Q1 2024 Youdao Inc Earnings Call
Good day and welcome to the <unk>.
Speaker Change: 'twenty 'twenty four first quarter earnings Conference call. Today's conference is being recorded at this time I would like to Tony conference over to Mr. Jeffrey Wang Investor Relations Director of <unk>. Please go ahead.
Operator: Thank you, Operator. Please note the discussion today will contain forward-looking statements related to the future performance of the company, which are intended to qualify for the C-Fiber Firm liability as established by the U.S. Private Security Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions, 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.
Jeffrey Wang: Thank you operator. Please note the discussion today will contain forward looking statements relating to the future performance of the company, which are intended to qualify quantify for that fleet farber from that entity.
Operator: A general discussion of the risk factors that could affect Youdao's business and financial results is included in certain company findings with the U.S. Securities and Exchange Commission. However, the company does not undertake any obligation to update this forward-looking 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 recommendations of GAAP to non-GAAP financial results, please see the 2024 fourth quarter financial results news release issued earlier today.
Speaker Change: Capex Baidu as Crabby Securities Litigations Reform Act.
Speaker Change: Such statements are not guarantees of future performance and are subject to risks and.
Speaker Change: Certainties assumptions and other factors some of these rates 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 <unk> business and financial results.
Speaker Change: <unk> is included in certain companies fighting.
Speaker Change: <unk> Securities and Exchange Commission the company does not undertake any obligation to update these forward looking information except as.
Speaker Change: As required by law.
During today's call management will also discuss certain non-GAAP financial measures for comparison purposes, only for the definition of non-GAAP financial measures and Brad Kessel Asia up GAAP to non-GAAP financial results. Please see the 2024th quarter financial results news release issued earlier today.
Operator: As a reminder, this conference call is being recorded. 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 Senior Management are 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 directions.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: A webcast replay of this conference call will be available on <unk> corporate website at IR Dot Dot dot com.
Speaker Change: Joining us today on the call from <unk> Senior management Doctor, Some Joe our Chief Executive Officer.
Speaker Change: Late June our president.
Speaker Change: <unk>, our VP of strategy and capital markets and Mr. Wei Lee VP of finance.
I will now turn the call over to Dr. Joe <unk> to review some of our recent highlights and our strategic direction.
Feng Zhou: Thank you, Jeffrey, and thank you all for participating in today's call. Before we begin, I'd like to remind everyone that phone numbers are based on your information, and less otherwise specifically stated.
Thank you Jeffrey and thank you all for participating in today's call before we begin I'd like to.
Speaker Change: As a reminder, this phone numbers based on it.
Speaker Change: Unless otherwise specifically stated.
Feng Zhou: We had a solid quarter in Q1 2024, and revenues reached RMB1.4 billion, marking 19.7% year-over-year growth. Income from operations amounted to RMB29.9 million, a significant turnaround from the RMB195.8 million lost from operations in the same period of last year. This marks our first ever profitable first quarter and our first ever consecutive two quarters of profitability. In terms of cash flow used in operating activities, the first quarter was RMB3.91 million, as Q1 is seasonally low in cost renewal.
Speaker Change: We had a solid quarter in Q1 2024.
Speaker Change: Net revenues reached RMB, one 4 billion, marking 19, 7% year over year growth.
Speaker Change: Income from operations amounted to RMB $29 9 million a significant turnaround from the RMB $195 8 million loss from operations in the same period of last year.
Speaker Change: This will mark.
Speaker Change: This marks our first ever profitable first quarter, and our first ever consecutive two quarters of profitability.
Speaker Change: In terms of cash flow used in operating activities in the first quarter.
Speaker Change: Was RMB $391 million as Q1 is seasonally low on close to renews. This represents an improvement of 10, 5% year over year.
Feng Zhou: This represents an improvement of 10.5% year-over-year. Now, let's review the development across our business lines. Learning services revenue reached RMB 780 million, largely flat compared with the same period last year.
Speaker Change: Now, let's review the development across our business lines.
Speaker Change: Learning services revenue reached RMB $718 million.
Speaker Change: Largely flat compare with the same period last year.
Feng Zhou: Within the segment, digital content services maintained strong momentum with net revenues of RMB499.8 million in Q1, marking an 11% year-over-year growth. Gross margin has consistently exceeded 70% for three consecutive quarters. Furthermore, the net revenues generated by digital content services cover the cost-sharing operating expenses and yielded meaningful profit. In terms of product enhancements, we upgraded Youdao Lingshi in Q1 by introducing a tiered teaching approach tailored to individual needs and capabilities. More recently, we concluded spring renewals for Youdao Lingshi students, and the retention rate reached a historic high of over 70%, up more than 10 percentage points year-over-year.
Speaker Change: Within the segment.
Speaker Change: Content services maintained strong momentum with net revenues of RMB $499 8 million in Q1, marking a 11% year over year growth.
Speaker Change: Gross margin has consistently exceeded 70% for three consecutive quarters. Furthermore, the net revenues generated by digital content and services cover the cost and operating expenses and yielded meaningful profits.
Speaker Change: In terms of product enhancements, we upgraded youre dialing.
Speaker Change: In Q1 by introducing a tiered teaching approach tailored to individual needs and capable capabilities more recently, we concluded this spring renews for Yodelling assist students.
Speaker Change: The retention rates reached a historic high of over 70% up more than 10 percentage points year over year.
Feng Zhou: This retention rate is remarkably high for this age group and competitive with offline services, while offering higher growth margins. Additionally, we launched a new product for Youdao literature called Virtual Tour of 24 Cities, designed to help students improve their reading and writing abilities. Lastly, leveraging our AI capabilities, we efficiently offered over 30,000 high-quality writing refinements in the first quarter through AI writing refinements, 80% more than last quarter. Next in learning services are our AI-driven apps and services.
Speaker Change: This retention rate is remarkably high for this age group and a competitive with offline services.
Speaker Change: While offering higher gross margins.
Ali: Ali we launched a new product for Utah literature called virtual tour of 24 cities.
Ali: So switch hung.
Ali: Designed to help students improve their reading and writing.
Ali: Lastly.
Ali: Leveraging our AI capabilities, we efficiently offered.
Ali: <unk> thousand high quality, writing refinements in the first quarter through AI, writing refinements, 80% more than last quarter.
Ali: Next in learning services, our AI driven absence services.
Feng Zhou: On previous calls, we have discussed this extensively, our AI initiatives, particularly our large language model project. We believe Youdao is uniquely positioned to bring AI experiences to a lot of users in China and other countries, driving business growth due to our large user base and our long-standing experience in algorithm-driven products. Adopting a lean approach, we develop our models and multiple applications simultaneously at a fast pace.
Ali: This call as we have discussed this extensively our AI initiatives, particularly our large language model projects. We believe <unk> is uniquely.
Ali: <unk> positioned to bring AI experiences to a lot of users in China and other countries driving business growth.
Ali: Due to our large user base and the long standing experience in our group and the drip and products.
Ali: Adapting our lean approach, we develop our models and multiple applications simultaneously at a fast pace.
Feng Zhou: I'm pleased to share that the total sales of our AI-driven subscription services reached approximately RMB 50 million for the first time in Q1, representing a remarkable year-over-year increase of over 140%. In fact, this segment has grown year-over-year by over 50% for five consecutive quarters, and we expect the trend to continue. These AI-driven subscription services primarily include Youdao Dictionary, Youdao Desktop Translation, HiEcho, and multiple international apps that provide translation, language learning, and other services.
Ali: I am pleased to share that.
Ali: The total sales of our AI driven subscription services reached approximately RMB 50 million for the first time in Q1.
Representing a remarkable year over year increase of over 140%.
Ali: Actually this segment has grown year over year by over 50% for five consecutive quarters, and we expect the trend to continue.
Ali: These AI driven subscription services.
Ali: Primarily includes dictionary.
