Q4 2023 Youdao Inc Earnings Call
Operator: Good day, and welcome to the Youdao 2023 fourth quarter and full year earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wang, Investor Relations Director of Youdao. Please go ahead.
Good day and welcome to the your though 2023 fourth quarter and full year earnings Conference call.
Today's conference is being recorded.
This time I would like to turn the conference over to Mr. Jeffrey Wang Investor Relations Director Joe Doll. Please go ahead.
Yeah.
Jeffrey Wang: Thank you, operator. Please note the discussion today will contain forward-looking statements related to future company performance, which are intended to qualify for the safe harbor from liability as established by the U.S. Private Security Litigation Reform Act.
Thank you operator. Please note the discussion today will contain forward looking statements relating to future company performance, which are intended to qualify for the safe Harbor from liability as established path of you ask Crabby Securities Litigation Reform Act.
Jeffrey Wang: Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, exceptions, and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of the risk factors that could affect Youdao's business and financial results is included in certain filings of the company with the U.S. Securities and Exchange Commission. However, the company does not undertake any obligation to update this risk-related information except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For the definitions of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please see the 2023 Q4 and Q4 financial results news release issued earlier today.
Statements are not guarantees of future performance and are subject to certain risks and uncertainties assumptions and other factors. Some of these rigs are beyond the company's control and could cause actual results to differ materially from those Nathan in today's press release and this discussion.
Discussion of the risk factors that could affect <unk> business and financial results is included in certain filings of the company.
U S Securities and Exchange Commission.
The company does not undertake any obligation to update these forward looking information except as required by law.
During today's call management will also discuss certain non-GAAP financial measures for comparison purpose only.
The destination yourself non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results. Please see the 2023 fourth quarter and full year financial results news release issued earlier today.
Jeffrey Wang: As a reminder, this conference call is being recorded. In addition, a webcast replay of this conference call will be available on Youdao's corporate website at ir.youdao.com. Joining us today on the call from Youdao's senior management is Dr. Feng Zhou, our chief executive officer, Mr. Lei Jin, our president, Mr. Peng Su, our VP of strategy and capital markets, and Mr. Wayne Li, our VP of finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic direction. Thank you, Jeffrey, and thank you all for participating in today's call.
As a reminder, this conference is being recorded besides a webcast replay of this conference call will be available on <unk> corporate website.
I R W down they'll come.
Joining us today on the call from you at a senior management is Doctor from Joe <unk>, Chief Executive Officer Mr.
Certainly Jim.
Our president Mr. Pozo, our VP of strategy and capital markets and Mr. Wayne Lee VP of finance.
Now I'll turn the call over to Dr. Joe <unk>, who will review some of our recent highlights and strategic direction.
Thank you Jeffrey and thank you all for participating in today's call.
Feng Zhou: Before we begin, I would like to remind everyone that the financial information and non-GAAP financial information mentioned in this release is presented on a continuing operations basis, and all numbers are based on renminbi, unless otherwise specifically stated. We had a solid financial performance in Q4, producing all-time high income from operations and operating cash inflow. Net revenues reached RMB 1.5 billion in Q4, up 1.8% year-over-year. Income from operations reached RMB 76.3 million, increasing 209.2% year-over-year.
Before we begin I would like to remind everyone that the financial information and non-GAAP financial information mentioned in this release is presented on a continuing operations basis and all numbers are based on J b.
Yes, otherwise specifically stated.
We had a solid financial performance in Q4, producing all time highest income from operations and operating cash inflow.
Net revenues reached RMB, one 5 billion in Q4 up one 8% year over year.
Income from operations reached RMB $76 3 million.
<unk> 209, 2% year over year in terms of cash flow, we achieved an operating cash inflow of RMB 166 million.
Feng Zhou: In terms of cash flow, we achieved an operating cash inflow of RMB 160.6 million, rising by 91% year-over-year. For the full year 2023, our key financial indicators improved significantly. Net revenues reached RMB5.4 billion, up 7.5% year-over-year. Loss from operations was RMB 466.3 million, narrowed by 39.8% year-over-year.
Rising by 91% year over year.
For the full year of 2023 of our key financial indicators improved significantly.
Our revenues reached RMB, five 4 billion up seven 5% year over year.
Loss from operations was RMB $466 3 million.
Narrowed by.
39, 8% year over year.
Feng Zhou: Operating cash outflow amounted to RMB 438.1 million, improving 17.6% year-over-year. We executed on our strategy of growing our businesses through key growth areas, including digital content services and online marketing services, while at the same time, building product leadership and future growth. We continue to drive towards profitability and have already delivered two major versions of our large language model, which are solid foundations for both. 2024 and an AI-driven future. Now, I would like to share more color on our progress in the fourth quarter.
Operating cash outflow amounted to RMB, $438 1 million, improving 17, 6% year over year.
We executed on our strategy of growing our businesses and key growth areas, including digital content services and online marketing services, while at the same time building product leadership and future growth through AI technology.
We continue to drive towards profitability and have already delivered two major versions of our large language models are solid foundations for votes.
In the fall and then an AI driven future.
Now I would like to share more color on our progress in the fourth quarter.
Feng Zhou: First of all, our large language model projects. Last month, we released our second language model for education, so this is the second year of two, with major upgrades to conversational abilities, knowledge-based question answering capabilities, and text processing capabilities. Utilizing this new model, we launched Hi-Echo 2 with extensive upgrades to JIDO human characters, scenarios, conversational abilities, and the all-new teaching mode. We also introduced a major new LLM application, Mr. P, AI Tutor, a conversation and camera-based tutoring app for all K-12 subscribers. The AI Tutor extends the application of real-form language learning to real-time and multi-modality tutoring and covers one of the largest scenarios in K-12 learning.
First of all our large language model projects last month, we released our second language model for education.
To with major upgrades to conversational abilities knowledge based question answering capabilities and text processing capability.
Utilizing this new motto, we launched high I called too.
With extensive upgrades to judo human characters send out scenarios conversation of liabilities and the all new teaching mode.
We also introduced a major new L. O M application Mr. P Hey, I tutor.
Our conversation and camera based.
Tutoring up Oh Pedro tell subjects.
Hi, Tuna exchange the application of this as we have from language learning to real time and multi modality tutor.
And coverage is one of the largest of scenarios in keto child learning well so.
Feng Zhou: We're thrilled to be the first in China to deliver an all-subject AI tutor and look forward to serving more and more users with this technology. Additionally, we have open-sourced two technologies, EmotiVoice and QAnything, since Q4, which have so far garnered over 10,000 stars on GitHub, showcasing our technological abilities. LLM technology is already driving concrete business growth.
It should be the first in China to deliver on all subject AI tutor and look forward to serving more and more users with this technology.
Additionally, we have open source to two technologies, the multi voice and Kew anything.
Since Q4, which have so far garnered over 10000 stars on guitar showcased.
Joe kissing our technology ability.
The technology is already driving concrete business growth for example, our translation subscription fees have grown quickly since we launched our M features.
Feng Zhou: For example, our translation subscription fees have grown quickly since we launched LLM features with over 100% year-over-year growth for three consecutive quarters. Most of the growth comes from the LLM-driven AI box and recently launched LLM translation feature. As for the learning services segment, net revenues reached RMB784 million, largely stable on a year-over-year basis. The momentum from our digital content services is strong, with net revenues of RMB500 million, an increase of 13.4% year-over-year in Q4. The gross profit margin was above 70%.
With over 100% year over year growth for three consecutive quarters. Most of the growth comes from the drip and hey, guys.
Box and recently launched our.
