Youdao (DAO) 14 Nov 242024 Q3 Earnings call transcript

Good day, and welcome to the Youdao 2024 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, sir.

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

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

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

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

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

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

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

on renminbi, that everyone to based I unless are begin, stated. we Before like numbers remind would otherwise specifically all

increase the X.XX a revenues third billion, quarter. thrilled are an X.X% to reached RMB We for quarter marking Net announce year-over-year. outstanding

first RMB from from Our our operations XXX.X of year. third compared a new for remarkably. the profitability Income income quarter operations. with record million quarterly This sets in same a represents last profitable and loss reached XX.X period million improved RMB

to achieve track operational on this are year. full year profitability our We first

to Additionally, period operating year. million, XX.X compared the same to of XX% narrowed cash last outflow RMB an improvement

major Net high-demand and let's customer primarily in segment to continued yielded in million, lines. business and summer. the our focus of low revenues Services QX. overall Notably, on down meaningful a retention the from review RMB services Now These the revenues RMB return developments reduction of acquisition and operations this learning profit. is our were XXX.X courses, XX.X% proactive costs million. year-over-year, services by due were Learning significantly that segment, across to Within improve. expenses revenues health digital during customer content our XXX.X Therefore, operating financial generated services, net online the covered improved investment

Our learning the knowledge products team our targeting focused library students improving XX,XXX levels. expanded Youdao nearly Lingshi. to of video of different on We

advanced the around and question mistakes, doubled collect we questions our Additionally, Leveraging XXX,XXX experience. adding language bank categorize users' model, questions. can large to our AI personalized to learning automatically enhance new now

a developed welcoming learning learning new small that our AI recommended with This provides counselors experiences, class personalized quizzes. and also and by the plans released to learning leading high rates. monthly We experienced in students refinements including study increase in motivating a delivers X In AI point of retention conversion and great meantime, use writing continued results the Literature expand QX, rates. percentage to experience Youdao

years. at coming to outcomes learning for high-quality service our lies strong demand a deliver expect online services in The success key sustained ability to learning We in the scale. and

rates quickly have improving innovations as significant customer retention evidenced is progress room substantial online further by While we in innovation. still feedback, positive and there learning for made

rapidly, million seventh learners forward approaching our online demand than consecutive years grow AI-driven subscription learning remain year-over-year in our families at in XXX% We robust. Sales now have serving of to the solutions growth. continued ahead. we marks disposal innovative Fortunately, tools representing growth. and customer over QX, services look new in more AI in RMB XX% the of year-over-year the segment XX quarter to Learning This Services and

new Youdao translation front, support, in Translation. XXX images On document Youdao translation we includes AI processed capabilities and has multilingual and and To updates Dictionary date, released These upgrades customized input documents. service multi-model documents. translation million our the AI product for glossaries over

and powered voice simultaneous feature It XX X Apple also introduced Dictionary. seen AI Dictionary Youdao the its ranked over by Echo has next-day recognition prominently ranking top model Store application in first our on the prestigious large users an homepage. popular Youdao also Ziyue. the most gained renowned paid chart AI-powered retention quarter aicpb.com. feature by quarter App for interpretation this This in featured on has feature Hi become million in and was a language

Following monthly P in AI an growth Mr. this reception, users third Tutor and a compound nearly received launch, exceeding quarter million with enthusiastic the XXX%. XX rate

an representing ad and RTA Gross For over XX.X% was into applications XXX% and year-over-year. up percentage online net to year-over-year. performance, and year-over-year. data reached expansion marketing XX.X%, XXX.X historical to leveraging to increased driven increase million a points This revenues RMB growth AI services, sectors margin new mainly in X.X our of increase pushing QX, by an revenues high optimize

of fueled year-over-year. overseas related revenue in up ad driving in in demand industries for we revenue over third Additionally, growth, accounted observed Robust ad KOL overseas which the XX% developments the advertising, quarter. by and games positive approximately XX%

upgraded real-time quality multiple We control audiences. QX, integrating our potential for monitoring dimensions, in also advertising optimizing system across identifying and anti-fraud

reached Alongside since and QX, enhanced ongoing highest also improved Smart net expect significantly support online quality XX.X%, million health up our marking gross rose growth, margin long-term level XXXX. upgrades to the revenues In this We segment, has with in the algorithm service this its growth revenue since segment's reaching services. XXX.X of highest to year-over-year and XX.X% RMB overall XXXX. the Devices marketing