Ali: Desktops translation high nickel and multiple international apps that provide the translation language learning and other services.
Feng Zhou: While we are still in the early days, the future looks incredibly promising. We firmly believe that consumer-facing products are the largest gross opportunity for AI at present, and a combination of large language models and subscriptions is a very natural route for growing AI products. For instance, leveraging our proprietary large-language model, Ziyue, we have increased the accuracy of Chinese-English translation by approximately 98%, driving more subscriptions. Additionally, we recently launched an upgraded version of HiECO in collaboration with the IELTS organization, introducing modules for IELTS speaking practice, simulated exams, and a bilingual teaching mode to better cater to Chinese users' learning needs.
Ali: While we are still in the early days of the future looks incredibly promising.
Ali: We firmly believe that consumer facing products are the largest the gross opportunity for AI at presence and <unk>.
Ali: Combination.
Ali: <unk> language models and subscriptions are very natural role.
Ali: Route for growing AI products.
Ali: For instance, leveraging our proprietary large language models.
Ali: We have increased the accuracy of Chinese English translation approximately.
Ali: 90%, 98% driving more subscriptions.
Additionally, we recently launched an upgraded version of higher coal in collaboration with the <unk> organization.
Ali: Introducing modules fall outs speaking practice.
Stimulated exams and bilingual teaching mode to better cater to Chinese users' learning needs.
Feng Zhou: Furthermore, Crest Mobile recognized HiEcho as a pioneer application in the education industry for AI-generated content. Our online marketing services segment continues to demonstrate remarkable growth, with net revenues reaching a historic high of RMB 492.7 million in the first quarter, marking an impressive 125.9% year-over-year growth. This segment has sustained a robust momentum, achieving over 50% year-over-year growth for six consecutive quarters, driven largely by the strong performance of real-time API, RTA, and the rapid expansion of domestic key opinion leader, KOL, advertising vertical, both of which experienced over 100% year-over-year growth in the first quarter, underscoring the segment's strength and our ability to capitalize on emerging trends.
Ali: Furthermore, Chris mobile recognized HEICO as a pioneer application in the education industry for AI generated contents.
Ali: Our online marketing services segment continues to demonstrate remarkable growth with net revenues, reaching a historic high of RMB $492 7 million in the first quarter, marking an impressive 125, 9% year over year gross.
Ali: This segment has sustained a robust momentum achieving over 50% year over year growth for six consecutive quarters, driven largely by the strong performance of real time, API RTA and the rapid expansion of domestic key opinion leader.
Ali: Advertising verticals, both of which experienced over 100% year over year growth in the first quarter.
Ali: The scoring the segment's strength and our ability to capitalize on emerging trends.
Feng Zhou: Looking ahead, we see multiple avenues for further growth, including leveraging industry trends like data management platforms, DMP, as well as strengthening our collaboration and synergy with NetEase. Our partnership with NetEase brings us the benefit of their vast traffic sources and access to more customers within the group. In the first quarter, less than 10% of our app revenue originated from NetEase, indicating significant future growth potential as we deepen the partnership. At the same time, our AI capabilities will empower the groups to conduct advertising placement more accurately and efficiently across business lines, creating a mutually beneficial synergy that drives growth for both parties.
Ali: Looking ahead, we see multiple avenues for further costs, including leveraging industry trends like data management platforms, CMP as well as strengthening our collaboration of synergy with the medical group.
Ali: Our partnership with Nettie Springs, as the benefit of the vast traffic sources and access to more customers within the group.
Ali: In the first quarter less than 10% of our App revenue originates from net piece, indicating significant future growth potential as we deepen the partnerships.
Ali: At the same time.
Ali: Our AI capabilities will empower the groups to conduct advertising placements more accurately and efficiently across business lines, creating a mutually beneficial synergies that drives growth for both parties.
Feng Zhou: Regarding the smart devices segment, net revenues were RMB 181.2 million in the first quarter, reflecting a 14.8% year-over-year decline. However, it is encouraging to note that the rate of decline has narrowed by 30 percentage points compared to the previous quarter, indicating stabilization on the product front.
Speaker Change: Regarding the smart devices segment net revenues were RMB $181 2 million in the first quarter, reflecting a 14, 8% year over year decline.
Speaker Change: However, it is encouraging to note that the rate of decline has narrowed it by 30 percentage points compared to the previous quarter, indicating a stabilization.
Speaker Change: On the product front.
Feng Zhou: We recently released Youdao Dictionary Pen F6 Pro, which quickly became the top-selling dictionary pen in terms of sales volume on JD.com after its launch. Well, we continue to face headwinds in the second half, but we remain confident in the medium to long-term outlook for our learning devices, underpinned by our commitment to product innovation and our deep understanding of the education technology market. As usual, I will share with you some thoughts about our overall strategy.
Speaker Change: We recently released you Directionally Pan <unk> probe.
Speaker Change: Which quickly became the top selling dictionary pen in terms of sales volume on JD Dot com after its launch.
Speaker Change: While we continue to face headwinds in this segment.
Speaker Change: We remain confident in the medium to long term outlook for our learning devices underpinned by our commitment to product innovation and our deep understanding of pediatric patient technology market.
Speaker Change: As usual let.
Speaker Change: Let me share with you some thoughts about our overall strategy.
Feng Zhou: As our recent financials indicate, our business is nearing the achievement of sustainable profitability. A key strategic question for us is... How do we cross the sustainable profitability threshold and build long-term growth in this highly competitive education technology sector? Our strategy is to maintain financial discipline and focus on a few key businesses with high growth and strong competitive advantages. Currently, we have identified three areas where we are concentrating more energy and resources.
Speaker Change: As our recent financials indicate our business is nearing the achievements of sustainable profitability.
A key strategic question philosophy.
Speaker Change: How do we cross the sustainable profitability thresholds and build long term growth in this highly competitive education technology sector.
Speaker Change: Our strategy is to maintain financial discipline and focus on a few key businesses with high growth and strong competitive advantages.
Speaker Change: Currently we have identified the three areas, where we are concentrating more energy and resources first our focus is on digital content and services in particular Yodelling shoe for high school students.
Feng Zhou: First, our focus is on digital content services, in particular, Youdao Lingshi for high school students. Over the past few years, Lingshi has emerged as the leading player in its segment, and we believe there is a healthy multi-line growth trajectory for Lingshi in the final.
Speaker Change: Over the past few years Cninsure has emerged as the leading player in its segment.
Speaker Change: We believe there is a healthy multiline growth trajectory following sitting in front of us.
Feng Zhou: Secondly, we are focusing on online marketing services, which is approaching RMB 500 million in quarterly revenue. We see two main growth drivers working in our favor, the trend of tech-driven advertising product innovation, including wide applications of RTA, DMP, and particularly generative AI in the, as well as untapped customer acquisition opportunities as we achieve larger scale and product leadership. Thirdly, our focus is on AI-driven subscription services, currently generating around RMB50 million in total quarterly sales.
Speaker Change: Secondly, we are focusing on online marketing services, which is approaching the RMB $500 million in quarterly revenues, we see two main growth drivers working in our favor the trend of tech driven advertisement product innovations, including wide applications of <unk>.
Speaker Change: CMP and particularly generated by the industry as well as untapped customer acquisition opportunities as we achieve larger scale and product leadership.
Speaker Change: Thirdly, our focus is on the AI driven subscription services.
Speaker Change: Currently generating around RMB 15 million in quarterly total sales, although relatively small at present.
Feng Zhou: Although relatively small at present, this segment is growing at high speed with over 100% year-over-year growth this quarter. It is a key conduit through which our investment in AI will pay off. I'm pleased to share that we will be launching Mr. P AI Tutor, the first all-subject AI tutor in China, as a free mobile app in June. We encourage you to try it out and provide us with feedback once it's available.
Speaker Change: This segment is growing at a high speed with over 100% year over year growth this quarter.