Translation features.
That's what they're learning services segment net revenues reached RMB 784 million largely stable on a year over year basis.
Momentum from our digital content services is strong.
With net revenues of RMB $508 3 million, an increase of 13, 4% year over year in Q4.
The gross profit margin was above 70%. Furthermore, the net operating cash inflow of digital content and services reached over RMB $200 million.
Feng Zhou: Furthermore, the net operating cash inflow of digital content services reached over RMB 200 million. Additionally, net revenue in Q4 could cover the cost and operating expenses. Departments primarily include Lingshi and Youdao Literature continue to improve their products and services for users. In terms of business updates, I'm glad to share that the retention rate of our consultation service for the Plan for Strengthening Basic Academic Disciplines, Qiang Ji Ji Hua Zi Xun Fu was around 75% in Q4. Moreover, since the introduction of AI writing refinement in the third quarter, we have efficiently provided over 25,000 high-quality refinements.
Additionally, net revenue in Q4 could cover the cost and operating expenses.
Departments, primarily including includes things should and Utah literature.
<unk> to improve their products and services for users.
In terms of the business updates I'm glad to share that the retention rate of our consultation service for the plan for strengthening basic academic disciplines.
Teach you hard pushing food was the runt, 75% in Q4.
Moreover, since the introduction of Hey are writing refinement in the third quarter, we have efficiently provided to over 25000 high quality refinements Garvey.
Carving widespread widespread praise from our users.
For 2023 net revenues from digital content services reached RMB 2 billion up 11, 7% year over year also covering the full year cost and operating expenses.
Feng Zhou: garnering widespread praise from our users. For 2023, net revenues from digital content services reached RMB 2 billion, up 11.7% year-over-year, also covering the full-year cost and operating expenses. Regarding STEAM courses, our CSP score prediction system for competitive programming had 200% year-over-year user growth. The retention rates for advanced-level programming courses and GO courses reached approximately 70%. In 2023, 340 students of our programming courses received awards in the CSP competition. Among them, 106 students won first prizes.
Regarding the steam causes hours Csp's school prediction system for competitive programming hubs.
Per cent yoga, you use up growth there.
The retention rates for advanced level of programming courses and golf courses reached approximately 70% in.
In 2023 340 students of our programming courses received awards in the E. S. P competition. Among them 106 students won the first prize this achievement highlights the quality of our courses and services. In addition.
Although some hung.
What's rewarded the second price in the China, New information consumption competition of 2023.
As far as online marketing services in the fourth quarter, the net revenues surged to a historic peak.
RMB $474 1 million.
An extraordinary year over year growth of 96, 9%.
Marketing services have recorded over 50% year over year revenue growth for five consecutive quarters. This was primarily attributable to our cutting edge AI technology and enhance the data and infrastructure.
Feng Zhou: This achievement highlights the quality of our courses and services. In addition, Youdao Zhongheng was awarded second prize in the China New Information Consumption Competition in 2023. As for online marketing services, in the fourth quarter, net revenues surged to a historic peak of RMB 474.1 million, an extraordinary year-over-year growth of 96.9%. Online marketing services have recorded over 50% year-over-year revenue growth for five consecutive quarters.
Empowering us to provide upgrade R O T a technology capabilities broadening our client base and expand the range of applications.
Is playing a larger and larger role in our advertisement service in fact about 20% of our covenants advert advertising materials have already incorporated AI workflow.
In addition, net revenues from online marketing services of gaming Entertainment Sports and O to O industries in Q4 rose by over 200% yoga yet.
With regard to the smart devices segment net revenues amounted to RMB $222 4 million declining 45, 3% year over year.
Feng Zhou: This was primarily attributed to our cutting-edge AI technology and enhanced data infrastructure, empowering us to provide upgrade our RTA technology capabilities, broadening our client base, and expanding the range of applications. AI is playing a larger and larger role in our advertising service. In fact, about 20% of our current advertising materials have already incorporated AI workflow. In addition, net revenues from online marketing services for gaming, entertainment, sports, and O2O industries in Q4 rose by over 200% year-over-year. With regard to the smart devices, net revenues amounted to RMB222.4 million, declining 45.3% year-over-year. Our efforts to optimize low return on investment sales channels continue to reduce overall channel inventory, impacting fourth quarter revenue.
It's to optimize low return of investment sales channels continue to reduce overall channel inventory impacting the fourth quarter revenue.
At the same time, the overall financial health of the settlement has improved on a quarter over quarter basis. We have finished our sales channel reshuffling. So that is behind us potash.
We recently launched the yield our smart learning paths X training featuring Mr. P. I tutor powered by R. L. I am just yet this is the industry's first learning pads within Oh am based all subject yay tutor.
We believe the headwinds of the devices segment are temporary in fact on February 21st We launched Dictionary Pen 86 pro.
With more AI and L. L. M features I'm happy to report that basics Po. So over 50000 units in the first week.
Feng Zhou: At the same time, the overall financial health of the segment has improved on a quarter-over-quarter basis. We have finished our sales channel reshuffling, so that is behind us. Product-wise, we recently launched the Youdao Smart Learning Pad X20, featuring Mr. P, an AI tutor, powered by our LLM Ziyue. This is the industry's first learning pad with an LLM-based all-subject AI tutor. We believe the headwinds in the devices segment are temporary.
Making it our number one lunch with the most students in the first week in our history.
As you can see we are accelerating our product lunches in past years, our new products were mostly launched in the summer.
This year, we started the year strong with eight six probes and E. Six.
And I will work on he is paying off our devices have more attractive features and differentiations anytime before because of AI technology.
Exclusive features like AI Gramarye instruction.
Feng Zhou: In fact, on February 21st, we launched Youdao Dictionary Pen A6 Pro, with more AI and LLM features. I'm happy to report that A6 Pro sold over 50,000 units in the first week, making it our number one launch with the most units sold in the first week in our history. As you can see, we are accelerating our product launch. In previous years, our new products were mostly launched in the summer. This year, we started the year strong with the A6 Pro and E6.
I wouldn't instruction and Mr. P I tutor.
Are liked by more and more users.
And only use all products have to.
These features are driving high user satisfaction and growth. This is why the new products are selling well. So we remain confident in the future of learning collapses.
So education Digitalize digitalization solutions.
We reached a major milestone in 'twenty 'twenty four of RMB of over RMB 100 million contract sales.
Since the launch of it yourself on sports it has been adopted by over 100 schools with their current utilization rates of over 95%.
Feng Zhou: And our work on AI is paying off. Our devices have more attractive features and differentiations than any time before because of AI technology. Exclusive features like AI grammar instruction, AI word instruction, and Mr. P AI tutor are liked by more and more users, and only Youdao products have them.
Looking ahead, let's take a high level view of the business first we see that our users demand for digital learning content and services across subjects and across age groups are increasingly are increasing steadily.
Last year after Covid.
You're always in a good position to capture this opportunity.
With our experienced teams and established content.
Oh learnings content business is already on a multi quarter growth trajectory. This year, we continue to drive growth by focusing on P. Strong content areas are.
Feng Zhou: These features are driving high user satisfaction and growth. This is why the new products are selling well. So we remain confident in the future of learning devices for Education Digitalization Solutions. Additionally, since the launch of Youdao Fund Sports, it has been adopted by over 100 schools with a current utilization rate of over 95%.
Many including leading sugar and literature and developing new content.
Yeah.
Another important factor at a high level is our unique strengths in AI technology.
We continue to beautiful leadership in educational L. M. In 'twenty 'twenty four for technological tidal wave like the Oh I am.
