• Total Net Revenue: RMB1.6 billion ($224.1 million), a 2.2% increase from Q3 2023.
• Learning Services Revenue: RMB767.9 million ($109.4 million), a 19.2% decrease from Q3 2023.
• Smart Devices Revenue: RMB315.3 million ($44.9 million), a 25.2% increase from Q3 2023.
• Online Marketing Services Revenue: RMB489.4 million ($69.7 million), a 45.6% increase from Q3 2023.
• Total Gross Profit: RMB789.5 million ($112.5 million), an 8.2% decrease from Q3 2023.
• Gross Margin - Learning Services: 62.1%, down from 67.8% in Q3 2023.
• Gross Margin - Smart Devices: 42.8%, up from 42.6% in Q3 2023.
• Gross Margin - Online Marketing Services: 36.3%, up from 31.9% in Q3 2023.
• Operating Income Margin: 6.8%, compared to an operating loss margin of 3.7% in Q3 2023.
• Net Income Attributable to Ordinary Shareholders: RMB86.3 million ($12.3 million), compared to a net loss of RMB102.9 million in Q3 2023.
• Non-GAAP Net Income: RMB88.7 million ($12.6 million), compared to a non-GAAP net loss of RMB67.3 million in Q3 2023.
• Basic and Diluted Net Income per ADS: RMB0.74 ($0.11).
• Non-GAAP Basic and Diluted Net Income per ADS: RMB0.76 ($0.11).
• Net Cash Used in Operating Activities: RMB85.4 million ($12.2 million).
• Contract Liabilities: RMB839.7 million ($119.7 million), down from RMB1.1 billion as of December 31, 2023.
• Cash and Cash Equivalents: RMB489.4 million ($69.7 million).

• Warning! GuruFocus has detected 2 Warning Sign with BOM:540701.

Release Date: November 14, 2024

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

Positive Points

• Youdao Inc (NYSE:DAO) reported a 2.2% increase in total net revenue for the third quarter of 2024 compared to the same period in 2023.
• Net revenue from smart devices increased by 25.2% year-over-year, driven by the popularity of newly launched products.
• Online marketing services saw a significant 45.6% increase in net revenue, attributed to the demand for performance-based advertisements and investment in AI technology.
• The company achieved an operating income margin of 6.8% in Q3 2024, compared to an operating loss margin of 3.7% in the same period last year.
• Youdao Inc (NYSE:DAO) reported a net income attributable to ordinary shareholders of RMB86.3 million, a significant improvement from a net loss in the previous year.

Negative Points

• Net revenue from learning services decreased by 19.2% year-over-year, reflecting a more selective customer acquisition approach.
• Total gross profit decreased by 8.2% compared to the third quarter of 2023.
• Gross margin for learning services declined from 67.8% in Q3 2023 to 62.1% in Q3 2024.
• The company's contract liabilities decreased to RMB839.7 million as of September 30, 2024, from RMB1.1 billion at the end of 2023.
• Net cash used in operating activities was RMB85.4 million for the third quarter, indicating cash flow challenges.

Q & A Highlights

Q: Many peers are increasing investment in the cost business. What are Youdao's strategies regarding investment in the learning service sector? A: Peng Su, Vice President, stated that Youdao is focusing on strong demand services while scaling back on low-return customer acquisition efforts. The company aims for sustainable development and expects strong demand for online learning services. They plan to invest in differentiated, high-quality products and services, leveraging AI to enhance user experience and retention.

Q: Can the growth in the smart devices sector be sustained? A: Feng Zhou, CEO, highlighted that smart device revenue increased by 25% year-over-year, driven by strategic focus and successful product launches like the X7 and X7 Pro. The company expects continued growth in the fourth quarter, supported by enhanced team capabilities and a strong product pipeline.

Q: What is the future growth potential of the online marketing services, given the high base in the fourth quarter of last year? A: Feng Zhou, CEO, noted that online marketing services have seen rapid growth due to AI advancements. Future growth is expected in sectors like online entertainment, AI tools, and automotive. Despite short-term challenges, the profitability of advertising is expected to remain strong.

Q: What is the management's outlook for the company's future? A: Jeffrey Wang, Investor Relations Director, emphasized the focus on digital content services, online marketing, and AI-driven subscription services. The company aims to achieve full-year profitability and sees significant growth potential in learning services, AI-driven subscriptions, and smart devices.

Q: How has Youdao's financial performance improved this year compared to last year? A: Feng Zhou, CEO, stated that the company has improved its financials significantly, achieving operational profitability for several quarters. New products and revenue streams, such as AI-driven services and high-end dictionary pens, are driving growth. The focus on AI plus education is proving successful.

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