate we expenditure is R&D do unclear overall second Above on in enhance not in in But

Thank you.

I to And conference for that would comments. any closing additional concludes the question-and-answer like session. the over turn back to or management

again Thank once for you joining us today.

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

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

may now disconnect. You