First movers enjoy significant leverage and its impact on business shows in the.
Accelerating traction over time.
Feng Zhou: Looking ahead, let's take a high-level view of the business. First, we see that users' demand for digital learning content and services across subjects and across age groups has been increasing steadily since last year after COVID. Youdao is in a good position to capture this opportunity, with our experienced teams and established contact.
We are a first mover here and I had a quick ramp up in 2020 three.
Our technology and products, we released our motto in multiple industry first products quickly.
As we gain more understanding of the technology.
This year, we believe.
Will contribute more to product leadership of our products.
Including learning devices online.
Marketing services and noting ops.
Feng Zhou: Our digital learning content business is already on a multi-quarter growth trajectory. This year, we continue to drive growth by focusing on key strong content areas, mainly including ling shi and literature, and developing new content. Another important factor at a high level is our unique strengths in AI technology. We will continue to build upon our leadership in educational LRM in 2024, for a technological tidal wave like the LOM. First movers enjoy significant leverage, and its impact on business shows in an accelerating pace over time.
From this high level view, we believe we are in a good position to lead in building a new generation of AI powered high quality content based learning and other experiences for people around the country and over the world.
Thank you and now is us so long to give you an update on our financials.
[noise], especially with hospital and Hello, everyone today, I will be presenting some financial highlights from the fourth quarter and the full year also plenty of industry, leading coffee at a reasonable hour press release issued earlier today for further details.
I spoke with all match up for the fourth quarter total net revenue were RMB 125 O U S. Dollar 208.5 minute, representing about one 8% increase from the simpler it sunshiny too.
Net revenue from our learning services were RMB 784 minute or U S. Dollar by 110 point for me at it.
Feng Zhou: We are a first mover here and had a quick ramp-up in 2023 for our LRM technology and products. We released our own model and multiple industry-first products quickly. As we gain more understanding of the technology, this year, we believe LRM will contribute more, including learning devices, online marketing services, and learning. From this high-level view, we believe we are in a good position to lead in building a new generation of AI-powered, high-quality, content-based learning and other experiences for people around the country and around the world. [inaudible] Thank you, Dr. Zhou, and hello, everyone.
Representing a two 8% a decrease from the computer or anything to that.
Revenue from our smart devices were RMB 220 Cooper implemented.
S dollar thought about putting somebody made it down 45, 3% in the Franco simply write off the tiny tiny two primarily due to our continued efforts to streamline marketing channel with low return on investments putting intelligence learning products in the fourth quarter all plenty of time this week.
Net revenue from our online marketing services were RMB, 474, 1 million or U S. Dollar $66 8 million, representing a 96, 9% increase from the same period often having to.
So year over year increase in revenue from the online marketing services were mainly attributable to the increased demand for the couple of months place advertisements with a third party internet properties.
For the fourth quarter. Our total gross profit was RMB 738 million or U S. Dollar 100 out of Copeland, representing a 14, 6% a decrease from the fourth quarter, all wondering who.
Margaret for lending purposes was 63, 6% plus quarter, all 23, compared with 64, 1% for the same here at all.
Yongwei Li: Today, I will be presenting some financial highlights from the first quarter and the full year of 2023. We encourage you to read through our press release issued earlier today for further details. As Dr. Zhou mentioned, for the fourth quarter, total net revenue will be RMB 1.5 billion, or U.S. dollar 208.5 million, representing a 1.8% increase from the same period of 2022. Net revenue for our loading services will be RMB 784 million, or U.S. dollar 110.4 million, representing a 2.8% decrease from the same period of 2072.
Cool.
Of course market for smart devices.
38, 3% plus quarter, all kind of Pennsylvania.
This produced a 22% for the center of it often time too.
Smarten up online marketing services was 32, 7% for the fourth quarter I'll put eventually compared with 29, 2% put us into a REIT all suddenly going to.
But first quarter total operating expenses were RMB $662 5 million or U S. Dollar that's replaced for a minute compared with RMB 750 minutes for the same period of last year.
Looking at our expense in more detail.
Our sales and marketing expense will be $441 4 million compared with RMB $515 9 million in the fourth quarter. All the time trying to research and development expenses were RMB 168 point about minutes compared.
Compared with RMB, 100, and something like 25 million in the first quarter all comes down to.
Our operating income you have Marvin was five 2% in the fourth quarter oftentimes REIT comparable is 127% for the same period of Latvia.
Yongwei Li: Net revenue from our smart devices was RMB 222.4 million, or US dollar 31.3 million, down 45.3% from the same period of 2022, primarily due to our continuous efforts to streamline the marketing channel with a low return on investments for the intelligence learning products in the first quarter of 2023. Net revenue from our online marketing services was RMB $474.1 million, or US dollar $66.8 million, representing a 96.9% increase from the same period The year-over-year increase in revenue from the online marketing services was mainly attributable to the increased demand for performance-based advertisements through third-party Internet properties. For the fourth quarter, our total gross profit was RMB738.8 million, or US$104.1 million, representing a 4.6% decrease from the first quarter of 2022.
For the fourth quarter all of a sudden eventually all in net income from continuing operations attributable to ordinary shareholder was RMB 56, five minutes, whereas dollar eight minutes compared with RMB 12, quench for a minute for those same people out of Latvia.
non-GAAP net income from continuing operations of people both on the number of shareholders, but fourth quarter was RMB six nine points of rate minute or U S. Dollar $9 8 million compared with RMB three 1 billion about made it put us in peer Latvia.
Basic and diluted net income from continuing operation for a D. S attributable to ordinary shareholders for the first quarter. After an inventory was RMB zero point for all U S. Dollar Euro 0.0 to seven non-GAAP basic and diluted net loss net income from continuing operations attributable to.
Oh, he never shareholders for the fourth quarter was RMB your points I think we've got a solid zero point do it well and that has provided by the continuing operating activities was RMB 166 million or U S. Dollar.
Sure plenty coupon of $622 six minute, but the fourth quarter.
Turning to our full year results. Our total on our total revenue for 27th Street increased by seven 5% to RMB $5 4 billion or U S. Dollar 700, Athena I put in one minute.
And that revenue will fall in the services, which will eventually were RMB, three 1 billion or U S. Dollar part of that but this is really playing four minute keeping flat for the sunshine to.
Net revenue from our smart devices with anytime Street down by 27 plastics for that year over year to RMB 900, and that went to them got it.
O U S dollar 128 points.
Net revenue for our online marketing services for 'twenty last week were up 90, 821% year over year.
Yongwei Li: Gross margin for learning services was 63.6% for the first quarter of 2023, compared with 64.1% for the same period of 2022. The gross margin for smart devices was 38.3% for the first quarter of 2010-03, compared with 46.2% for the same period of 2010-02. Of course, margin for online marketing services was 32.7% for the first quarter of 2003, compared with 29.2% for the same period of 2002. For the fourth quarter, total operating expense was RMB 662.5 million, or U.S. dollar next 3.3 million, compared with RMB 750 million for the same period of last year. Looking at our expenses in more detail, our sales and marketing expense were RMB 441.4 million, compared with RMB 515.9 million in the first quarter of 2022. Research and development expenses were RMB 168.1 million, compared with RMB 179.5 million in the first quarter of 2022.
One be one place where we've been at or just below 187 six minutes.
Total gross profit photonics hands free was RMB, two 8 billion or U S. Dollar 289, 8 million compared with RMB, two 6 billion in the tiny thing too.
Total operating expenses were 27 this rate decrease to the RMB, three 2 billion or U S. Dollar 455.5 minutes compared with RMB, three 4 billion in the timeframe too.
