Youdao(DAO) - 2025 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Operating income reached a Q1 record of RMB104.0 million, surging 247.7% year over year [7] - Net revenues were RMB1.3 billion, declining 6.7% primarily due to decreased learning services revenue [7][19] - Operating cash outflow narrowed by 34.7% to RMB255.5 million, reflecting stronger financial efficiency [8] - Net income attributable to ordinary shareholders was RMB76.7 million, an increase of over six times from RMB12.4 million for the same period last year [22] - Non-GAAP net income attributable to ordinary shareholders for the first quarter was RMB31.7 million, significantly increased from RMB20.3 million for the same period last year [23] Business Line Data and Key Metrics Changes - Net revenues from learning services segment declined by 16.1% year over year, but the rate of decline narrowed by approximately five percentage points compared to the previous quarter [9][20] - Net revenues from digital content services within the learning services segment were RMB410.8 million in Q1 [9] - Net revenue from smart devices was RMB190.5 million, representing a 5.1% year over year growth [20][16] - Net revenue from online marketing services rose 2.6% year over year to RMB505.4 million [20][13] Market Data and Key Metrics Changes - The performance-based advertising client base grew by 20% year over year in Q1 [13] - Gross margin from online marketing services moderated to 30.5%, an approximately four percentage point decline year over year [15] - Gross margin for learning services was 59.8%, compared with 63.1% for the same period of 2024 [21] Company Strategy and Development Direction - The company is executing an AI native strategy, applying large language models to critical learning and advertisement scenarios [8] - The launch of Confucius one, an open-source reasoning model, and Youdao Magic Box, an AI-powered app creator suite, are key strategic initiatives [8][9] - The company aims to maintain a positive trajectory, targeting accelerated profit growth and achieving operating cash flow breakeven for the full year 2025 [17] Management Comments on Operating Environment and Future Outlook - Management emphasized the importance of embracing open technologies and integrating proprietary models to enhance user experiences [28] - The company anticipates completing its segment restructuring in the second half of the year, with revenue stabilization expected thereafter [41] - Management expects online marketing services revenue to show stronger growth momentum in the second half of the year, driven by overseas advertising expansion and automated AI-powered advertising solutions [44] Other Important Information - The upgraded Mr. P AI Tutor achieved over 92% accuracy in K-12 problem solving, significantly surpassing standalone models [12][32] - The company has secured official Google Partner certification, complementing its existing TikTok partnership, which enhances its advertising capabilities [13] Q&A Session Summary Question: How does management view the integration of large language models in educational scenarios? - Management highlighted the advantages of combining open and proprietary technologies, enhancing user experiences and accelerating technology growth [28][30] Question: When does management project the learning services segment's revenue to return to growth? - Management indicated that the restructuring of the learning services segment is ongoing, with expectations for revenue stabilization in the second half of the year [41] Question: When does management anticipate a reacceleration in online marketing services revenue growth? - Management expects stronger growth momentum in the second half of the year, driven by overseas advertising expansion and new automated solutions [44]