XX million language large product Mr. in as support camera on advanced to tutor the pen, new net industry further P word comprehensive success, functions product new Building surpassing the quarter. In a XX year-over-year upgrades, performance the XX% accuracy of translation. database that generation AI Notably, translation. machine tuned learning has online latest fourth series supports of neural income stay LLM and details. XX over Pens flagship become the and The strong device launch for growth terms products in the pleased AI high-end an device our for This such launched to featured AI model of first with the Pro. a we QX. drove I'm our this that will offline Dictionary translation we announce in Please dictionary

our summary QX. So of the that progress in is

lines the from million making By meeting cumulative X year. the end this confident RMB of had rapidly significant period across same operational XXXX. now earlier businesses on discussed the loss I'm achieve improvement With year in key achieve we third income quarter, the streamlining integrating from our will and significant profitability. are that results future AI to technology these for goals. XX.X generative year. reached call RMB As operational profitability operations this year on objectives robust operating competitiveness, this a full with operations our XXX.X last both enhance have from in million, towards to business strides compared full QX, focus year, and we we

digital implementation services, enhance devices. large Ziyue, In opportunities and Looking expanding also support models, content to explore AI-driven of online continued the marketing language to we ahead, smart internationally and services new to experience while to success. we services, committed our user value create our aim are subscription through domestic better greater client

over financial the With into financially, call you. I our our strengthening dedicated to Su with to you Thank insights provide performance. profitability. prudent we will that, more Lastly, remain turn operations Peng to and detailed

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

on For from the XX.X% has The period from representing Net investment decrease X.X approach, efficiency same year-over-year services of revenue through the commitment investment a third-party million million enhance prioritizing more from representing same in XXXX. a internet strategy The of performance-based our return quarter, third for a XX.X% popularity of from This XXX.X million, Net the were decrease our or in million XX.X devices engagements. XXX.X or period our XX.X% selective or XXXX. resilience RMB by customer driven cutting-edge same online helped and overall RMB USD by business. the XXXX. revenue reflects learning of products of higher acquisition XXX.X increased our our Youdao advertisements properties, from to increase USD XXXX. mainly launched period our RMB same the were of a revenue the ROI demand USD driven which up or our to increase net period from were was the XXX.X million, newly was X.X% total attributable billion from were marketing million, XXX.X smart the was continued technology. primarily million, USD XX.X AI which revenue representing services increase Net RMB XXXX,

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

expense total for RMB XX.X we period third million reduced our year. the XXX.X operating same RMB with the million For XXX.X last to quarter, compared of million USD or

million marketing XXXX. the XXX.X RMB compared the XXXX. quarter more expense XXX.X and detail, of with expense and development Research XXX.X Looking to RMB third expense million decreased with at RMB million in of RMB in were our declined sales third XXX.X in to million compared quarter

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

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

million activities million in used operating cash XX.X RMB the net third was Our for XX.X or quarter. USD

Looking at balance our sheet.

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

Citigroup. Instructions] The that from Brian of have first [Operator comes question we Gong

I a very have quick question.

the learning noticed have our can we right? service increase investments increasing So planning many have to in our in peers been business, that the are this? on strategies cost-related sector And our the We investment share management future? in of

you, Brian. I first. Su handle Thank will question is the This Peng.

a with achieving are the acquisition services, scaling for back during -- positive near the customer demand notice, success. summer, the think future, in that definitely focus healthy return summer our full year on is more efforts essential Lingshi and I development sustainable as priority the we operating this our the Youdao profit you business. last strong on and for the during And of which is strategy believe aligned long-term we may low strategic

there some long-term optimistic about Although are short-term growth. and remain headwinds, the medium we

of will outcome. combination Lingshi. of strategy. believe we the unique providing learning online paired personalized We health in Through learning services, our enhancements users believe The comprehensive services that over categorization products offer our advisers. and shares learning and increasing long-term to We and diagnostics, learning a in experience We including years. products consulting consulting expect upgrade, the financial differentiated flagship for outcomes. the Ensuring the and students' learning from comprehensive development AI we improving videos midterm improve coming ongoing college tiered services. to one and AI and learning the particularly admissions the service, the long of collection that high-quality strong our learning sustain AI learning the users education, study planning, is the term primarily to enabled the facilitate demand business, the class services efficiency come think services, AI market the their the our AI will product to learning learning the the video, and creates and path also mistakes, recommendations and achieve of We

the driven our think that's by of AI. services I the generated kind and full

year. finished over for color XX% about has X% our We has Lingshi, will loyalty, retention bit the give over, with definitely same the period invest and The It's users' rate by up upgrade hit evidenced a which the to strengthened services, compared products quarter. in you the little for retention last in although period retention about continue the just not already now, current first have in rate, of yet. almost we our

think hand, video and will continue on our users' Lingshi next I enhance upgrade focus ahead, confident and development On capabilities leveraging I'm our experience. we personalization, prerecorded in for the our Looking to one AI year. learning, learning