Net loss from continuing to appreciate.
We would be able to ordinary shareholders with enhanced week was RMB $549 9 million or U S. Dollar 77 family.
And the basic and diluted net loss from continuing operations attributable to ordinary shareholders for the 20th century was RMB 4530 U S dollar to open six four.
Looking at our balance sheet, that's helping some of our southern first sometimes right Oh contract liabilities, which are mainly coffee I'll start with Q4 revenue generated per outlet and services were RMB, one 1 billion or U S. Dollar by 148 point sort of made it.
Paris, RMB, one 1 billion as of December.
So the first kind of trying to.
I know what period, our cash cash equivalents. This attack time deposit and short term investments totaled RMB 527, putting by me that Oh, you're a thorough 70 for two minutes.
This concludes our prepared remarks, some people put the attention we would now like to open the floor for questions. Operator. Please go ahead.
We will now begin the question and answer session.
I'll ask a question you May press Star then one on your telephone if youre using a speakerphone. Please pick up your handset before pressing the keys.
Your question. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question is from Brian Gong with Citigroup.
Oh six instrument for taking my question I have a question.
Not much language modal.
It's pretty committed to it.
We also launched our much language modal shift.
Yongwei Li: Our operating income margin was 5.2% in the first quarter of 2023, compared with 1.7% for the same period of last year. For the first quarter of 2023, our net income from continuing operations attributable to ordinary shareholders was RMB 56.5 million, whereas USD 8 million, compared with RMB 12.3 million for the same period of last year. Non-cash net income from continuing operations attributable to ordinary shareholders for the first quarter was RMB69.3 million, or US$9.8 million, compared with RMB31.1 million for the same period of last year.
Commencement sure monetization channels, a fortune you're shrinking.
Yeah.
Hello, Brian.
Yeah I'll take this question.
Yeah first of all.
Well, there's a consensus in the industry that are education is one of the most important areas for large language module applications.
Some ultimate and talks about it Bucase also talks about the education and health care are the most important to address yeah. So the overall focus is.
To capture kind.
Really important Houston, However, it was in the education and then monetize stops.
We basically think about this in two ways Oh two kinds of.
Ah projects, one is value, adding projects to our existing businesses. One is a completely new new things. So for their first two category, we have a couple of them.
Yongwei Li: Basic and diluting net income from continuing operations per ADS attributable to ordinary shareholders for the first quarter of 2003 was RMB 0.47 or US dollar 0.07. Non-debt basic and dilute net loss net income from continuing operations per ADS attributable to ordinary shareholders for the first quarter was RMB 0.58 or US dollar 0.08. Non-debt cash provided by the continuing operating activities was RMB 160.6 million, or US dollar 22.6 million, for the first quarter.
Oh channels. So obviously one of them a very important one is our smart devices.
I think one trend is quite clear so a L. M features are.
Quickly, becoming kind of major selling points for our devices are so for example.
Hi features like grammar instruction.
Ginger for explaining synthesis and worrying destruction density and job for explaining the separate words or phrases. These features of become.
Yongwei Li: Turning to our full-year results, our total revenue for 2023 increased by 7.5% to RMB5.4 billion, or US$759.1 million. Net revenue from our online services for 2023 was RMB 3.1 billion, or US$443.4 million, keeping flat for 2022. Net revenue from our smart devices for 2023 was down by 27.6% year-over-year to RMB 909.2 billion, or US$128.1 billion. Net revenue from our online marketing services for 2023 was up 98.1% year-over-year to RMB 1.3 billion, or US dollar 187.6 million. Total gross profit for 2023 was RMB 2.8 billion, or US$389.8 million, compared with RMB 2.6 billion in 2022. Total operating expense for 2023 decreased to RMB $3.2 billion, or USD $455.5 million, compared with RMB $3.4 billion in 2022. The net loss from continuing operation attributable to ordinary shareholders was RMB549.9 million or US$77.5 million.
The most of the use to features and a major southern points for you Dr Dictionary pen.
Since our last year.
Hi, I compare this to you.
Dictionary another dictionary pen the <unk> Dictionary, how we won the dictionary markets.
So that that's what it's done with the two features one is web interpretation, one way or.
The other is a machine translation so when.
When you have something that really works for specific learning scenario that that users really care and also when you. We only do you have that and the other players don't then it is a.
Uh huh.
A very good way to to gain more market share and also monetize the technology.
Of course, we also.
Have a the more recent misspeak.
Mr. P a tutor shop Hello Shar.
We think that'll also be a popular so this is one way we monetize their technologies through smart devices are of course, we also monetize too.
Apt subscripts subscriptions, yeah, we talked about for our dictionary and translation box has become a key feature to driving over 100% growth in subscription on a year over year for the last three quarters.
And if you'd also contributed to our growth of our online marketing significantly.
So.
Yeah, right now over 20% of our advertising materials that go through.
Operator: And the basic and diluted net loss per ADF from continuing operations attributable to ordinary shareholders for the year 2023 was RMB 4.53 or USD 0.64. Looking at our balance sheet, as of December 31st, 2023, our contract liabilities, which mainly consists of the deferred revenue generated from our lending services, were RMB1.1 billion, or US$148.3 million, compared with RMB1.1 billion as of December 31st, This concludes our prepared remarks. Thank you for your attention. We would now like to open the floor to your questions. Operator, please go ahead.
Somewhere in the process. They go through a generative AI workflow yeah. So that's already a pretty significant one out of five and materials are generated from using AI technology or is process to use them.
So that's the first category, how we how we apply AI to our existing businesses. The other one may be more.
Importance for them for a long for the longer term is completely new products yeah. So.
Of course, we have a higher coal the.
The English.
Learning App, so and also.
Yeah, we will have Mr tutor as a standalone product to yeah. So Mr. P. A a tutor as a standalone product is upcoming you know it's a it's a future future product. If we look at these apps these products.
Operator: Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone. If you are using a speakerphone, please pick up your handset before pressing the keys.
<unk> Ah I think they they cover.
Brian Gong: To withdraw your question, please press star, then 2. At this time, we will pause momentarily to assemble our roster. The first question is from Brian Gong with Citigroup. Thank management for taking my question. I have a question about our large language model.
A large U a E.
The scenarios for example, with the.
The English language learning Uh Huh spoken English language learning scenario is a pretty significant business in itself.
And in fact, if you look at our peers are the careen.
Speak has I think around 20 million U S dollar and new revenue already yeah. So so I think there is a.
Peng Su: Youdao is pretty committed to AI, and we also launched our own large language model, Ziyue. Can management share the monetization channels for Ziyue? Thank you. Hello Brian, I'll take this question. Yeah, first, there is a consensus in the AI industry that education is one of the most important areas for large language model applications. Sun Maltzman talks about it.
There's a bright future for.
AI powered language learning there yeah and.
If you look at Mr. Pea shooter. It covers an even larger scenario yeah that is to the home tutoring scenario. If the student is learning at home.
Uh huh.
Doing drills and exercises and have a question then.
Yeah.
Peng Su: Bill Gates also talks about education and health care being the most important areas. So the overall focus is, I think, to capture kind of really important use scenarios in education and then monetize them. We basically think about this in two ways, two kinds of LLM projects. One is value-adding projects to our existing business. One is completely new things.
Answered a question much better than parents or Oh, the students herself. So I think.
It is.
It is a profound idea I would say, it's a profound idea because this is.
One of the most important scenarios in home education, yeah. So.
If we can have an AI to answer questions for all of the subjects that the students learn and if.
Yeah, I can't answer that.
A question and a really instruction, though and a high quality fashion, then I think that that will create a lot of value.