Speaker Change: It is a key conduit through which our investments in AI will pay off.
Speaker Change: I am pleased to share that we will be launching Mr. P theater. The first all subject tutor in China is a free mobile app in June.
Speaker Change: We encourage you to try it out and provide us provide us with feedback once it's available.
Feng Zhou: In conclusion, we are laser focused on driving robust growth by offering premium online services, online learning services, and spearheading AI innovations for consumers, while concurrently maintaining financial discipline. The future holds immense promise for AI-driven learning, advertising, and consumer service. With that, I will turn the call over to Su Kong to provide you with more detailed insights into our financial performance. Thank you.
Speaker Change: In conclusion, we are laser focused on driving robust growth by offering premium online services online learning services and spearheading AI innovations for consumers.
Speaker Change: While concurrently maintaining financial discipline.
Speaker Change: The future holds immense promise for adjuvant learning advertisement and consumer services.
Speaker Change: With that I will turn the call over to <unk> to provide you with more detailed insights into our financial performance. Thank you.
Speaker Change: Yes.
Peng Su: Thank you, Dr. Zhou, and hello everyone. Today, I will be presenting some financial highlights from the first quarter of 2024. We encourage you to read through our press release issued earlier today for further details. For the first quarter, total net revenue or RMB 1.4 billion or U.S. dollar 492.8 million, representing a 19.7% increase from the same period last year. Net revenue from our learning services was RMB 780 million, or US$99.4 million, representing a 2% decrease from the same period in 2003.
Speaker Change: Thank you <unk> and Hello, everyone today, I will be presenting some financial highlights from the first quarter. After a tiny tiny we encourage you to read through our press release issued earlier today for further details.
Peng Su: Net revenue from our smart devices was RMB 181.2 million, or US dollar 25.1 million, down 14.8% from the same period of 2023, primarily due to decreased demand for the learning products in the first quarter of 2024. Net revenue from our online marketing services was RMB 492.7 million, or USD 68.2 million, representing a 125.9% increase from the same period of 2023. The year-over-year increase in revenue from online marketing services was primarily due to the increase in sales of performance-based advertisements through the third party's Internet property, which was driven by our continuing investments in cutting-edge AI technology.
Speaker Change: For the first quarter total narrow in total net revenue were RMB, one 4 billion or U S dollar $192 a minute representing a 19, 7% increase from the same period of 2023 now.
Speaker Change: Net revenue from our learning services were RMB $780 million, while U S dollar $99 four minute, representing a 2% decrease from the same period off turnaround story.
Speaker Change: Net revenue for our smart devices were RMB, $181 2 million or U S. Dollar $25 1 million down 14, 8% from the same period, often inventory primarily due to the decrease the bad for the running products in the first quarter of 'twenty 'twenty four.
Speaker Change: Net revenue for our online marketing services were RMB $492 seven minutes.
Speaker Change: Six to $8 two minute, representing a 175, 9% increase from the same here at 29th Street. So.
Speaker Change: So year over year increase in revenue from the online marketing services was primarily due to the increase in sales softer performance based advertisement soon as of third parties Internet properties, which was driven by our continuing investments in the cutting edge technology.
Peng Su: For the first quarter, our total gross profit was RMB 681.5 million, or US$ 94.4 million, representing a 13.2% increase from the third quarter of 2013. Gross margin for learning services was 63.1% for the first quarter of 2024, compared with 62% for the same period of 2023; course margin for smart devices was 32.6% for the first quarter of 2024, compared with 39.6% for the same period of 2003. Gross margin for online marketing services was 34.3% for the first quarter of 2024 compared with 29.1% for the same period of 2023.
Speaker Change: For the fourth quarter. Our total gross profit was RMB 681.5 minute or U S. Dollar $94 4 million, representing a 13, 2% increase from the third quarter of a turnaround story.
Speaker Change: Gross margin for learning services.
Speaker Change: 63, 1% for the first quarter, often painful compared with 62% for the same period often history.
Speaker Change: Gross margin for smart devices was 32, 6% for the first quarter opportunity for <unk>.
Speaker Change: Compared with 79, 6% for the same period after transplant.
Speaker Change: Gross margin for online marketing services was 34, 3% for the first quarter of 284, compared with 29, 1% for the same period of 2009 three.
Peng Su: For the first quarter, total operating expense was RMB 651.6 million, or OUF dollar 90.2 million, compared with RMB 797.6 million for the same period of last year. On that basis, for the first quarter, our sales and marketing expenses were RMB455.4 million, compared with RMB565.2 million in the first quarter of 2013. Research and development expense of RMB 146.7 million compared with RMB 182.8 million for the first quarter of 2023. Our operating income margin was 2.1% in the first quarter of 2024, compared with an operating loss margin of 16.8% for the same period of last year.
Speaker Change: For the first quarter total operating expenses were RMB, $651 6 million or U S. Dollar.
Speaker Change: That he put in two minutes.
Speaker Change: Harriss, RMB 700, $797 $6 million for some period of last year.
Speaker Change: That for the first quarter, our sales and marketing expense were RMB $455 4 million compared with RMB $565 2 million in the first quarter of enhanced.
Speaker Change: Research and development expenses were RMB, $146 7 million compared with RMB $182 8 million for the first quarter of 'twenty. Thanks, Rick.
Speaker Change: Okay.
Speaker Change: Our operating income income margin of 21% in the first quarter of <unk> compared with operating loss margin of 16, 8% for the same period of last year.
Peng Su: For the first quarter of 2024, our net income attributable to ordinary shareholders was RMB 12.4 million, or 1.7 million U.S. dollars, compared with a net loss attributable to ordinary shareholders of 204.4 million for the same period of last year. Non-capital net income attributable to ordinary shareholders for the first quarter was RMB 20.3 million. For U.S. dollars, RMB 2.8 million. This compares with a non-capitalized net loss attributable to the ordinary shareholders of RMB 193.9 million for the same period last year.
Speaker Change: For the first quarter, our timeframe for net income attributable to ordinary shareholders was RMB 12, four minute, while U S dollar $1 7 million compared with net loss attributable to the audit and never shareholders. After $204 four minutes for the same period of last year.
Speaker Change: non-GAAP net income attributable to ordinary shareholders for the first quarter was RMB 20 planes for emitter color.
Speaker Change: Waller to paint a minute.
Speaker Change: Compared with RMB compared with non-GAAP net loss attributable to the ordinary dividend shareholders. After RMB $193 9 million for the same period of last year.
Peng Su: Basic and diluted net income per ADS, attributable to ordinary shareholders for the first quarter of 2024, were RMB 0.11, or U.S. dollar 0.02, and RMB 0.1, or U.S. dollar 0.01. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders for the first quarter was RMB 0.17, or US dollar 0.02. Our net cash used in operating activity was RMB391 million, or US$54.1 million for the first quarter. Looking at our balance sheet, as of March 31, 2024, our contract liability, which mainly consists of deferred revenue generated from our online learning services, was RMB769.1 million, or US$106.5 million, compared with RMB1.1 billion as of Dec. 31, 2023. At the end of the period, our cash, cash equivalents, restricted cash, time deposit, and short-term investment totaled RMB 326 million, or U.S. dollars 45.2 million.
Speaker Change: Basic and diluted net income per ads.
Speaker Change: Attributable to ordinary shareholders for the fourth quarter and a 74 were RMB <unk>, one watt or U S dollar 0.02, and RMB <unk> one.
Speaker Change: Zero point in tier one.
Speaker Change: non-GAAP basic and diluted net income per ads attributable to ordinary shareholders for the first quarter was RMB zero point about seven O U S dollar zero point.
Speaker Change: Our net cash used in operating activities was RMB 391 minute or U S dollar $54 5 million for the first quarter.
Speaker Change: Looking at our balance sheet as of March 31, 70.
