• Net Revenues: RMB1.3 billion, a 9.5% increase year-over-year.
• Operating Cash Inflow: RMB250.2 million, an 88.2% increase year-over-year.
• Loss from Operations: RMB72.6 million, narrowed by 74.9% year-over-year.
• Learning Services Revenue: RMB643.8 million, a 5.5% decrease year-over-year.
• Digital Content Services Revenue: RMB403.3 million, a 6.8% increase year-over-year.
• Online Marketing Services Revenue: RMB511.2 million, a 68.4% increase year-over-year.
• Smart Devices Revenue: RMB166.7 million, a 25% decrease year-over-year.
• Gross Profit: RMB636.8 million, a 12.3% increase year-over-year.
• Gross Margin for Learning Services: 60%, up from 57.4% year-over-year.
• Gross Margin for Smart Devices: 30.3%, down from 35.8% year-over-year.
• Gross Margin for Online Marketing Services: 39.1%, up from 31.9% year-over-year.
• Total Operating Expenses: RMB709.3 million, reduced from RMB856.3 million year-over-year.
• Net Loss Attributable to Ordinary Shareholders: RMB99.5 million, narrowed from RMB299.2 million year-over-year.
• Non-GAAP Net Loss Attributable to Ordinary Shareholders: RMB96 million, narrowed from RMB283.6 million year-over-year.
• Basic and Diluted Net Loss per ADS: RMB0.85.
• Non-GAAP Basic and Diluted Net Loss per ADS: RMB0.82.
• Net Cash Provided by Operating Activities: RMB250.2 million.
• Contract Liabilities: RMB1 billion as of June 30, 2024.
• Cash and Cash Equivalents: RMB568.5 million as of June 30, 2024.

• Warning! GuruFocus has detected 7 Warning Signs with BTRCF.

Release Date: August 22, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Net revenues reached RMB1.3 billion, growing 9.5% year-over-year, indicating strong overall financial performance.
• Operating cash inflow reached a record level of RMB250.2 million, an increase of 88.2% year-over-year, showcasing improved cash management.
• AI-driven subscription services maintained rapid growth, with total sales surpassing RMB60 million, marking a nearly 200% year-over-year increase.
• Online marketing services segment achieved net revenues of RMB511.2 million, representing a 68.4% increase year-over-year, driven by robust data and AI capabilities.
• Continuous product and service upgrades significantly boosted retention rates, with Youdao Lingshi reaching over 70% retention in Q2, a record high.

Negative Points

• Net revenues from learning services were down by 5.5% compared to the same period last year, indicating challenges in this segment.
• Smart devices segment saw a decline in net revenues by 25% year-over-year, largely due to an unfavorable product mix.
• Loss from operations was RMB72.6 million, although it narrowed by 74.9% year-over-year, indicating ongoing profitability challenges.
• Gross margin for smart devices decreased to 30.3% from 35.8% in the same period of 2023, reflecting pressure on profitability.
• The company faces intensified competition in the education sector, which may impact future growth and market share.

Q & A Highlights

Q: Given the intensified competition in the education sector, what is Youdao's strategy to maintain its position? A: Peng Su, Independent Director, explained that Youdao plans to focus on customer satisfaction and retention, which have reached industry-leading levels. The company aims to produce outstanding learning results and apply more AI technology in its services, such as AI-based college admissions advice. Additionally, Youdao will continue to innovate and invest in market channels and branding to enhance user experience and reduce customer acquisition costs.

Q: What is the outlook for Youdao's online marketing business in the second half of the year? A: Lei Jin, President, stated that the outlook remains positive, with expected continued revenue growth driven by robust data accumulation, advanced AI algorithms, and expansion into overseas advertising. The collaboration with NetEase Group has also been beneficial, improving monetization rates and providing more predictable traffic resources.

Q: Can you discuss the commercialization path for Mr. P AI Tutor? A: Feng Zhou, CEO, highlighted that Mr. P AI Tutor serves the home learning scenario and has received positive feedback. It is the first all-subject AI learning companion app for K-12 students. The company sees subscription fees as a scalable monetization method and is exploring other avenues like smart devices and B2B licensing. The app's popularity and potential for growth are promising.

Q: What progress has Youdao made in the non-academic tutoring market, and will there be increased investments in this area? A: Peng Su, Independent Director, noted that both language screening and logic thinking courses have seen over 100% year-over-year growth. The company leverages AI to provide comprehensive services and high-quality content. Youdao plans to emphasize high-quality development in non-academic courses and may increase investments if clear opportunities arise.

Q: Will Youdao achieve profitability this year, and can it be sustained in the future? A: Wayne Li, VP of Finance, expressed confidence in achieving full-year positive operating income for 2024, citing strong profitability in core areas like digital content services and AI-driven subscription services. The company has improved operational efficiency and financial performance, which supports sustainable profitability in the future.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.