Youdao (DAO) 16 Nov 232023 Q3 Earnings call transcript

Good day and welcome to the Youdao 2023 Third 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 in the beyond guarantees to and and press results cause the today's and company's are assumptions and of factors.Some to risks performance from actual of control statements this are future differ those and Such these discussion. uncertainties, other not subject certain risks mentioned materially release are could A would the general certain its is factors discussion filings of the in U.S. affect financial risk that included with and Youdao's business company of the results and Commission. Securities Exchange call, measures to only. these any The company except undertake for does discuss forward-looking update not certain non-GAAP will comparison management also law.During purpose financial as obligation today's information, required by

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

direction. is our Jin, review some a As corporate Markets; this of recorded. will us of our at our available is: Chief on Feng Lei from VP senior to Dr. Zhou to Peng webcast now over conference Dr. this Executive management strategic today Su, a call ir.youdao.com.Joining Youdao's President; Mr. turn Mr. our conference and replay will Mr. highlights Capital website the Wayne Finance.I Strategy VP Youdao's and of of our Li, the Zhou, call be reminder, being and on Officer; Besides, call recent

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

release financial basis, mentioned information record-high net to a like would information everyone achieved XXX.X to revenues continuing by year-over-year Net activities numbers is of specifically we year-over-year year. period amounted and this used based QX, Loss X.X and are the renminbi, with all narrowed presented in cash marking financial non-GAAP operations on unless on largely billion, operating stated.In operations stable I XX.X million, XX.X% the that continuing in increase begin, we otherwise same Before RMB of RMB a last X.X%. from of remind to million. RMB

for profitability. our combined making We loss-making of at could progress are QX, cover business revenues this smart towards families. various our excluding progress and an highly-valuable models, large currently first lines access unprecedented segment, formerly especially It intelligence. and results for fundamentally devices many In operating services expenses.Before revolutionized technology. artificial technology, education that schools AI represents net business their clearly let discuss technology on to the opportunity our learners, is cost from lines, becoming language looking has us cost-prohibitive but steady achieving clear

are the already accelerated witnessing domain. in changes We

advancement by very share are opportunities to our receipt education.Recently, LLMs application acknowledgement rapid regulatory technological models. the month. leading language by for in Youdao role authorities. underscores We of a in delighted excited the of playing I notable their relevant capabilities that LLM, and this of achieved Ziyue, This we is the a large with about our proprietary presented am milestone filings

coach, named Echo I users, October. language Echo. registered on Pro am front, XX Dictionary app more the Hi Youdao a to share human made way and Pen world's that stores happy product already XXX,XXX August quick first was introduced the It to On in its digital than accumulated Hi mobile we launched in has uptake.

and in alongside will business that outline features.Next, quickly an enhance year-over-year QX. thrilled to we Moreover, will XXX% driving LLM AI introduced Writing, QX. features, in introduce Beijing growth Youdao I fees continued share AIBox other Additionally, Translation to I next host in developments in key subscription translation over we more event am month and in to products

comes representing a As X% revenue XXX.X RMB at for segment, growth. in the learning year-over-year million, services

achieve growth, digital the record profitability. healthy and XXX hit ratio satisfaction user content that exceeded on million XX% in high. goal services focus margin with to to Sales exceeding QX line of gross our continue We in RMB with

quiz During quiz Students to over QX, and AI we improve an questions questions assess after which watch help million students finished recommendations released learning in X.X feature, presents results. quiz QX. instructional videos personalized

launched we time over year-over-year AI student and gross programming grew refinement assessment Additionally, STEAM by refinement for required in detailed reducing writing billings of of effectively QX. in courses QX, XX% our the writings XX%.Regarding the by courses,

comprehensive informatics learning, score we Our growth million, successfully hold Furthermore, again Children's revenue satisfaction with Net National mainly collaborated XXX.X marking high and our post-competition the Weiqi online that services due high increase have user programming year-over-year services, marketing Open estimations. X Championship.Turning XXX.X% competition see strong QX. services we Chinese online over Association historic growth. courses Xnd and once to one-stop to marketing preparation, reached the Weiqi RMB a of of and continue to of XX% quarters to provide momentum in a

The to our inventory smart data. upgrades revenue.As RMB business low We of more channel traffic to net to teams return and deploy the turn, in data revenue. year-over-year. in continued AI real-time investment QX revenues technical efforts continue have, provided were our impacted continued audience to the more sales conversion to our XX.X% technology that ad-matching by devices reduction XXX.X decline do satisfaction overall mainly The These industry-specific QX, also down a customer channels, filtering. was segment, precise enhancements improved due of to and million access leading and for in to growth more targeting reduce both rates,

in QX. Our continue channel efforts optimization will

We this would business's impact optimizations growth improve expect continued Youdao over the and channel stress Pod the embraced end Sell-Out to XX product in segment the year-over-year potential.On Listening before this these that Pen new optimization amount. front, increase conclude Youdao products long-term Dictionary profitability I is to and negative Pro the like of likely the RMB a our short-term XX% year. including device leading smart Pro, to users in of by