Speaker Change: For our contract and our ability.
Speaker Change: <unk> costs it helps to defer revenue generated from our online learning services.
Speaker Change: Or RMB $769 1 million.
Speaker Change: Dollar $206 5 million compared with RMB, one 1 billion as of December 31, 2000 and St.
Speaker Change: I know the Purion, our cash cash equivalents restrict cash account deposit and short term investment totaled RMB 396 million.
Speaker Change: U S dollar $45 2 million.
Operator: This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.
This conclude our prepared remarks. Thank you for your attention we will now like to open the call to your questions. Operator. Please go ahead.
Speaker Change: Yes.
Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from the line of Brian Gong with Citigroup. Please go ahead.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: You are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker Change: Our first question comes from the line of Brian <unk> with Citigroup. Please go ahead.
Speaker Change: Yes.
Speaker Change: Thanks for taking my question.
Speaker Change: Direct relation some decent results.
Speaker Change: My question is regarding digital content.
Speaker Change: Confirmed.
Speaker Change: Demonstrated record of growth there was a pause button.
Speaker Change: Quarters, so commencement.
Speaker Change: The primary.
Primary sector struggling cintra Wilson thank you.
Speaker Change: Okay.
Peng Su: Thank you for watching. This is Supong.
Sue Pump: Thank you Brian this is sue pump.
Peng Su: We think the first is about digital content services, particularly Youdao Lingshi, which are the most in-demand and financially robust parts of our learning services in the last year and net revenue from digital content services. It's around 2 billion RMB for the RMB, for the RMB 2 billion, up about 11% year-over-year. Additionally, digital currency services generated profit for the full year last year. In the first quarter of this year, net revenue from digital currency services reached close to 500 million RMB, reflecting around 11% year-over-year growth as well.
Speaker Change: We think so.
Speaker Change: Firstly asphalt.
Speaker Change: Services, particularly.
Adam: Sure Adam.
Adam: In the mats at financial robust parts with our lender services.
Adam: In the last year last year and that revenue from digital services.
Adam: Our offer is.
Speaker Change: Around two.
Speaker Change: <unk> for the RMB 2 billion up also.
Speaker Change: 11% year over year. Additionally.
Speaker Change: Pedro kind of services generate the profit and loss for the full year after year.
Speaker Change: In the first quarter RPC on AD revenue frankly to conservative.
Close to the top end of Mila in RMB, reflecting about along the 11% year over year profile as well and we do not at the same time, we do not only keep the revenue growth.
Peng Su: And we do not, at the same time, not only keep the revenue growth at the same level but significantly improve the profitability at the same time. We expect we can just expand the profitability of the digital services quickly this year. I think the factors which have driven the growth of the digital currency services are definitely first because we see very strong demand from the market.
Speaker Change: Level, but significantly improved the profitability asset types.
Speaker Change: We expect weak and just expand out the profitability of software features and services.
Speaker Change: Quickly in this year.
Speaker Change: I think so.
Speaker Change: For factors, which hit street ambitious driven growth. After that you took on a services definitely firstly, because we see the very strong demand from the market.
Peng Su: That's the, I think that's the, that's the best part of the, from the signals from the market regarding our service. And secondly, I suppose we definitely provide pretty unique values to our customers, to our products. And we think about our two examples With our AI capabilities, we can offer the users academic diagnostics, personal learning plan, test plan, and recommended access following video content consumption, and also AI-based college admissions advisors. We call the AI-based services comprehensive services such as college application assistance, course selection advice, as well as college admissions policy guidance.
Speaker Change: That's the thing.
Speaker Change: So thats a part of the that's.
Speaker Change: That's what we see the signals from the market regarding our services.
Speaker Change: And secondly, it's a volatile definitely we provided pretty unique value from our customer for our <unk>.
Speaker Change: Power products.
Speaker Change: And we think of all of our examples with our App capabilities, how awkwardly users academic diagnostics personalized learning path plan and recommended the excess following the video content Consumptions.
Speaker Change: I'd also say advocates for college admissions advisor with quarter, Hey, Ashwin field with Ashford Trust, we have with Usher.
Speaker Change: Providing comprehensive services such as our colleagues application assistance cost reduction otherwise.
Speaker Change: The college admissions policy guidance.
Peng Su: We think that's pretty unique value we provide to our customers for this product. I think in the remaining three quarters of this year, we will continue to focus on the profitability of each product. For the key products and services, such as Lin Shi, we will allocate more resources and efforts, striving for fossil fuels this year.
Speaker Change: We think thats, a pretty unique about it when we provide to our customer for these products.
Speaker Change: I think in the remaining three quarters of this year, we will continue to focus the profitability of each product for the key products and services such as making sure. We are allocating more resources and efforts driving faster growth in this year.
Peng Su: Secondly, we find a significant potential for the offline service as well. Through this initiative, we aim to reach a broader range of students and provide more high-quality consulting services. Well, our digital learning is primarily delivered online, but we believe that it is the integration of online and offline services. We think that will offer better services to all the students and customers as well. With that, we are pretty confident about the profitability of our digital content services. It's expected to see a rapid improvement in the full year of 2024. In addition, Youdao and QRIP, our core products, are expected to remain in rapid growth in the foreseeable future.
Speaker Change: And secondly, we'd find a significant potential for the offline service as well.
Speaker Change: Through this initiative, we aim to reach a broader range of students and it provides a more high quality consulting services.
Speaker Change: Our digital learning is primarily deliver online we believe that is the integration of online and offline services.
Speaker Change: Great.
Speaker Change: Desktop offer better services to all the students have the customer, especially it.
With that we are pretty confident pretty comprehensive alter the profitability of all different kinds of services.
Speaker Change: Expect to see.
Speaker Change: The improvement in the full year 184, yes.
Speaker Change: In addition to <unk> for our core products expect to amend our rapid growth and the forecast in the foreseeable future.
Feng Zhou: Thank you. Yeah, Brian. This is Zhou Feng.
Speaker Change: Yes, Brian this is telecom.
Feng Zhou: Yeah, I just want to add one point. So, as Su Peng just said, we are working on offline services for Lingshi, yeah, as of right now. Yeah. About 10 cities in service right now.
Speaker Change: Yes, I just wanted to add one point so.
Susan: As Susan just said we are.
So we're working on.
Susan: Yes.
Susan: Offline.
Susan: Flying services for sure.
Susan: As of right now so.
Susan: Cause some.
Susan: We already have.
Speaker Change: Uh huh.
Speaker Change: About 10 cities in service right now so this is.
Feng Zhou: So this is an important initiative for the team. So we think about online and offline a lot. So I just want to add a little bit of thinking about this. So we think online courses are really great. So fundamentally, they are more efficient.
Speaker Change: Important initiatives for the.
Speaker Change: For the team.
Speaker Change: So we think about online and offline a lot. So I wanted to just wanted to add.
Speaker Change: Little bit of.
Speaker Change: I'm thinking about this so.
Speaker Change: So we think.
Speaker Change: Online courses are really great. So.
Speaker Change: <unk> mentally.
Speaker Change: They are more efficient now so.
Feng Zhou: And if we look at Lingshi, a lot of the course content is actually delivered through pre-recorded video. And this is a very good thing for the business, because the users really like this format. It allows them more freedom in how they schedule their time.
If we look at selling a lot of the cost content is actually delivered with prerecorded video.
Speaker Change: And this is <unk>.
Speaker Change: Very good thing for the business because.
Speaker Change: The use us.
Speaker Change: Really liked this format.
Speaker Change: How's the more freedom in how they schedule their time.
Feng Zhou: And it's good for business because of the high-efficient nature of pre-recorded videos and AI content. However, we also recognize that to reach these potential students and also to provide consultation for students, a lot of students and parents prefer offline, face-to-face kind of services. So we think the future of online will be really great, and we will kind of complement that with offline. And combining the two will actually bring a lot of value to the users and also kind of open new avenues of growth for the business. Thank you. Thank you. Our next question comes from the line of Caini Wang, CICC. Please go ahead.