Peng Su: So for the first category, we have a couple of China, so obviously one of them, a very important one, is smart devices. I think one trend is quite clear. So Alan features on our... are quickly becoming kind of major selling points for our devices. So, for example, AI features like AI grammar instruction, yu fa jing jia, for explaining sentences, and word instruction, dan si jin jia, for explaining separate words or phrases. These features have become the most used features and major selling points for Youdao Dictionary Pen since last year.,,,,, I compare this to...
So.
So in summary, I think.
The two channels. The two categories are the ones that we are looking at one hasn't have an immediate impact.
Packed on the business the other one.
Longer term, but probably larger in scope.
Uh huh very optimistic about this.
Just the <unk>.
Impact will have on the on our business going forward. Thank you.
Got it thank you.
The next question is from Kelly wrong, we did see ICC.
Yeah.
Oh, that's awesome.
Well. Thank you for taking my question just one.
My question is I really can see that our learning services Robyn.
<unk> is kind of flat compared to 2022.
So I'm just wondering what is that.
Okay well.
Peng Su: Dictionary, not a dictionary pen, the app, Youdao Dictionary. How we won the dictionary. So, that was done with two features. One is web interpretation; the other is machine translation. So when you have something that really works for specific learning scenarios that users really care about, and also when only you have that and the other players don't, then it is a very good way to gain more market share and also monetize the technology. Of course, we also have the more recent Mr. P, Mr. P, AI tutor, Xiaopi laoshi. We think that will also be popular, so this is one way we can monetize the technology through smart devices. Of course, we also monetize through app subscriptions. As we talked about for our dictionary and translation, Airbox has become a key feature to driving over 100% growth in subscription year-over-year for the last three quarters. And it also contributed to our growth in online marketing significantly. Yeah, right now, over 20% of our advertising materials go through a generative AI workflow. Yeah, so that's already pretty significant.
Our learning sounds like this segment in 2024, thank you.
Okay.
Yeah.
Uh huh.
Yeah, So I'll take this too.
<unk>.
So in the 2023.
Yeah, if you look at our data content and services.
So this is a major contributor.
Net revenue in our learning services content. So we will define a digital content services within their learning services sector by any new service that launched the aster and according to the policy change yeah. So these are primarily <unk>.
Sure.
You Gotta literature, and some other smaller classes.
Not including things like our adult adult courses.
So in 'twenty, two or three that revenues from digital content services reached RMB two.
2 billion. So it is up.
7.7 year over year, Yeah, so and the gross margin was around 70%. So so we are so this is part of the business.
All right.
Expectations, so in the spring 'twenty four.
We think digital content services will be Oh, that's the focus of our learning services.
Let me give a give you a few points regarding on our priorities.
First is.
Consumer needs are quite strong in this area and we are improving.
Improving the services to satisfy different user needs.
Peng Su: One out of five ad materials are generated using AI technology or is processed using AI technology. Yeah, so that's the first category, how we apply AI to our existing business. The other one, maybe more important for the longer term, is completing new products. Yeah, so, of course, we have HiEcho, the English learning app. And also, we will have Mr. P.A.I. Tutor as a standalone product, too. So, Mr. P.A.I.
So are you at all even sure is already leading in the industry.
Are.
The literature of course is also quite popular.
We gained more and more users so one of the key areas.
We will provide a more personalized services.
Two to users. So <unk> recently introduced a small class course.
The format for our students with a more advanced drilling needs. So this is actually different from the.
Peng Su: Tutor as a standalone product is upcoming. It's a future product. If we look at these apps, these products, I think they cover large use scenarios.
Oh, the past small small class experiences the new format is all sorts with mostly prerecorded video content and.
Peng Su: For example, the English language learning scenario, spoken English language learning, is a pretty significant business in itself. And, in fact, if we look at our peers, the Korean app Speak has, I think, around $20 million U.S. dollar annual revenue already. So I think there's a...
Our experienced tutors, but to provide the service so.
The feedback is very.
Very good for this new format.
The literature.
<unk> also launched a new major revision of course broadening to more age groups and provide more choices with our how much the user wants to how much time they use it wants to spend on the course, so essentially as these are products establish.
Peng Su: There's a bright future for AI-powered language learning there, yeah. And if you look at Mr. P. AI Tutor, it covers an even larger scenario, yeah, that is the home tutoring scenario. If the student is learning at home and doing drills and exercises and has a question, then the AI tutor can answer that question much better than parents or the student herself. So I think... It is a...
<unk> leadership positions in the industry, we can.
<unk> improved our products to cater to more personalize the.
Needs.
Of different different cities different age groups in different spending plans. So we think we have a good opportunities on this front.
Peng Su: It is a profound idea, I would say, it's a profound idea because this is... One of the most important scenarios in home education. Yeah, so if we can have an AI to answer questions for all the subjects that the students learn, and if the AI can answer that question in a really instructional and high-quality fashion, then I think that'll create a lot of value. [inaudible] So, in summary, I think the two channels, the two categories, are the ones that we are looking at. One has an immediate impact on the business, the other one is longer term but probably larger in scope.
Second Oh, yes, there will be a new skus this year.
The learning needs of our families.
In China have been changing very quickly in the last two years because of the macro environment the policy and trains like Oh, yeah. Yeah. So naturally our teams are we see.
Opportunities of new Skus.
The focus will be on.
Non curriculum learning of caito travel students.
Our service is aimed to provide.
High quality learning content and services to broaden their learners scope, two and cultivate interests in important stem and a humanitarian errors and strengthening their lifelong competencies.
Caini Wang: Yeah, so I'm very optimistic about that and the impact LM will have on our business going forward. Thank you. Thank you. The next question is from Kelly Wang with CICC. Good evening, President Zhou and President Su.
So for new projects, we'd take a a H, Iran, leading approach yeah, so start small and grow organically. So.
There are a few of these new projects already going on and going through the incubation process right. Now so we will see fruits from these projects in the coming coming quarters.
Feng Zhou: Thank you for taking my question. So my question is, as we can see that our learning services revenue in 2023 is kind of flat compared to 2022, so I'm just wondering what our focus is for our learning services segment in 2024? Thank you.
Yes, certainly one they can put an area we put our efforts as we apply AI to differentiate our products and increase our productivity.
With our large language module technology, there's a lot in this area, we can do like.
Diagnosis.
Tutoring.
Feng Zhou: So in 2023, yeah, if you look at data content services, this is the major contributor of net revenue in our learning services content. So we define digital content services within the learning services sector by any new service that's launched after and according to the policy change. So these primarily include Ling Shi and Youdao literature and some other smaller courses, not including things like adult courses.
Personalized exercises Oh.
All in all the key thing.
Applying AI of course is to.
To focus on learning results and our productivity.
So we believe the most fundamental challenge in learning a power from a motivation and their motivation is August obviously, one area that a human teacher.
This is really really good at to make their students more motivated to one once more to learn.
Feng Zhou: So in 2023, net revenues from digital content services reached RMB 2 billion, so it is up 11.7 year over year. Yeah, and the gross margin was around 70%. So this part of the business met our expectations. So in 2024, we think digital content services will be the focus of our learning services. Yeah, so let me give you a few points regarding our priorities.
But the other very very important area is.
Teachings.
Very labor intensive.
Activity. So we focus on activities that are really important for learning results and also require a lot of labor from teachers, if we can do that.
Then we can get a good results for example.
That is <unk>.
Behind our AI right writing refinement.