frequency higher XX new than Pen Youdao of among XX% Dictionary with Dictionary features flagship reflecting customers. LLM its QX, usage in over Youdao Pen features, Pro, SX the popularity our exhibited

efforts Our well. progressing are other also

we are focus top-quality public digitalization segment large applications, to big leading we to education for digitalization other products model customers. education is crucial third this For Ziyue sector we build unlocks revolutionizing which in overall and bids solutions, Jiangsu, language project novel on services a Moreover, the as delivering ahead, our growth opportunities quarter. steadily.Looking and many committed our content, aim line a is learning scale. the in Gansu, secured successfully proprietary and various in regions to Education a wider education for

on and you. Peng an is And excited financials. opportunities We innovative are products.Thank cannot with Su very our more wait serve now give about you update customers the our to to

XXXX. with attributable our of or marketing products increase investment same and the XX.X RMB representing XXXX.Net of issued period content increase low performance efforts Thank from of third a properties. XXX.X from primarily were period of Today the The the our third XX.X% parties' Net quarter marketing period online through channels return USD RMB of million, driven XXX.X same will everyone. from down or learning USD XXX.X the XXXX. to internet million, for today devices million, I RMB the revenues increase of million, USD the by of continuous further mainly learning details.For XXX.X% presenting due performance revenues be from you million, million, services million, representing XX.X period net financial increased a to advertisements with X.X XXXX, intelligent were from our press XXXX.Net revenues was XXX.X digital the services compared of increase release X.X% XXXX. our XXX.X third the the were billion, a services highlights streamline sales in from or the same XXXX, Dr. hello on encourage Zhou, period X.X% from from quarter, representing or to USD same total strong from our for earlier read based revenue same you, We RMB to smart through were primarily some third quarter revenues

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

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

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

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

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

from comes Citigroup. question The of Brian with first Gong line the Instructions] [Operator

very a have our AI on good I product. question

our Echo while. We AI Hi product for a have launched

so And for are what's have user future updates? plans there the you any So far? feedback received

mobile Echo, app in Hi the October. So launched

happy And we very feedback User so are performance. positive. has far, been very with this

in XXX,XXX the registered remarks, app users discussed As a in the prepared has month, we already yes. over

like really a can And from really of free users channels. conversation. come organic all to for it's this app. we and almost Users the are So this, through that only the month users registered XXX,XXX see phone attracted

users So they discuss they a as that told scenarios conversation the language tell topic they provides that us during from are uses for skills. they Yes. us want have the the to can receive user through pronunciation different the that language, topics helpful in improve also as how categories, the well that like also reports improve they XX and really to feedback about is also X if them of app X the their them we conversation end and feedback the to and the another mind.And choose and already grammar

the biggest, for we learning is in can sound see really lack is of environment. on the the the language product, of Echo that largest pretty language that idea high-quality based is basically, a users, idea the a behind lot the The feedback, obstacle the one. So Hi

cost-efficient Echo idea of create to models this able high-quality of the large language in is language So very that way. finally to a environment are ability we Hi the leverage

breakthrough It's will very we more growth. language point so distribution And for Hi a useful to be we user Echo. regulatory behind have another now that it's and and model language increase raised product able is is received of the it learning.And that drive approval in and underlying --

language high. model-based kind a many based great high-quality are So users' market And of Hi for not are products model language apps in really on competitive this of currently. the opportunity kind there interest is education Echo, because

window So have larger that kind we try can audience. a distribution we time a larger, do to of much to

back don't actually what talk the What significant we to best. is better the them they through Echo that.And of try The case benefits to share of them to don't being the want learn, what that to gain a of also what learn Hi the like, to Echo in they that for is pay. major too will about a Hi makes by first So next which much needs, we release year. what want come be version We it like, and what will deeper you do the track market, them of understanding users it I is to this end helps leads are update. on and

And for our Hi So we Echo into just version the to go product mentioned. according been have also update I will major pleasant quite the surprises we this on And will users time. these has working understandings. team some that the some for will

the answers question. to I your new forward version you hope sharing look soon. that we So with

The next from CICC. question with is Wang Caini

my So language related quarter? in overview learning the mind some next question you is our other provide the on Would to performance services. services of segment color

students they a have the This domestically like the trip question bit in Peng. believe last and the in I summer. the Su is quarters of in years. this little summer first we plans bit first. or this take traveling in do this X And QX, different it's summer a with will international compared and the And little all, different the

same a or less I think last lot flexibilities of the has So in [indiscernible]. the time, very take students process time to

limited So new is the also limited to that's increased the a and think decrease transition well and acquisition the that feedback from in products a cost a our like of approved now been Hi format about believe large to the large teaching our well Echo And the traditional language We language it we we that's language we we -- our period sometimes, and in take just summer business.And investment our very just right And by the it's deployed [indiscernible] the are in customer a the secondly system and courses in and margin difference.And the great like run the mentioned, think we think -- received to skills is product doctor company model. and investment and courses to technology, deploy us of have to have less in increase assistant have supported scenario upgrade so from we bit very seen content period from as transition help of as traditional performance little students. we first expect models. positive like cost. format model call that and technology as we the -- to as because our -- others I long already we the large the and the customer of can about content