Speaker Change: <unk>.
Speaker Change: And it's good for the business because of the.
Speaker Change: Hi, efficient nature of our pre recorded video sand.
Speaker Change: So.
However, we also recognize that.
Speaker Change: To reach these students potential students and also to provide consultation for students a lot of students and parents.
Speaker Change: They prefer offline face to face.
Speaker Change: End of service so.
Speaker Change: So we think the future is.
Speaker Change: Hum.
Speaker Change: One is.
Speaker Change: We'll be.
Speaker Change: Really great and we will kind of complement that with with offline.
Speaker Change: Combining the two we will actually bring a lot of values to to the users and also.
Speaker Change: Kind of opening new avenues of growth for the business. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Kenny Wang TICC. Please go ahead.
Okay.
Good evening management, Thanks for taking my question.
Speaker Change: Yes.
Speaker Change: Jim.
Jim: Youre welcome.
Alan: Thank you Alan.
Speaker Change: Online marketing services have been experiencing.
Speaker Change: Six consecutive quarters.
Speaker Change: How could you be achieved.
Speaker Change: Thank you.
Speaker Change: Okay.
Lei Jin: Hi, this is Lei Jin. As we discussed during the call last quarter, Youdao's AD business is a performance-based AD platform. We aggregate the traffic from both within Youdao and outside of Youdao to serve customers' marketing needs, and our competitive strength lies in the unique combination of technology skills and customer service skills and operation skills. In the first quarter of this year, our advertising business achieved a net revenue of nearly RMB500 million and a gross margin of 34.3%. Both of these are... record highs.
Speaker Change: Hi, this is <unk>.
Speaker Change: As we discussed during the call last quarter.
Speaker Change: Thus ADP business. These are performance based on <unk> platform.
Speaker Change: Aggregate traffic from both from.
Speaker Change: Both of these in yoda and the outside he'll be with us to solve the customers' marketing needs.
Speaker Change: Our competitive stance in the unique combination of the technology skills and their customer services and operations to growth.
Speaker Change: In the first quarter of this year.
Speaker Change: Although at Haile and <unk> achieved net revenue of nearly RMB.
Speaker Change: Median and gotten bad enough.
Second for our partners III present.
Speaker Change: Both of these.
Speaker Change: Ah.
Lei Jin: Additionally, this segment generates meaningful profit. Looking ahead, there are three key factors to drive sustainable growth in the future. The first continued technological improvement. In the first quarter, we expanded our real-time API, RTA, to encourage it to include industries such as entertainment, social media, and automotive, and e-commerce, covering over 10 sectors now. The proportion of RTA AD revenue increased to around 30% in Q1. The implementation of RTA's data strategy has improved conversion efficiency by over 50% for some time.
Our record high.
Speaker Change: Additionally, this segment generates minimal profit.
Speaker Change: Okay.
Speaker Change: Looking ahead, there are three key factor to drive the symbol growth in the future the first.
Speaker Change: Renewed technology called Department.
Speaker Change: In the fourth quarter, we extended the real time API RTA to.
Speaker Change: Coverage to include industries, such as entertainment, social media and automatic automotive and E Commerce.
Speaker Change: Currently over 10 centers now.
Speaker Change: The proponent of the RTA Adi revenue has increased to around the 30% in Q.
Speaker Change: Wow.
Speaker Change: The implementation of <unk> has certainly has improved the conversion efficiency by over 50% for some time.
Lei Jin: Looking ahead, RTA revenue is expected to further increase. By continuously optimizing AI algorithms and data analysis, we can better meet the diverse needs of our clients and employees. [inaudible] In addition, our data management platform, DMP, is a centralized application repository designed for collecting, storing, and processing user data from multiple sources.
Speaker Change: Looking at Arcadia.
Speaker Change: <unk> revenue.
Speaker Change: To further increase.
Speaker Change: By continuously.
The meeting with them and the data analysis.
Speaker Change: Better.
Speaker Change: Chris.
Speaker Change: Diverse needs of our clients and employees.
Speaker Change: The timing of effectiveness.
Speaker Change: Additionally.
Speaker Change: Our data management platform.
Speaker Change: He is a centralized applications repository designed for collecting and storing and protecting user data from <unk>.
Speaker Change: Multiple Celsius.
Lei Jin: This enables advertisers to gain a deep understanding of their target audience's behaviors and preferences. Our DNP enhances this by integrating user tags and audience package management functionalities, with a future guide to target advertising development and optimization, thereby improving advertising efficiency and effectiveness. And there's a second, the further expansion of customer organization opportunities. The proportion of hydrothermal traffic and revenue from the Northeast group was relatively small, indicating significant growth potential in the future.
Speaker Change: Enable advertisers to gain a deeper understanding of their target audience behaviors and preferences.
Speaker Change: Our TMT this by integrating a user's Pakistan the audience package management better analysis.
Speaker Change: They still show a guide targeted advertising development optimization.
Speaker Change: Thereby improving either.
Speaker Change: Having the efficiency and the effectiveness.
Speaker Change: And then the second.
Speaker Change: The further expansion of our customer acquisition opportunities.
Speaker Change: The proportion of the advertising traffic from that.
Speaker Change: The revenue from the <unk> group.
Speaker Change: Relatively small.
Speaker Change: Indicating significant growth potential in the future.
Lei Jin: Moving forward, we will better utilize the traffic resources within the 90s group. Compared to purely external traffic, traffic from the net is relatively more predictable and controllable. Furthermore, by strengthening our collaboration with the NetEase group, we will gain deeper insight into the needs of the gaming industry users, which will help us expand our client base in the gaming sector. [inaudible] Overseas Marketing Center In terms of the global key opinion leader, KOL Martin, we have access to over 5 million global Internet celebrities, including more than 1,000 exclusive ones.
Speaker Change: Moving forward, we will better utilize that traffic which resulted.
Speaker Change: It's in the nineties group.
Speaker Change: Compared to the purely external traffic the try to recover from the Nazis.
Speaker Change: He is a relatively more predictable and controllable.
Speaker Change: Furthermore by.
Speaker Change: Our collaboration with <unk> group.
Again deeper insight into the needs of the gaming industry users, which will help us expand our client base and the gaming sector.
Speaker Change: The third overseas market.
Speaker Change: Yeah.
Speaker Change: In terms of our global key opinion leader <unk> Martin here.
Speaker Change: We have access to over 5 million global in her neither celebrated.
Speaker Change: Including mode.
Speaker Change: 1000 <unk>.
Speaker Change: Through six months, you can provide our clients with a personalized marketing.
Lei Jin: You can provide the client with a personalized QL marketing solution, including KOL selection, marketing strategy development, video content planning, as well as monitoring and optimization of KOL content performance. Our leading AI technologies further empower global KOL marketing efforts. To support the rapid international expansion of Chinese enterprises, Youdao ADS launched China's first 5-stop overseas marketing platform, MQ1. Youdao ADS has already assisted several Chinese companies overseas, including NetEase Games, BRD, Anker, and Shiyin. In their global expansion efforts, currently, the global. This KOL marketing business is still in the early stages, presenting potential growth potential in the future. Thank you.
Speaker Change: <unk> solution.
Speaker Change: Including two hour selection magazine's facility development.
Speaker Change: Video content planning as I said.
Speaker Change: Montana and optimization of.
Speaker Change: Our content performance.
Speaker Change: Our leading AI technology to further empower our global.
Speaker Change: Marketing efforts too.
Speaker Change: To support the remedy.
International expansion opportunities in their practice.
Speaker Change: Our ABS labs, China's first the fed stopped overseas market to your platform into later.
Speaker Change: Yes.
Speaker Change: <unk> already assessing several Chinese companies overseas.
