Youdao(DAO) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2024, net revenues reached RMB1.3 billion, growing 9.5% year-over-year [6][19] - Operating cash inflow reached a record level of RMB250.2 million, an increase of 88.2% year-over-year [6] - Loss from operations was RMB72.6 million, narrowing by 74.9% year-over-year [7] - For the first half of 2024, net revenues reached RMB2.7 billion, marking an increase of 14.5% year-over-year [7] - The net loss attributable to ordinary shareholders was narrowed to RMB99.5 million, compared to RMB299.2 million for the same period of last year [21] Business Line Data and Key Metrics Changes - Learning services generated net revenues of RMB643.8 million, slightly down by 5.5% year-over-year [7][19] - Digital content services achieved net revenues of RMB403.3 million, up 6.8% year-over-year [7] - Online marketing services reached net revenues of RMB511.2 million, representing a 68.4% increase year-over-year [12][20] - Smart devices segment saw net revenues of RMB166.7 million, down 25% year-over-year due to unfavorable product mix [13][19] Market Data and Key Metrics Changes - The online marketing services segment maintained strong growth, with seven consecutive quarters of over 50% year-over-year growth [12] - The demand for promoting AI tools and applications surged, with AI tools advertisement revenues growing by more than 100% quarter-over-quarter [12] Company Strategy and Development Direction - The company focuses on three core businesses: digital content services, online marketing services, and AI-driven subscription services, all showing good growth and healthy economics [15] - The strategy emphasizes AI empowerment across business lines, combining technical strength with operational excellence [16] - Continuous product and service upgrades are aimed at improving customer satisfaction and retention rates [9][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving full-year positive operating income, driven by strong performance in core areas [16][63] - The company is committed to improving operational efficiency through AI technology and content innovation [66] - The future of AI plus education is viewed as bright, with a focus on leading the charge in this sector [17] Other Important Information - The gross margin for learning services improved to 60% in Q2 2024, compared to 57.4% in the same period of 2023 [20] - The company has launched new high-end products, such as the Youdao Dictionary Pen X7, which have received positive feedback [15][58] Q&A Session Summary Question: Strategy on education sector amidst intensified competition - Management noted the increasing demand for college entrance exam preparations and emphasized customer satisfaction and retention as key strategies [25][27][28] Question: Outlook for online marketing services in the second half of the year - The outlook remains positive, with expectations for continued revenue growth driven by data accumulation and international advertising expansion [35][36][38] Question: Commercialization of Mr. P AI Tutor - Initial feedback has been positive, with high user engagement and plans for scalable monetization through subscription fees and other channels [41][43][45] Question: Progress in STEAM courses and future investments - The company has seen over 100% year-over-year growth in non-academic courses and plans to continue emphasizing high-quality development in this area [47][49][50] Question: Strategy for smart devices and revenue decline - The focus is on core products and channel efficiency, with expectations for improved performance in the second half of the year [55][56][59] Question: Achieving and sustaining profitability - Management is committed to achieving full-year positive operating income and believes profitability will be sustainable due to strong performance in core areas [62][63][66] Question: Interpretation of recent opinions on service consumption in education - The company plans to continue investing in the education sector while adhering to policies and focusing on innovative product development [69][71]