On the we hand, service will explore customers. offering offers offline to and opportunities, more our other

I the point, the term, will last total companies. customer long think upgrade and And also on increase the in product you. the Thank we investments the expect following the the priority. that's acquisition of strategy our we

Feng. Zhou is This

marketing Let for in me its the acquisition, Yes, Lingshi, very point. and particularly performance. Youdao summer and for add growth so one is important customer

there summer. on this some this challenges front So were

and and So fundamental. that hand, satisfaction important on more the believe are we more other always customer retention

retention our is find will business satisfaction the and as to always grow I our So base. the leading, leading, grow as student we is believe long ways

we've retention. That's look reached good we at If you just shared, already Peng the -- number already period, recent just competitive. that very Su XX% retention and so

Thank So future and foundations. key I solid the growth building we think that are on thing is you.

we next Thomas next Brenda question The comes Zhao Jefferies. we question comes have from have of The of from Chong CICC.

the sector We Can are resumed be has pleased in growth third growth we to see expect year-on-year that the to smart this devices sustainable? quarter.

Yes.

third So RMB year-over-year. of the quarter, factors up devices reached device revenue. net from revenue smart in to million the XX% believe several rebound XXX contributed I

one outcomes strategic reorganization. The and is our channel focus first positive from

them decided review had that to well. really this year, to need earlier business, work. of fewer a do So device we we and focus our We team's want we the do and things

really and net suite camera Mr. tutor with focus has The increased dictionary XX the since levels product widespread more and AI and new operations, in Pro reached XX then, the like are turn So paid margin QX. and our a positive smart new the drove users. successful on P reception well exciting from margin This our AI acclaim received gross off in one think Pro high-end and AI The features particular, I of XXXX. equipped revenues focus of most have in pen the gross of devices revenue Hi since Echo, products of ever. launches XX highest

Double and X top for XX, Furthermore, our both shopping highest and in achieved also pen volumes dictionary row. spot in single category dictionary That the Double product newly has launched in the our festival, of again years recent sales the its Tmall in category XX XX I sales share pen secured JD.com. during its consecutive is on on a JD.com. So terms Tmall want to both Pro

dominance outstanding with continued our I accomplishments, that reflect in these performance. think, So the market

them the So fourth continue smart to quarter. devices, grow in continue the in revenues to quarter, expect of we to fourth perform

important it's or is product I The strategy. enhanced the think capabilities. team the second kind The much more of than factor team,

pressure and faced in lot changes leading of since ups and So our In to year, last re-planning our particular, seen device reflections, we execution. much a downs. team has

to our such remarkable resilience. on I'm challenging strategy. in They that the asked executed shown has and a see So pleased right team questions environment the tough focusing new

the think functions, across marketing. sales I design, supply really So well chain, R&D, including executed and team product

to that reemerge future. go So any in recovery likely was succeed leading team the and stronger able is to of significant to the business. believe I more through downturns a

new from in product scheduled product as So with new pipeline in products well. more to QX we expect a QX a looking perspective, ahead, launch

So and features in high-end employ language whole mid-range S differentiation will is that And product model products, including strategy terms emphasize series, pens, of to and effectiveness X-Series. greatly more dictionary for the cost we products, quality the our A experiences. for product for line user large enhance high

We are offer more convinced come. for to for years that LLM has a lot education more products to

into So more quarters. the the coming the team products integrating of will be such features busy in

right you. the to believe, for are track, profitability better So I device more leading the health we on financial and Thank segment. products,

have we Zhao question next comes from Brenda CICC. of The

growth service momentum. continued marketing see to online your strong noticed I

However, in last should growth quarter year, business potential base high future anticipate business? of where advertising the fourth as we this the had a the of

Lei. and primarily in revenue Jin from marketing ongoing is AI, for Net X enhanced rapid quarters, online applications. services growth driven has by including recorded advancement This optimization algorithm data

is team's execution our Additionally, improved. steadily

Looking ahead, domestic term. significant the there anticipate I international a growth to we that potential following medium for both the in and in sectors. market, advertising opportunities substantial In believe long domestic is

First, as this In vacation, a we drove media. QX. the AD gaming such online revenues high the historical gaming industry, social in and entertainment summer to