Speaker Change: You can put in.
Speaker Change: Nike scan.
Speaker Change: B I D.
Speaker Change: Anchor and she.
Speaker Change: In their global expansion efforts currently the global.
Speaker Change: Marketing business, we are still in the early stages.
Speaker Change: But then.
Speaker Change: The potential growth.
Speaker Change: Potential in the future.
Speaker Change: Thank you.
Speaker Change: Yes.
Operator: The next question comes from Anna Thomas Chong with Jeffrey. Please go ahead. Hi, good evening. Thanks.
Speaker Change: Our next question comes from Manav, Thomas Chong with Jefferies. Please go ahead.
Speaker Change: Hi, Good evening, Thanks management for taking my question. My question is about what are the main products for our AI chip and subscriptions.
Yes.
Feng Zhou: We apply AI and large language models heavily in multiple business lines, including advertising courses and subscriptions in apps. So AI subscriptions cover the last category. As we discussed in prepared remarks, AI subscription sales have been growing rapidly, up 140 percent this quarter year-over-year, reaching about 50 million RMB. So to break it down a little bit for you, here are the major products that contribute to that.
We apply AI and large language motto heavily in our multiple business lines, including advertising courses and subscriptions in apps.
Speaker Change: So AI subscriptions cover the last category.
Speaker Change: As we discussed in the press.
Speaker Change: Prepared remarks.
Speaker Change: Subscription sales have been growing rapidly up a 140% this quarter year over year.
Speaker Change: Reaching about 15 million RMB.
Speaker Change: So to break it down a little bit for you here are the major products that contributes to that yeah first is.
Feng Zhou: The first is Youdao Dictionary and Youdao Desktop Translation. Dictionary is our flagship mobile app, and Desktop Translation is our most popular app for PCs and Macs. According to Quest Mobile, they have over 100 million combined monthly active users and are the top translation apps in China. So last year, we introduced the AI translation feature, powered by our large language model, to last year's web users. In Q1, we significantly improved the translation quality, reaching 98% accuracy rate for English to Chinese and Chinese to English translation, and they wrote it out to all users of Youdao Dictionary free of charge. For more demanding scenarios, so paid subscription users enjoy more usage quotas.
Speaker Change: Euro Dictionary and desktops translation.
Speaker Change: Dictionary is our flagship mobile App and desktop translation is our most popular apps, where Pcs and Macs. According to Chris mobile data they have over $100 million combined monthly active users and are the top translation apps in China. So last year we.
Speaker Change: Introduced AI translation feature.
Speaker Change: Powered by our large language model two last year to Rep users in Q1, we significantly improved.
Speaker Change: In translation quality.
Speaker Change: Reaching 98% accuracy rate for English to Chinese Chinese to English translation and rolled it out to all users of dictionary.
Speaker Change: Free of charge.
Speaker Change: So for more demanding scenarios, so paid subscription users enjoy.
Speaker Change: Our usage quarters.
Feng Zhou: So the user feedback has been overwhelmingly positive, leading to a lot of new subscriptions. Currently, these two apps are the largest contributors to our subscription sales, and we expect some potential growth as our large language model gains more capabilities and expands into new usage scenarios.
Speaker Change: So the user feedback has been overwhelmingly positive leading to a lot of new subscriptions.
Speaker Change: Currently these two apps are the largest contributors to our subscription sales and we expect substantial growth.
Speaker Change: Larger language model became more capabilities and expand into new usage scenarios.
Speaker Change: Second.
Speaker Change: There is a high ankle yes. It is the world's first digital human digital human language coach.
Feng Zhou: Yeah, it is the world's first digital human language coach introduced last year. We recently launched a module tailored for IELTS preparation, I-E-L-T-S, in collaboration with the British Council. Now, this module, available through a separate subscription, assists users to better prepare for the IELTS exam through personalized exercises, customized feedback, and simulated mock exams.
Speaker Change: Introduced last year.
Speaker Change: We recently launched a module tailored for our preparation.
Speaker Change: Yes in <unk>.
Speaker Change: Collaboration with the British console.
Speaker Change: This module available through a separate.
Subscription assist users to better prepare for the exam.
Speaker Change: To personalize to exercise this customized feedback and simulated mock exams. So we expect the new offering to further boost.
Feng Zhou: So we expect the new offering to further boost the sales of hire. For international users, it is the first time we to share that we have several apps that are popular. iRecord is the perfect app for those looking to capture high-quality voice recordings and transcribe them with high accuracy through automatic speech recognition. Currently, iRecord ranks in the top two places in the voice recording apps category in North America. Lectimate is an innovative app designed to help overseas college students comprehend lectures more effectively by using the power of voice recognition and large language model technologies. It is the number two in its category in North America.
Speaker Change: The sales of higher cost.
Speaker Change: So.
Speaker Change: For international users. So it is the first time, we share that we.
Speaker Change: We have several apps thats popular.
Speaker Change: I record is.
Speaker Change: Perfect that for those looking to capture high quality voice recordings.
Speaker Change: Transcribe them with high accuracy through automatic speech recognition currently I record the ranks at the top two places.
Speaker Change: The voice recording apps category in North America.
Speaker Change: <unk> is an innovative app designed to help overseas college students.
Speaker Change: Comprehend lectures more effectively by using the power of voice recognition and large language module technologies.
Speaker Change: It is.
Speaker Change: Number two.
Speaker Change: It's category.
Speaker Change: In North America.
Feng Zhou: So finally, there's Mr. P. AI Tutor. As discussed in our prepared remarks, we will be launching the app version of Mr. P. AI Tutor in June. Compared with the end of last year, we have further optimized our language model for K-12, achieving improved accuracy in problem solving. The accuracy of problem solving has increased by 3%, and our serving cost has decreased by over 50%. So these six apps are our main offerings for AI subscription services.
Speaker Change: So finally theres a.
Speaker Change: Mr P tutor.
Speaker Change: As discussed in our prepared remarks, we will be launching the.
At version of Mr. P tutor in June.
Speaker Change: Compared with the end of last year, we have further optimized our language model for <unk>.
Speaker Change: Achieving improves accuracy and problem solving.
Speaker Change: Currency of pumps are being has increased by 3%.
And our serving costs has.
Speaker Change: Decreased by over 50% so.
Speaker Change: These six apps on our main offerings for subscription services.
Feng Zhou: Subscription is a very natural monetization approach for AI and large language models. So currently, subscriptions are experiencing rapid growth, and we have a pipeline of new features and new products under development. So for this year, we can already see a clear growth trajectory. Hope that answers your question. Thank you. The next question comes from the line of Bo Jiang, Huatai Securities. Please go ahead.
Speaker Change: Subscription is a very natural monetization approach for AIA unlocks language models.
Speaker Change: So.
Speaker Change: Currently subscriptions are experiencing rapid growth and we have a pipeline of new features and new products under development. So.
Speaker Change: For this year, we can already see a clear growth trajectory, yes hoped at zero.
Speaker Change: Two questions.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of both John.
Speaker Change: <unk> Securities. Please go ahead.
Speaker Change: Good evening management sample, taking my question basically is quite high.
Speaker Change: My question is given.
Speaker Change: Revenue from March device continue to decline.
Speaker Change: Our over year basis.
Speaker Change: The field development landscape.
Speaker Change: Thanks.
Speaker Change: Thank you.
Speaker Change: Thank you.
Feng Zhou: Thank you. We shared in our last call that we concluded the optimization of our sales channels for learning devices at the end of last year. So we exited some low return on investment sales channels. While this significantly improved the bottom line of the hardware segment, it also led to a year-over-year decline in sales.
Speaker Change: <unk>.
Speaker Change: Yeah, we shared in our last call that.
Speaker Change: We concluded the optimization of our sales channels of learning.
Speaker Change: Turning devices at the end of last year.
Speaker Change: So we exited some low return of investment sales channels.