Feng Zhou: So first, consumer needs are quite strong in this area, and we are improving the services to satisfy different user needs. So our Youdao Lingshi is already leading in the industry. Literature is also quite popular as we gain more and more users, so one of the key areas we will provide more personalized services to users. For example, Lingshi recently introduced a small class course format for students with more advanced learning needs. So this is actually different from past small class experiences.
Oh for literature, we already refined.
25000 writings from students being just one.
One quarter.
If each one's face like half an hour and that is over 12000.
Hours saved for the teachers, so that's really significant.
Oh lot of writing Skus improvements are delivered so this this is a very important win win both for kind of the unique value. We can add to the cost and also increase the productivity productivity from the company's perspective.
Feng Zhou: The new format is offered with mostly pre-recorded video content and our experienced tutors to provide the service, so feedback is very good for this new format. Youdao Literature, Youdao Bowen, also launched a new major revision of the course, broadening to more age groups and providing more choices with how much the user wants to, and how much time the user wants to spend on the course.
So we have more projects like this going on and so I think it'll have more and more important the impacts on the business. This year.
Yeah. So.
Yes, the point, if you have anything to add.
Yeah.
So I guess any more color after adopt those comments that answer as digital content services and I I mean, most of the people at North of news about in province has been confirmed to have come from the implementation of the reform and baskets out before the college entrance exam.
Feng Zhou: So essentially, as these products establish leadership positions in the industry, we can improve the products to cater to more personalized needs of different cities, different age groups, and different spending plans. So we think we have good opportunities on this front. Yeah, second, yeah, there will be new SKUs this year. The learning needs of families in China have been changing very quickly in the last two years because of the macro environment, the policy, and trains like AI. So naturally, our teams see opportunities for new SKUs. The focus will be on non-curriculum learning for K-12 students.
And the reform, including a reduction in the number of questions adjustments in the classroom score under another innovative approach in the public filings.
So I think if you'll see the trend also.
In the past and every seat every single time I went to college entrance exam has been updated for the new for the new.
You know Matt in the new format helps attached at the weeks backed up all the.
Demand for the consulting plus.
How to deal with.
It's a new test format will go up.
Feng Zhou: The services aim to provide high-quality learning content and services to broaden the learner's scope and cultivate interests in important STEM and humanitarian areas, and strengthen their lifelong competencies. So, for new projects, we take an agile and lean approach; start small and grow organically. There are a few of these new projects already going on and going through the incubation process right now.
Indeed, the whole years.
And internally, we have been we have upgraded our digital content.
Services, including the consultants and otherwise.
Teach them how to prepare and are in the in the in the in.
The family scenario and the true for the.
Yes.
Update for the college entrance exam.
And you know defense. So we think that's the also the further opportunities.
For the client and for the <unk> basic academic discipline chunky do hot especially in food.
Feng Zhou: So we will see fruits from these projects in the coming quarters. Yeah, thirdly, one important area we put our efforts in is applying AI to differentiate our products and increase productivity. With our large-language model technology, there's a lot in this area we can do, like AI diagnosis, AI tutoring, AI personalized exercises, and on and on.
Such a sophisticate indias consultation services I mean, we think we have to deal with a very strong reputations and domestic probably in the mostly in the high school and we think that that's really that's really the kind of the findings of the boroughs off with digital and services in the kind of anymore.
Thank you.
Okay.
The next question is from Thomas Chong with Jefferies.
Yeah.
Hi, Thanks management for taking my questions are boring nobody misquotes online marketing services in China.
Feng Zhou: The key thing of applying AI, of course, is to focus on learning results and productivity. So we believe the most fundamental challenge in learning, apart from motivation. Motivation is obviously one area that the human teacher is really, really good at, to make the students more motivated and want more to learn. Teaching is a very labor-intensive activity. So we focus on activities that are really important for learning results and also require a lot of work from teachers. If we can do that, then we can get good results. For example, that is the idea behind AI writing refinement. For Youdao literature, we have already refined 25,000 writings from students in just one quarter. So if each one saves like half an hour, then that is over 12,000 hours saved for teachers.
What are the new well strive to establish an expat in China is really cool. Thank you.
Okay.
Uh huh.
Hum.
Plenty of industry, the advertising and marketing support publicly.
This is a major domestic a player like Thompson.
Write downs on the Baidu.
Oh go in maybe 20% or 25% in their business.
That's what I thought was up a women's basically these are the figures.
You look at the driver of this trend.
Without doing the development of the AG market.
We have already integrated into our business.
In March our higher growth comparable so the I've ever heard I read the level in the market.
Oh cheaper, though a continuous culture overcalled or growth I called her and plenty to Missouri and the net revenue of RMB, one 3 billion RMB or for the whole year and the increase of nearly a 100% growth year over year. Besides.
Feng Zhou: So that's really significant, a lot of writing skills improvement delivered. So this is a very important win-win, both for the kind of unique value we can add to the course and also increased productivity from the company's perspective. So we have more projects like this going on, and so I think they'll have a more and more important impact on the business this year. Yeah, so, so that's, yeah, so point if you have anything to add. Yeah, I guess.
But it is a we have a deep understanding of kind of demand effectively utilized yourself with the data and our strong focus on a pro forma.
Are those internal capabilities are the key drivers together with relapse.
Our intent dependent the 'twenty to 'twenty four.
Focus on digital advertising.
Our attention to the a b fulfillment.
To strengthen our advantage.
Just a mention about and.
Explore new growth in the following in two areas.
What is the oversea market.
E D S. A provider of digital marketing solutions for the brand promotion of the Chinese enterprises.
Lei Jin: I guess I will add more colors after those comments on the service. And I believe most people know the news about the problems, have confirmed the implementation of the reform in the mask exam for the college entrance exam this year, and the reform includes a reduction in the number of questions, adjustments in the question score, and another innovative approach in solving the problem. So I think if you see the trend in the past and every single time when the college entrance exam has been updated for the new format of the test.
Global Influencer marketing and overseas a D a.
Right.
It's all a sensible your feelings on the pipe.
In the transfusion feeling good about yourself in providing transportation services for 900 on the eighth languages.
All of our self developed with the AI technology.
The reason I was and neutral in medical network for translation.
Maybe just talk on maybe with over 1 million high quality Brilinta and various industries worldwide.
It allows us to reach more than 2 billion daughter.
Lei Jin: And we expect the demand for consulting, for how to deal with the new test format, will go up in the following years. And internally, we have upgraded our digital content services, including the consulting, and otherwise, teaching them how to prepare in the family scenarios for this update to the college entrance exam. And in addition, we think that there are further opportunities for the plan for the Strengthening Basic Academic Discipline, Qiangdi Jihua, Zixun Fu. We are sophisticated in this consultation services, and we think we have built a very strong reputation in domestic top universities and high schools, and we think that will be the kind of driving force for the growth of the digital hand services in 2024. Thank you. The next question is from Thomas Chong with Jeffrey.
Over 75 countries older than that.
Our global growth of the Chinese threat.
Notably we.
We have recently become authorized the otherwise the heightened urgency so that you could talk.
Bill Uh huh.
Hold all our expansion in the international market.
Filter.
Secondly.
The you flow the but didn't know what the coal industry, just like all of that game.
They are they have several advantages in the southern Kim Clarke.
Including capabilities in a material production.
On behalf of gaming on the pace the content marketing.
In the later half of the last year, we began to collaborate more closely with 90 screens.
Moving forward, maybe ill now coming up to leverage of our Roomba stuff you got a couple of minutes on the aforementioned Glenn to provide a more comprehensive tailored affiliates.
Clients in vertical industries.
I mean for a food what's happening to the growth of the attachment.
But heightened and excuse me.
