On May 23rd, educational technology company NetEase Youdao (NYSE: DAO) released its unaudited financial report for the first quarter of 2024. During the reporting period, benefiting from the dual drive of "AI" and "education", the performance exceeded market expectations and the health of the business significantly improved.
According to the financial report, NetEase Youdao's net revenue in the first quarter reached 1.39 billion yuan, a year-on-year increase of 19.7%. The operating profit achieved a quarterly profit of 30 million yuan, maintaining profitability for two consecutive quarters for the first time. Under non US GAAP accounting standards, the net profit attributable to NetEase Youdao for the quarter was RMB 20 million, turning losses into profits year-on-year. Operating cash outflows improved by 10.5% compared to the same period last year.
NetEase Youdao CEO Zhou Feng said, "We will focus on digital content services, online marketing services, and AI subscription services. We will continue to utilize our AI capabilities and understanding of education to explore more application scenarios for the Confucius Education Model in education, advertising, and other fields. We will accelerate the implementation of products and applications to better help users improve learning and work efficiency."
Digital content services maintain strong momentum, with online marketing experiencing significant growth in the sixth quarter
After launching the first education model in China, "Ziyue", NetEase Youdao has accelerated the commercial implementation of the big model in education and advertising scenarios. At the same time, Youdao continues to adhere to the strategy of high-quality content, providing users with high-quality and personalized learning content services.
During the reporting period, Youdao Learning's service revenue reached 720 million yuan, which was basically the same as the same period last year. Digital content services continue to maintain a strong momentum, with a net revenue of RMB 500 million in the first quarter, a year-on-year increase of 11.0%, and a gross profit margin of over 70% for three consecutive quarters. In addition, net income covers costs and operating expenses, creating good operating profits for digital content services.
In terms of digital content services, Youdao continues to leverage the advantages of AI technology to provide users with differentiated and personalized products and services. During the reporting period, Youdao Lingshi upgraded its products and introduced a layered teaching approach to assist in individualized teaching. The comprehensive renewal rate of Youdao Lingshi exceeded 70%, reaching a historic high with a year-on-year growth of over 10%.
Youdao Bowen AI Writing Precision Batch Service efficiently and high-quality corrected over 30000 essays in the first quarter, an increase of 80% compared to the previous quarter, and drove a 10% increase in conversion rate. In addition, Youdao Bowen has also released a humanistic literacy course called "Traveling 24 Cities", which uses 24 historical and cultural cities as carriers to help students improve their reading and writing skills in vivid and interesting ways.
In the first quarter, Youdao's net revenue from online marketing services reached a historic high of 490 million yuan, a year-on-year increase of 125.9%. This is the sixth consecutive quarter in which the net revenue of the business has increased by over 50% year-on-year. The growth is mainly attributed to AI technology helping to refine advertising operations and improve customer acquisition efficiency.
Driven by the digital wave, the global business landscape is undergoing profound changes. To support enterprises to quickly go global and accelerate their global layout, Youdao Ads also quickly launched the country's first one-stop overseas marketing platform in the first quarter, which can help enterprises efficiently reach over 5 million KOLs worldwide and empower brand internationalization. At present, Youdao Ads has assisted multiple Chinese companies to go global, including NetEase Games, MiHoYo, BYD, Huawei, Xiaomi, and other companies.
The first quarter revenue of Youdao Intelligent Learning Hardware was 180 million yuan. The Youdao Dictionary Pen continues to lead innovation, releasing the entry-level A6 Pro series and the versatile S6 Pro series in the first quarter, with impressive performance. Among them, The sales volume of A6 Pro topped the general list of Tiktok on the day of its debut, and soon after its launch, it topped the sales volume of JD's single product; After its release, S6 Pro remained the top selling single product on JD.com and became the best-selling single product on both JD.com and Tmall platforms since May.
Generative AI Accelerates Implementation in Multiple Scenarios, Focusing on Three Major Directions of High Growth Potential
Scenario first and application first are the strategies that Youdao has always adhered to in the field of large models. As of now, Youdao has launched over 10 native applications for large models and implemented them in software and hardware products.
The rapid development of generative AI has also driven explosive growth in app subscription services. Youdao has a vast user base and long-term experience in algorithm driven products. In the first quarter, Youdao's AI driven subscription service achieved impressive performance. This business includes Youdao Dictionary, Youdao Translation Hi Echo and an international app that provides translation, language learning, and other services. During the reporting period, the GMV of this type of service was close to 50 million yuan, with a year-on-year increase of over 140%. It is reported that the business has grown by over 50% year-on-year for five consecutive quarters.
Youdao has been deeply involved in the field of translation for many years, According to Questmobile data, the monthly active users of Youdao Translation have exceeded 100 million, ranking first in the domestic dictionary translation market. The era of big models has arrived, and Youdao has also taken the lead in launching AI translation functions based on the ability of big models, which can better capture contextual information, greatly improve language understanding ability, and achieve easy translation of professional vocabulary. Now this feature has been fully launched, with over 5 million users and over 20 million uses of Youdao AI translation.
Youdao Dictionary also achieved comprehensive AI in the first quarter, integrating the new AI learning assistant "Xiao P" into the process of word search, memorization, translation, and other aspects, providing users with a more professional, personalized, and powerful language learning and translation experience, transforming users from passive information retrieval to active exploration and questioning, and redefining the AI dictionary of the new era.
Going global with apps is a new business trend in recent years. With a deep understanding of overseas markets, Youdao has launched multiple apps based on big model capabilities in overseas markets, which have also achieved impressive results. In the first quarter, the sales of Youdao International APP doubled year-on-year. The currently launched software covers recording, transcription, translation AI entertainment and other fields. Among them, the recording transcription app iRecord ranks among the top two in the North American recording track.
Focusing on advantageous businesses, Youdao has gradually formed three major focus directions - digital content services, online marketing services, and AI subscription services. Zhou Feng stated that our strategy is to focus on businesses and products with high growth potential and our significant competitive advantage. Our goal is not to do many things well at the same time. On the contrary, we believe that focus, quality, and differentiation will bring long-term growth.
"Directly targeting users is currently the biggest growth opportunity for AI.", AI subscription services are a very natural way to develop AI. We are still in the initial stage, and we will accelerate the expansion of product scale, improve user subscription volume and investment return rate. We are full of confidence in the development of our business. Zhou Feng said.