Speaker Change: While this significantly improve the bottom line after hardware segments. It also led to year over year decline of sales.
Feng Zhou: As we build new sales channels and release new products this year, we are in the process of driving the recovery of the business. In Q1, we expanded into new, healthier offline and online sales channels and released three new products: the A6 Pro dictionary pen, the E6 listening pod, and the X20 learning pad. The result is that the year-over-year decline decreased to 14.8 percent, over 30 percentage points less than Q4.
Speaker Change: As we built.
Speaker Change: New sales channels and released new products this year.
Speaker Change: We are in the process of driving the recovery of the business.
Speaker Change: In Q1, we expanded into new healthy offline and online sales channels and released three new products the <unk>.
Speaker Change: <unk> six <unk> Dictionary pen.
Speaker Change: E six listening part and X 20.
Speaker Change: Learning path.
Speaker Change: The result is that the year over year decline.
Speaker Change: <unk> to 14, 8%.
Speaker Change: Over 30 percentage points less than Q4.
Feng Zhou: The A6 Pro quickly became the top-selling dictionary pen on Douyin and JD.com. More recently, after Q1, we launched the S6 Pro, which again surpassed the A6 Pro and became the number one dictionary pen. The Acer Pro and S6 Pro are affordable and mid-priced external pens at $349 RMB and $599 RMB, respectively. The ASIC Pro is actually our most affordable dictionary pen at launch. However, it is more expensive than its peers in the market, which are priced at $299 or even $200 RMB.
Speaker Change: The page six BOE quickly became the top selling dictionary pen on Dorian and JD com.
Speaker Change: Recently after Q1, we launched six products.
Speaker Change: Which again surpassed the Asics program that became the number one dictionary pen.
Speaker Change: Yeah.
Speaker Change: <unk> pro are affordable and mid priced fixed rate debt.
Speaker Change: 349, and RMB 599 RMB.
Speaker Change: Is it probably is actually our most affordable dictionary pen that lunch.
Speaker Change: However.
Speaker Change: It is more expensive than its peers in the market, which are priced at.
Speaker Change: 299, or even 200 RMB.
Feng Zhou: So we made a conscious choice here. We chose to build high-quality products even at affordable prices. We do not intend to engage in a race to the bottom by undercutting each other with lower and lower prices.
Speaker Change: So we made a conscious choice here, we made the choice to build.
Speaker Change: High quality products, even at affordable prices.
Speaker Change: So we.
Speaker Change: We do not intend to engage in a race to the bottom by undercutting each other with low and lower prices.
Speaker Change: <unk>.
Feng Zhou: So the result is that customers responded positively, and the A6 Pro and S6 Pro, as we just discussed, swiftly became the number one sellers after their releases.
Speaker Change: So the result is that customers.
Speaker Change: Responded positively and Asics, probably as simple as we just discussed swiftly became the number one seller after their releases. So this is I believe this is excellent news.
Feng Zhou: So I believe this is excellent news. Now the A6 Pro is covering a price range that we were not serving before, expanding our customer base. And the S6 Pro is our top-selling mid-priced product. In the summer, we have some very innovative new products in the pipeline for the new school year. I'm optimistic about their outlook as there are several factors that are working in our favor. One is our established product leadership positions in categories like dictionary pen and listening products.
Speaker Change: Now the Asics pro is covering a price range that we were not serving before expanding our customer base.
Speaker Change: Essex Pro is our top selling.
Speaker Change: Mid priced products.
<unk>.
Speaker Change: In the summer we have.
Speaker Change: Some very innovative new products in the pipeline for the New school year.
Speaker Change: Im optimistic about the outlook as.
Speaker Change: There are several factors that are looking in our favor.
Speaker Change: One is.
Speaker Change:
Speaker Change: Our established product leadership positions in categories like dictionary pen, but sending parts second.
Feng Zhou: Second is our ability to apply AI and large language models to these devices. So parents tell us that they are very interested in this feature, which has become increasingly mature and healthy. Third, our sales and marketing channels are now more established and more efficient than before. So the device team obviously has a lot of work ahead of them, and we are. We are eager to launch these new products, so stay tuned for more updates.
Speaker Change: Is our ability to apply AI and the large language models to these devices. So parents tell us that they are very interested in these features which have become increasingly mature and household.
Speaker Change: Sure.
Speaker Change: Our sales and marketing channels in our more established and more efficient than before.
Speaker Change: So the device team, obviously has a lot of work ahead of us.
Speaker Change: We are.
Speaker Change: We are eager to launch these new products so yes.
Speaker Change: Stay tuned for more Opex.
Speaker Change: Thank you.
Speaker Change: Oh.
Operator: The next question comes from the line of Yukun Zhang, Surgics. Please go ahead.
Speaker Change: The next question comes from the line of <unk> Zhang.
Speaker Change: Please go ahead.
Speaker Change: Good evening management. Thank you for taking my question. My question is about the outlook.
Speaker Change: Could management share some insights into the outlook for 2022. Thank you.
Peng Su: Thank you, this is Supeng. And I think for the outlook for this year, for the full year 2024, as Dr. Gong discussed in the prepared speech, definitely, we'll dedicate a lot of time to digital services. Online Marketing Services and AI-Driven Subscription Services. Firstly, for the digital content services, that is our top priority for our business development.
Speaker Change: Thank you <unk> and I think for the outlook for this year for the full year 'twenty 'twenty, four and Stockholm discussed in the prepared speech definitely dedicate onto our digital services.
Speaker Change: Marketing services, and AI, driven a subscription service.
Speaker Change: Firstly for the digital transformation definitely is our top priority priorities.
Speaker Change: Our business development, maybe I'll give us and ensure and seating.
Peng Su: We will develop and ensure and assist in the increased demand by continuously improving our products with our AI capabilities. And expanding our presence in the offline market, as Dr. mentioned, we have confidence in the further improvement in profits from digital services from this. And secondly, for online marketing services, we think that it has made a significant stride since last year. We are focused on the long-term growth of our advertising business by deepening our RTA technology and generating AI applications. In addition, we will definitely strengthen our partnership with the 90s group in traffic, advertisement placement, and other areas.
Speaker Change: Increased demand better continuously improve our products with our AI capabilities.
Speaker Change: And yes.
Bob: The blades and expanding our presence in the offline markets as Bob mentioned, we have the confidence in the further improvement in profit frankly, the kind of services in this year.
Bob: And secondly, as for the online marketing services as we think.
Bob: It has made has made a significant.
Bob: Strides since last year, we are focused on the long term growth of our advertising business, but deepen our RPI technology and generate applications.
Bob: In addition, we will definitely strengthen our partnership with fanatics group in traffic and what Hasnt been placements and actually all the other areas.
Peng Su: Our investment in AI is, as you know, we have already invested in AI for a long time. And we expect we can just generate more results from the AI-driven subscription services this year. We think we will continue to iterate on and develop new products, advancing the process of AI monetization as well. For the sales of the AI subscription services, I expect there will be rapid growth momentum throughout the DC market.
Bob: Our investments in the E S.
Speaker Change: First as you know, maybe new assay menu and we have already for a long time and we expect to be contrast generate more results from our subscription agreements subscription services. This year.
Speaker Change: We think we will keep.
Speaker Change: We will continue to iterate about underdeveloped with new products advancing the process of monetization as well. So those are all software subscription services I expect to be rapid growth momentum throughout the quarter.
Speaker Change: After this year.
Peng Su: And finally, I think we have shared more color from the financial perspective. We have been making a great endeavor to achieve the full year possibilities in the near future. Since the last year, we have been diligently focusing on controlling operating costs and expenses while improving operation efficiency. This effort has already yielded significant results, as evidenced by our achieved probability of two consecutive quarters for the first time. And moving forward, we will maintain our cost and expense management while striving to increase revenue at the same time. I think that's our outlook for the full year of 2024. Thank you.
