Youdao(DAO) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2023, net revenues reached RMB1.2 billion, a year-over-year increase of 26.2% [7][17] - Loss from operations narrowed to RMB289.1 million, marking a year-over-year improvement of 36.5% [7] - Net cash provided by continuing operating activities stood at RMB133 million, reflecting growth of 27.6% year-over-year [7] - Total net revenues for the first half of the year amounted to RMB2.4 billion, indicating an increase of 9.9% year-over-year [8] Business Segment Data and Key Metrics Changes - Learning services segment saw Q2 sales of digital content exceed RMB800 million, with customer retention rates over 60% [9] - Online marketing services achieved net revenues of RMB303.6 million in Q2, representing a 98.7% increase year-over-year [9][18] - Smart devices revenues were down by 7.4% in Q2 year-over-year, primarily due to sluggish consumer spending [12][18] Market Data and Key Metrics Changes - The Ministry of Education's new policy to add programming courses in primary and secondary schools is expected to expand demand for programming content [11] - The market size for learning devices is projected to grow significantly, from RMB24.9 billion in 2019 to an estimated RMB43.1 billion in 2022 [35] Company Strategy and Development Direction - The company is focusing on driving healthy growth through high-quality digital content services and accelerating the integration of generative AI into products [16] - Plans to launch more AI applications in Q4 2023, leveraging proprietary large language models for educational applications [13][26] - The company aims to enhance user satisfaction and profitability in the smart devices segment while managing costs effectively [33] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term prospects of learning devices despite current market challenges [35] - The integration of AI technology is expected to enhance product offerings and drive future growth [57] - Management is committed to achieving profitability while optimizing R&D investments [57] Other Important Information - The company announced an amendment to extend the maturity date of a US$300 million revolving loan facility until March 31, 2027 [16] - An additional US$20 million has been authorized for share repurchase, reflecting confidence from management and support from NetEase [16] Q&A Session Summary Question: Plans on AIGC technology and its impact - Management discussed the launch of six AI applications, including a digital human language coach named Echo, which is expected to drive business growth [22][23][24] Question: Update on smart devices and long-term confidence - Management provided positive feedback on new products like the Dictionary Pen X6 Pro, noting a year-over-year increase in activations [30][33] Question: Driving factors behind online marketing revenue growth - Management attributed growth to advancements in AI technology and enhanced data capabilities of the ad platform [40][41] Question: Focus areas for learning services in the second half - Management highlighted the success of digital content services and plans for STEAM courses and adult education products [45][46][49] Question: R&D investment and AI applications - Management confirmed a prudent approach to R&D investment, focusing on effective applications of AI technology without significant increases in overall expenses [53][57]