Okay.
Yes. This is a telephone I'd like to add a point.
Got asked a lot recently about a why and how we achieve this a significant growth in the advertisement business. Yeah. Let me try to answer the question here.
Thomas Chong: Hi, thanks management for taking my questions. Following the rapid growth for online marketing services in 2023, what are the new growth drivers that we should expect in 2024? Thank you. Hi, this is Lei Jin.
Uh huh.
I believe the key to our past and our future success and that's is our ability to combine strong business operations and deep advertisement technology.
Lei Jin: In 2023, the advertising market is prospering. With the major domestic players like Tencent, Baidong, and Baidu, they are all growing maybe 20% or 25% in their AD business. The rise of performance-based AI is a significant driver of this trend.
Our businesses are unique.
Or not.
Monetization team of are on traffic, nor a brand advertisement agency.
We are a.
<unk> technology based our performance at our platform business.
So in addition to our owned and operated assets and traffic. We also deliver performance that's for third party traffic.
Lei Jin: As a result, during the development of the AD market, we have integrated AI into our AD business, resulting in much higher growth compared with the average level in the market. We achieved a continuous over-culture growth in ivory production in 2023 and net revenue of RMB 1.3 billion for the whole year, and an increase of nearly 100% growth year-over-year. Besides AI capabilities, we have a deep understanding of current demand, effective utilization of the data, and our strong focus on AD performance. Those internal capabilities are the key drivers of great results. In 2024, we will focus on digital advertising, paying attention to the AD performance, continue to strengthen our advantage just mentioned above, and explore new growth in the following two areas. The first is the overseas market.
So every page view and every click contributes a tiny bit of revenue. So in this kind of business.
Efficiency.
Key to business.
That's why our AI and our large language module capability is a good fit for this and Oh is very useful in a learning and adapting the delivery process to maximize the fish efficiency and value creation.
So a lot of app companies on the market.
They have a strong business ability good up sales and acquiring customers, but not necessarily good at AR technology.
A lot of on the other hand, there are a lot of.
Hi Tech teams.
Do not really have strong business operations.
So.
Through the years of our experience our team have so I think we have acquired a bulk skills, so business operations and deep understanding of our technology.
Lei Jin: Youdao ADS provides a digital marketing solution for the brand promotion of Chinese enterprises. Global Influencer Marketing and Overseas AD Placement, with our extensive experience and expertise in the translation field. Youdao ADS excels in providing translation services for 108 languages. Moreover, our self-developed AI technology, the combination algorithm, and the neutral network translation enable us to connect with over 1 million high-quality influencers in various industries worldwide.
So that is why we have seen such growth in the past year.
I believe also whether if.
If we can do both skus better that also will determine whether we can continue to be successful in the future.
Hope this is helpful. In understanding how we think about our AD business yeah. Thank you.
The next question is from <unk>, Zhang with what Ty Securities.
Yes.
Hello.
Good evening management and this is some sort of taking that section and trying to take on these three marquee hi, Steve Hatten.
Lei Jin: This allows us to directly reach more than 2 billion users in over 75 countries or regions, surveying the global growth of the Chinese brand. Notably, we have recently become an authorized advertising agency for TikTok, which will further support our expansion in the international market. Secondly, we are exploring the potential of the vertical industry, just like online games. We have several advantages in the serving game plan, including capabilities in AD material production, deep understanding of gaming, and expertise in content marketing. In the latter half of the last year, we began to collaborate more closely with 90s Games.
Yeah, and Tony Kamin for household reach and she'll go Frank.
Yeah.
Uh Huh I've discussed our recent progress on devices.
In the prepared remarks, yeah. So let me provide some more details on the most recent product launch.
And some thoughts on the future directions.
The Asics Pro Dictionary pen Uh huh.
The lunch.
Cities are expectations are.
We talked about with over 50000 units sold in the first week.
In terms of the product itself or the ASIC probe pin has the best screen and the best content within the price range and support high quality offline translation.
AI features like Grandma instruction and what instruction.
Feng Zhou: Moving forward, we will continue to leverage our robust AI capabilities and aforementioned strengths to provide more comprehensive and tailored services to the clients in vertical industries. Thank you for your time and commitment to the growth of the advertising business. Thank you. Yeah, this is Zhou Feng.
Moreover.
Our supply chain team did a really good job of delivering very good quality and.
A good value for a relatively affordable price yeah. So also a live video selling on our adult <unk> contracture.
Related to the launch momentum so.
That's kind of a rough breakdown of the a fixed lunch yeah. It is worth pointing out that although the <unk> pro is more affordable for consumers, Dan or higher end of product products.
Feng Zhou: I'd like to add a point. We got asked a lot recently about why and how we achieved this significant growth in the advertising business. Let me try to answer the question here.
<unk> actually has a similar gross margin ratio for us.
Compared to our higher priced products. So we're not sacrificing margin for selling more units, we are able to maintain a competitive gross margin ratio for this product.
Feng Zhou: I believe the key to our past and future success in ads is our ability to combine strong business operations and deep advertising technology. Youdao's ad business is unique. We are not a... [inaudible] So, in addition to our own and operated assets and traffic, we also deliver performance ads for third parties. So every page view and every click contributes a tiny bit of revenue.
Because of our strong in house design abilities, and also our close collaboration with our.
IC supplier with our other supply chain partners yeah.
The other product that listening pot ethics also met our expectations.
It is the number one selling product in its category right now so.
Feng Zhou: So in this kind of business, efficiency is key to business. That's why our AI and large language modeling capability is a good fit for this, and it is very useful in learning and adapting the ad delivery process to maximize efficiency and value creation. So a lot of ad companies on the market have strong business abilities, good at sales and acquiring customers, but not necessarily good at technology. On the other hand, a lot of ad tech teams do not really have strong business operations.
This is a good start for the devices team this year and I expect that team to keep delivering good launches in the coming months.
Going forward, we have a more device launches in Q1 and Q2.
Okay. Yeah, if you look at our products last year and before.
We are we have been mostly focused on the higher priced products compared to our peers.
The plan going forward is to cover both higher and a little bit lower price points with the.
Both with leading products in their category.
So we are.
We're able to do this because it is finally possible to.
Bo Zhang: Through the years of experience our team has had, I think we have acquired a lot of skills. So business operations and a deep understanding of our technology. So that is why we have seen such growth in the past year. And I believe whether or not we can do both skills better will also determine whether we can continue to be successful in the future. This is helpful in understanding how we think about the ad business. Yeah, thank you. The next question is from Bo Zhang with Huatai Securities. Hanoi, Good evening management. This is Cain.
Or premium quality and experience for before these are slightly lower priced products.
Cause of the.
Experience of our team of accumulated over time over the years and the maturity of the.
Off the supply chain.
So now we believe is the right time to reach more users with this product combination.
For our future.
Premium products. So let me say a few words yeah. So.
I I believe.
And hardware features unique hardware features provide a lot of opportunity for creating value for users for more premium products.
Feng Zhou: Thanks for taking my questions. In 2023, the smart device business faced a challenge. In 2024, how will it return to growth?
For example, yeah.
Running a lots of language models.
On the device itself.
As a very attractive because now that.
Caini Wang: I discussed recent progress on devices in my prepared remarks, so let me provide some more details on the most recent product launch and some thoughts on the future direction. The ASICS Pro Dictionary Pen, The launch exceeded our expectations, as we talked about, with over 50,000 units sold in the first week. In terms of the product itself, the A6 Pro Pen has the best screen and best content within the price range and supports high-quality offline translation and AI features like grammar instruction and word instruction.