performance and So confident we we that's the we And we courses. learning of think think that's kind of can for and that's trend think interactive the more in services students next our the We believe overview -- services. the question.And of rates feel my we as because colleague about about formats give our to business few more another well. different provide the of my and that learning quarters. will think comments our you content question and That's comment this the I

add to like I'd more Jin. aspects Lei is to here. in points This financial

flow from of focused the of to run. as implied First record the positive before, reached and more segment. [indiscernible] the around cash And have to we size. the we the this and we on in the seek long from new margin achieved and services continue gross profit are a health high XX% of learning is profitability learning will business one services

gives and uncertainty Zhou playing great education, by but advantages. technology, the Another point having we us our the of role in models AI costs face still language have and for as mentioned the the opportunity environment, challenges application large we from via Su advancement and great peers leading of Dr. in a is we are operating improve competition which lower efficiency face to and are continue Peng.Although

helpful. which basis very are confident on services we learning is our in a So going-forward

next is Thomas The Chong Jefferies. with from question

Can online about driver marketing quarter? of question about is management third behind the My the in substantial comment growth key the marketing. online services

Lei this Thomas, is Jin.

use XXX% jumped this We also of role net revenue in to year. A it The to from of online in our and RTA year. X business in the XX% this top application has proportion a As growth, the an began for further in QX X for XXX% grown recognition of end summer last the with After behind rate last demand upgrade promotion for a quarters X partners. of technology. our growth around The our and key the RTA on for the increasing. that's year-over-year QX, for driver our our period our online because of was primary over QX contributor played of real-time And the RTA [indiscernible] important our rate marketing is improved was capabilities. revenues API, industry compensation boosting the Moreover, RTA leads clients ongoing improvement, RTA services, important industry entertainment net advertisers growth to AI keeps at in by past over season in increase performance. the the quarters. the has QX. gaming upgrade last advertising The Xx.The entertainment increase the from in And huge year-over-year that, industry. overall an advertising or received

of various trading achieve and advertising with our effectiveness been our I AI technology. on services for and enhance client further to clients have better help provide Youdao's our advertising us growth We the our believe business. sustainable data it methods to will

next is Citic. from Ya with The question Jiang

is devices. about question learning My

introduce the Are new feedback Pen the is there any on Dictionary XX before user the SKUs end of what plans So Pro? the to year?

the talk me first bit user business little and operations feedback. So about then a let

year-over-year. actually remarks, sell increased QX amount smart So over I out by devices as XX% the discussed in RMB prepared

So internally gauge sell-out business focus when metric is our because progress healthiness. we and we a key on sales

we sales our of channels. adjusting experiencing our it our So adjusting all I goods of end mentioned sold of is channels. the period to value kind currently because sales of -- this basically, are channels, through a users

a through final sellout users. financial different at amount down can metrics. when end well bit devices are the this selling the are little displayed Despite quarter.So sellout revenue the that revenue the see our The they the by And metric, headwinds is actually we amount, you trend. the and look current for the to so

on cut of the is this channel So us. of providing will sales we sales we return good back some And investment for inventory. very that effect because again, this have -- channels not are reducing a

So device talk a user fuller the the that's now picture about let's of of business feedback. kind operations.And

instruction, and So XX coach standby digital Owing English grammar, language impressive standout was hit time. to Pro XXX human among like days users. features an

just first at language based we The models. engagement. metric mentioned features on most The X are important large I look is

question instruction introduction explain features model English with the large just Pro. So explanations. XX XX in product, language question the the step-by-step It these the and analyze language over language of powered actually notably, by generate bit And XX, a acts our the frequency in a will with large language our higher model XX% language than coach boosted which digital doesn't large have scans significantly engagements QX.So features user both future are other Pro, model a model. to multiple usage little choice user bit a when audio grammar and

translations explanations different choice the cover of analysis between points, key and these So Chinese these the positives question stages. and

would Just classroom the question in the as a teacher explain setting.

we new So users much engagement higher of features. the like really see because these that level,

are these upcoming about so So products. great.You think we also -- asked the we working

make of as and the to So capabilities imagine. to language devices, efficiency useful more to devices close person And services, kind the satisfaction. released experience effectiveness provide learning will as learning the make different as smart these of high-value compared regarding boosting possible to traditional form raising vastly with goal This is encounter when learning focusing here our what students you upcoming factors, is can and in learning in model product are teacher. the our on we devices more harnessing

exciting before end multiple have of we plans SKUs So to the this year. launch

stay tuned, give please and So Yes. shortly. will we you updates

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

joining again once you Thank today. for us

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

joining, you may and is and concluded, Thank your have nice Ladies now conference Bye-bye. the lines. now a day. and disconnect you gentlemen, for