XX%. monetization enhanced analysis addition, data by models over algorithm have optimized improved In and rates

marketing drive advertising Future tools. we captured AI in language demand tools budget quarters. companies their the the the last the development later tools, half the for year, to large is for Since growth during last of AI of had on domestic this major a models rapid rapid tech excited significantly Second, to increased trend AI future. several

gens became Recently, a we of industry. automotive in stimulating the half benefit this first in in with for demand. in short-term primary to services the challenges. the a global year. the is certain cooperation have initial advertising our meantime, tech TikTok solid business near increase growth driving future, agent likely international also for foundation the we anticipated are partnership future In global automotive formal expected established for our with being the policies intention the consumption expansion. and several sectors, related Third, faced In advertising market, The

fourth of not recent as very festival. mentioned, revenue the e-commerce example, base the the set quarter AD so XX Double shopping year, during you in has a For robust been high last and advertising

on updates uncertainty addition, In macro added overseas factors have recent advertising. our to international

focus perspective, to current aligns the a year advertising the under metric strategic AD you. broader is financial in our remain the The fourth health profitability expected and conditions. from solid Thank of with key However, a quarter. for maintain objective a the the level

The from Securities. last Zhang question ] we have Bo of comes Huatai [

[ is This Jambua the for outlook the My ]. what is is about question fourth management's quarter?

you, Thank Jambua [ Wayne. is ]. This

content advancing As digital marketing to before, generative future. AI-driven near full on we we have profitability achieve in operating on year and the services particular services a this year the emphasis services, mentioned focused online with subscription AI

Net For in achieved XXX this we strategy the financial RMB quarters very same is with improvement significant around first of of that period The achieve year, plus million this past for X loss will revenue the representing around cumulative from demonstrates path, technology RMB positive our quarters that right objective profitable operations significant are strong of XX% We last around the and confident on million year. AI we the have we improvement. from XX year, fully from education the year our income compared performance very side. operations reached RMB X.X seen increase financial X of this billion, around year-over-year. of an

integration generative business around technology the Looking of will AI to to continue our competitiveness. forward, enhance we facilitate

years, is First, of services. medium- the long-term the robust coming persist potential demand into we well our to are growth in learning The to online learning services services. for confident learning and expected

scale. to our Our services at success high-quality on ability learning will and deliver hinge outcome

The and our for sustain years. robust, As services team remains priority. in mentioned for to the demand been in we are while subscription new business user enhance school business. In previous business daily to and We've services, school strong advancing avenues function competitive our the learning, instructor likely best work high advantages strengthening questions, our high in which incorporating give exploring coming confidence life. in the in experience current of committed the The years. the AI top school technology is in is chain high building AI advantages us learning to AI-driven offering

AI-driven to total fourth the we expect maintain the quarter, services still in rapid sales subscription year-over-year growth. For

services. marketing online Second,

advertising of profit We have growth the a continued and quarters. marketing X center. In cow as crucial term, witnessed profitability serves business services cash improved and consecutive online rapid near the for

the explore growth term, to strategic domestic market. we Over long in continue the area, international and will both

as As they said, we arise. will provide updates on developments significant

one Third, of smart We AI most as the integrated devices treat opportunity recent devices. exciting years. smart of

for tablets smart continue smartphone devices is scenarios, to many While the usage dominate traditional shrinking. market and

into of creation user However, AI devices paves devices larger than demand. than way the to tablets smaller integration innovation, of for or smartphones the smart the either including meet

new In smart addition, unlock edge-based LM opportunity for devices.

supply mutual of our today's users. in devices the in Dictionary strong integration as extensive device chain translation devices first provide support tapping to channels sales ], remarks, our Pen surpassing further to our we prepared smart XX translation foundation [ As segment. in smart and the better offline the edge-based industry series long accuracy, potential growth become learning machine for into a with discussed our have sustainable online edu-reasons LLM serve management experience In in LLM the run, are

planning underway. for our year is Additionally, next

earnings Thank call. to share insights the next We in looking you. more are forward

bit This me information. more Zhou a little is Let add Feng.

performance that improved If overall the year. can at and financials this financial year, this year you look you lot see last we a our

the year growing right profitable year. and business track We X operationally full the and for quarters far on are the X so and this QX or

and our subscription AI great In our having business. products high-growth addition RTA this our AI-driven an in a positive year and These that's these impact language Putting international since on model new year, discuss immediate last means high-end calls. future and more ads, highlight; bet focusing already growth courses, the also and online been a future, in education will our have and on we working. dictionary ads, also plus really will opportunity to strategies created this have it like services, applications exciting pens, XX X drive the to that, we is streams large new together, is series. KOL revenue strategy have

aiming AI in to lead is in Youdao Thank you. China. So plus education

question-and-answer session. to additional I That Jeffrey for Wang closing turn conference would back or now the concludes our to like any comments.

today. joining again once for you Thank us

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

Thank for you, sir. concludes Thank and Ladies gentlemen, today's that conference. you us. joining then

may You disconnect your now lines.