On May 23, Youdao, Inc. (NYSE: DAO), an intelligent learning company with industry-leading technology in China, announced its unaudited financial results for the first quarter ended March 31, 2024. During the period, Youdao's generative AI applications rapidly accelerated its commercialization under its dual-drive strategy of "AI+education content," bringing steady growth across multiple financial metrics.

Youdao reported that its total net revenues for the first quarter reached RMB 1.4billion, representing a 19.7% increase year over year. On the heels of its profitable 2023 fourth quarter, Youdao reported an income from operations of RMB 29.9 million in the first quarter, marking the first time it has posted two consecutive quarters of profitability. Non-GAAP net income attributable to Youdao’s ordinary shareholders turned positive, compared with the first quarter of last year, reaching RMB 20.3 million. The Company is also spending less on its operations with net cash used in operating activities improving by 10.5% compared with the same period last year.

Youdao's CEO Dr. Feng Zhou stated, "We will stay focused on our in digital content services, online marketing services and AI-driven subscription services. By leveraging our AI technology expertise and profound understanding of education, we will continue to explore more application scenarios for our proprietary large language model, Ziyue, in education and advertising. As we implement our products and applications at an accelerated pace, our goal is to help users improve learning and working efficiency more effectively."

The dual-drive strategy of "AI + education" has proven effective, significantly improving the health of the business

After launching China's first large language model for education, "Ziyue," Youdao has accelerated the commercial deployment of its LLM in its education and advertising businesses. Meanwhile, Youdao continues to adhere to its strategy of producing high-quality content and providing users with personalized and superior learning content services.

During the first quarter, Net revenues from learning services reached RMB 718.0million, remaining largely unchanged from the same period last year. The digital content services continued to show strong momentum, with net revenues in the first quarter reaching RMB 500 million, an increase of 11.0% year-on-year. Youdao's gross profit margin has remained above 70% for three consecutive quarters.

Net revenues from online marketing services reached a record high of RMB 492.7 million in the first quarter, increasing by 125.9% year-on-year and marking the sixth consecutive quarter of this business's net revenue growth exceeding 50%.

To support its online marketing services customers, accelerate their overseas expansion efforts, Youdao Ads also quickly launched the country's first one-stop overseas marketing platform in the first quarter, enabling companies to utilize Youdao's rich ecosystem of over 5 million KOLs worldwide. Currently, Youdao Ads has assisted multiple Chinese enterprises in going global, including NetEase Games, miHoYo, BYD, Huawei, Xiaomi and others.

Net revenues from smart devices reached RMB 181.2 million in the first quarter. This includes Youdao's Dictionary Pen, which continues to be a leader in innovation. Youdao successively released its latest Dictionary pen iterations in the first quarter, the A6 Pro and S6 Pro. The A6 Pro topped Douyin's sales chart on the day of its debut and quickly became the top-selling single product on JD.com after its launch. Similarly, S6 Pro has consistently ranked in the upper echelons of JD.com's single product sales following its launch and secured the No. 1 selling single product spot on both JD.com and Tmall platforms in May.

Generative AI accelerates deployment, focused on three major application scenarios with high growth potential where Youdao holds competitive advantages

Focusing on advantageous applications and scenarios, Youdao has been accelerating the deployment of its generative AI in diverse settings. Currently, Youdao has launched more than 10 native applications based on its LLM.

In the first quarter, Youdao's AI-driven subscription services saw a significant boost. These services includes Youdao Dictionary, Youdao Desktop Translation, Hi Echo, and international apps. The total sales of these services approached RMB 50 million in the first quarter, increasing by over 140% year-on-year, marking the fifth consecutive quarter that this business has grown by over 50%.

Youdao is deeply immersed in the translation field and has honed its skills over many years. According to QuestMobile data, the number of monthly active users of Youdao Desktop Translation exceeds 100 million, making it the leader in the domestic dictionary translation market. Youdao Dictionary underwent a comprehensive AI transformation in the first quarter, fully integrating the new AI learning assistant Mr. P AI Tutor into word lookup, word memorization, translation, and other processes, providing users with a more professional, personalized, and powerful language learning and translation experience.

With a deep understanding of overseas markets, Youdao has launched several apps based on LLM capabilities in the international market and has achieved impressive results. In the first quarter, the total sales of Youdao's international apps doubled compared to the same period last year. The newly launched software covers areas such as audio transcription, translation, and AI entertainment. Among them, the audio transcription app iRecord ranks among the top two in the North American audio recording tracks.

Focusing on its core strengths, Youdao's business centers on three primary segments: digital content services, online marketing services and AI-driven subscription services. Dr. Feng Zhou stated, "Our strategy is to concentrate on businesses and products with high growth potential and where we have significant competitive advantages."

"Consumer-facing products currently represent the largest growth opportunity for AI, making AI-driven subscription services a natural path for AI development. We are still in the early stages and moving forward, we will accelerate our products' reach and scale, increase user subscriptions, and continue to improve returns on our investments. We are confident in our development pathway and the growth of our business," said Dr. Feng Zhou.

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Company Name: Youdao, Inc.
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Country: China
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