Features like Brahma instruction become popular with our users are naturally users want to run them on device as it is more convenient.
The response time is better so.
So one of the most asked questions. We got for the Dictionary pen is actually whether it supports offline translation. You of course are all our dictionary pen supports offline translation yeah.
But that reflects our thinking of the user that are a key deciding factor in their purchase is whether it kind of supports these offline.
Operations are so on device and they all of them are very interesting. Yeah. So we think we yeah. Yeah, we will have more to share when we have them.
Feng Zhou: Moreover, our supply chain team did a really good job of delivering very good quality and good value for a relatively affordable price. Also, live video selling on Douyin contributed to the launch momentum. So that's kind of a rough breakdown of the A6 Pro launch.
So lastly.
The sales channel reorganization and stuff. So we've transitioned to a more online focused more H L.
Sales and supply structure the recent lunches.
Kind of a first a testament to the team's ability.
Feng Zhou: Yeah, it is worth pointing out that although the A6 Pro is more affordable for consumers than our higher-end products, it actually has a similar gross margin ratio. [inaudible] because of our strong in-house design abilities and also our close collaboration with our IC supplier and our other supply chain partners. The other product, the ListeningPod E6, also met our expectations.
The leading library sales.
Kols.
Recommendations are brought a significant momentum to the to the lunch.
The team still has a lot of work ahead of them and.
They need to build a more sales new sales and marketing channels and also optimize to get good rois all rights from from the sales channels. So nonetheless, the lunch is a very good start so hope that answers. Your question. Thank you.
Feng Zhou: It is the number one selling product in its category right now. Yeah, so this is a good start for the devices team this year. And I expect the team to keep delivering good launches in the coming. Going forward, we have more device launches planned in Q1 and Q2. If you look at our products last year and before, we have been mostly focused on higher-priced products compared to our peers. The plan going forward is to cover both higher and a little bit lower price points, both with leading products in their categories.
Yeah.
The next question is from equal Zhang with Citrix.
Yeah.
Hello management. Thank you for taking my question well I have only one question.
Improved cash flow observing 20th industry could management provide some outlook for the cash flow in 'twenty 'twenty four thank you.
And thank you for your question. This isn't when I went to your question on.
Operating cash flow is always treated as a key housing indicators for our company.
And we are pleased to note remarkable improvements in our operating cash flow up 29th street compared with prior periods.
The operating cash outflow in Canadian history.
Feng Zhou: So we're able to do this because it is finally possible to deliver premium quality and experience for these slightly lower priced products because of the experience of our team accumulated over time, over the years, and the maturity of the supply chain. So now, we believe it is the right time to reach more users with this product combination. For future premium products, let me say a few words. I believe AI and hardware features, unique hardware features, provide a lot of opportunity for creating value for users for more premium products. For example, yeah, running large language models on the device itself is very attractive because now that ARM features like grammar instruction have become popular with our users, naturally, users want to run them on the device. Yeah, as it is more convenient, the response time is better, so one of the most asked questions we got for the dictionary pen is actually whether it supports offline translation. Yeah, of course; all our dictionary pens support offline translation.
Was narrowed by near 20% a year over year.
Notably in the fourth quarter.
I didn't catch him for a leach I ran out of around RMB 161 million rising.
Rising by nine 1% year over year.
This indicates that the business is progressing towards a healthy direction.
No settlement basis, both the learning services and online marketing services achieved a positive operating cash flow is equal.
Which makes us more confident in the for the improved operating cash flow in 'twenty to 'twenty four.
We know that to matan, such good momentum for our operating cash flow in 'twenty to neutral.
Firstly, we will continue to enhance our ability to general generates cash improvements through leveraging AI technology and optimizing business operations.
In addition, as Tuesday.
If I take the settlement improvements input that the performance and the sales channel management.
Expended to boost the cash generation to the ability for these segments.
Feng Zhou: Yeah, but that reflects the thinking of the user that a key defining factor in their purchase is whether it can support these offline operations. So on-device, and they are very interesting. Yeah, so we think we, yeah, yeah, we will have more to share when we have it. Yeah, so lastly, the sales channel reorganization is done. So we've transitioned to a more online-focused, more agile sales and supply structure. The recent launch is kind of a first testament to the team's ability.
It is also worth note, noting that the catch Peru exhibit quarterly.
But.
Bearing with a stronger seasonality in the second and the fourth quarter.
Preliminary due to a.
User acquisition and the retention activity in the learning and 17 settlement during this period.
So at the mall.
Langton perspective, now that <unk> has been providing financial support to do it.
For instance.
Three years through revolving loan facility amounting to.
Feng Zhou: The Douyin live video sales and the KOL recommendations brought significant momentum to the launch. The team still has a lot of work ahead of them, and they need to build out more sales, new sales and marketing channels, and also optimize to get good ROI from the sales channels. So nonetheless, the launch is a very good start. So I hope that answers your question. Thank you. The next question is from Yikun Zhang with Citic.
$300 million as disclosed in our annual release with maturity dated.
So first 2027.
Facilitate the development of.
That's business, especially in the area of our Lansing investment in core technologies and there was something.
In sum, we are very confident in our cash flow.
For 10 years in your pool.
Yeah.
And that concludes the question and answer session I would like to turn the conference back over to the management for any additional or closing comments.
Yikun Zhang: Hello, management. Thank you for taking my question. Well, I have only one question.
Thank you once again for joining us today, if you have any further countries. Please feel free to contact us.
Yongwei Li: With the improved cash flow observed in 2023, could management provide an outlook for the cash flow in 2024? Thank you. Thank you for your question. This is Wayne.
As your direct reach out to peers and financial communications in China, or the glass type a great day.
Yeah.
Okay.
Ladies and gentlemen, thank you for joining the conference is now over you may disconnect. Your telephones. Thank you.
Yongwei Li: I will take your question. Operating cash flow is always treated as a key healthy indicator for a company, and we are pleased to note a remarkable improvement in our operating cash flow in 2023 compared with prior periods. The operating cash outflow in 2023 was narrowed by near 20% year-over-year.
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Yongwei Li: Notably, in the fourth quarter, the operating cash inflow reached a record of around RMB161 million, rising by 91% year-over-year. This indicates that the business is progressing in a healthy direction. On a segment basis, both the learning services and online marketing services help achieve a positive operating cash inflow, which makes us more confident in further improved operating cash flow in 2024. We expect to maintain such good momentum for our operating cash flow in 2024. Firstly, we will continue to enhance our ability to generate cash inflows through leveraging AI technology and optimizing business operations. In addition, as to the smart devices segment, improvements in product performance and sales channel management are expected to boost the cash generation capability from this segment. It is also worth noting that the cash flow exhibits quarterly variations, varying with a stronger seasonality in the second and the fourth quarter, primarily due to user acquisition and retention activity in the learning services segment during this period. Furthermore, from a long-term perspective, NetEase has been providing financial support to us for three years to a revolving low facility amounting to.
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Yongwei Li: $300 million, as disclosed in our new release with maturity dated on March 31st, 2027. We should facilitate the development of business, especially in the area of our long-term investment in core technologies and resources. In sum, we are very confident in our cash flow for 2024.
Operator: Thank you. And that concludes the question and answer session. I would like to turn the conference back over to the management for any additional or closing comments. Thank you once again for joining us today. If you have any further questions, please feel free to contact us directly or reach out to Pearson Financial Communications in China or the U.S. Have a great day. Ladies and gentlemen, thank you for joining us. The conference is now over. You may disconnect your telephones. Thank you. Thanks for watching! [inaudible] Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong Zong