Speaker Change: And the final thing I think we would have shared more color from a financial perspective.
Speaker Change: We have been making a great indoors to achieve the full year profitability in the near future. We expect since the last year, we have been diligently focusing on controlling the operating cost and expense we are improving the operating efficiency.
Speaker Change: Effort has already yielded significant results ever.
Speaker Change: Evidenced by our achieved the profitability for two consecutive quarters for the first time.
Speaker Change: And moving forward, we will maintain.
Speaker Change: I mean to our cost and expense management.
Speaker Change: Driving the increase in revenue as entitled.
I think thats the hour.
Speaker Change: Look for the full year of that 184. Thank you.
Speaker Change: Yeah.
Operator: The last question for today comes from the line of Linda Huang, Macquarie. Please go ahead. Hi, management. This is Macquarie Lingda. So, thank you very much for this opportunity. I want to ask about operating expenses because I noticed that we have a decent decline in sales and marketing and as well as R&D. So I just want to know about that for the rest of the year. How is the trend for these two, the OPEX items, and what should we think about the expense to revenue ratio? Thank you very much.
Speaker Change: The last question for today comes from the line of Linda Huang Macquarie. Please go ahead.
Speaker Change: Hi management basis Macquarie Bank that so thank you very much for this opportunity I wanted to ask about operating expenses because I noticed that we have the data center declined for the sales and marketing and as well as Saturday.
Speaker Change: R&D.
Speaker Change: Just want to know about that for the rest of the year how.
Speaker Change: How is the trend for this to the Opex items and how should we think about the expense to revenue ratio. Thank you very much.
Yongwei Li: Thank you for your questions. This is Wayne.
Speaker Change: Thank you for your question.
Speaker Change: This is when I would take your question.
Speaker Change: Marketing efficiency is a crucial metric and a key indicator of our profitability.
Yongwei Li: I will take your questions. Marketing efficiency is a crucial metric and a key indicator of our profitability. We are dedicated to improving the efficiency of online customer acquisition. We continuously explore various innovations to optimize marketing efficiency, which include but are not limited to diversified marketing channels, to leverage our most advanced AI technology, and to continuously enrich content to improve the product experience. Yeah, bye. Might be great in challenges such as rising acquisition costs due to intense competition.
Speaker Change: Dedicate to improving the efficiency of online customer acquisition.
Speaker Change: We continuously strong various innovations to optimize marketing efficiency.
Speaker Change: Which include but not limited to diversifying our marketing channels.
Speaker Change: To leverage our most.
Speaker Change: The AI technology and to continuously enriched content to improve product experience.
Speaker Change: Goodbye.
Speaker Change: Might be creating challenges such as Verizon acquisition costs due to the intense competition.
Yongwei Li: I will add more color on these three areas mentioned above first, diversification of user acquisition channels. Take learning services as an example; online education companies have inherent advantages in channel innovation compared to offline education institutions. Online education allows us to reach customers beyond the office, fundraise, and absolutely capture traffic on high-traffic platforms.
Speaker Change: I will add more color.
Speaker Change: These three areas I mentioned.
Speaker Change: Right.
Speaker Change: Diversification of music.
Speaker Change: The acquisition channel.
Speaker Change: Take limited as example.
Speaker Change: Online education company have inherent advantages in channel innovation compared to offline education institutions.
Speaker Change: Online education.
To reach customer beyond the geography.
Speaker Change: <unk> and <unk>.
Speaker Change: Certainly.
Speaker Change: Traffic on high traffic platforms.
Yongwei Li: In contrast, customer acquisition for offline education institutions is influenced by physical location constraints limited to their source of acquisition. In recent years, acquisition channels have become increasingly diversified, including PLL, key opinion leaders, live streaming, and integrated online, versus offline enrollment. Such innovations enable us to reach a broader and more relevant audience, thereby reducing acquisition costs or improving conversion rates. Second, leverage AI capability into our products. The application of AI technology can reduce the cost of material preparation and enhance product experience, thereby attracting users and increasing conversion rates. Thank you for joining us.
Speaker Change: In contrast.
Customer acquisition for offline education institutions in of.
Speaker Change: Influenced by physical location constrain.
Speaker Change: Limited.
Speaker Change: Source of acquisition.
Speaker Change: In recent years.
Speaker Change: The acquisition channel help you become increasingly diversified.
Speaker Change: Including kiln at our key opinion leader.
Speaker Change: James Jamie and integrated online.
Speaker Change: Offline enrolment.
Speaker Change: Such innovations enabled us to reach broader and more relevant audiences, thereby reducing acquisition costs or improving conversion rates.
Speaker Change: Second the average active ability into our products.
Speaker Change: The application of.
Speaker Change: Non energy can reduce the cost of material preparations and the enhanced product experience.
Speaker Change #100: By attracting user and.
Increased conversion rates.
Speaker Change #100: For instance.
Yongwei Li: We employed an AISC refinement function to enhance user experience during trial lessons by providing timely feedback on ethics and thus improving the conversion efficiency of this lesson. We believe that our advanced AI technology and the latest language models can help us to build a stronger product ecosystem, further enhancing marketing efficiency. Third, enhancing user experience through innovation of premium content. Each competitor pays a lot of attention and tries to get an excellent conversion rate through certain forms of advertising. Innovative premium content is the key to getting good results by satisfying the needs of customers. Let me give you another example.
Speaker Change #100: We employ a isd refinements function to enhance user experience during Chinese lessons buying.
Speaker Change #100: Providing timely feedback on etsy.
Speaker Change #100: Thus improving the conversion efficiency.
Speaker Change #101: Let them.
Speaker Change #101: We believe.
Speaker Change #102: Our advanced AI technology in Denmark.
Speaker Change #102: Which models can help us to build a stronger.
Speaker Change #102: Ecosystem further enhancing marketing efficiency.
Speaker Change #102: Sure.
Speaker Change #102: Enhancing user experience through innovation of premium content.
Speaker Change #102: Each company to pay a lot of attention and to try to get an extended conversion rates to citizens.
Speaker Change #102: Titan.
Speaker Change #102: Innovative premium content is the key to get good results bucket.
Speaker Change #102: Finally, the needs of customers.
Speaker Change #102: Let me give you. Another example.
Yongwei Li: Youdao Lingshi, one of our most important learning services, has transitioned from traditional live streaming online classes to innovative pre-recorded content, just mentioned by Dr. Zou, embedded with AI technology, such as adaptive question banks, which resolve the concern of the inflexible time schedule and offer a personalized user experience. This transformation has proved successful in meeting user needs and enriching their lives. You have a good night.
Speaker Change #102: <unk> went up.
Speaker Change #102: Our most important learning services.
Speaker Change #102: Transitioned from traditional live streaming online classes to innovating.
Speaker Change #102: Recorded content just mentioned by a doctor so embedded.
Speaker Change #102: Technology, such as adaptive question Bank.
Speaker Change #102: As a result of the concern.
Speaker Change #102: The inflexible time schedule.
Speaker Change #102: And offer the person that put in the user experience.
Speaker Change #102: This transformation has proved successful in meeting their needs and the in reach in there.
Speaker Change #102: Users.
Yongwei Li: Scannering, White Bread, Glam. Back to your question, in 2020, 2022, and 2023, the sales and marketing expense account for approximately 46% and 42% of our total revenue, respectively. And in the first quarter of 2024, the latter further decreased to 33%. So we are very confident in attaining this objective, optimizing the vision trend in the long run. Thank you.
Countering widespread claims.
Speaker Change #103: Back to your question.
Speaker Change #103: In 2020.
Speaker Change #103: 2022 and 2023.
Speaker Change #103: And the marketing expense accounts for approximately four 6% and 2% of our total revenue respectively.
Speaker Change #103: In the first quarter of 2020 for the further decreased to two 3%.
Speaker Change #103: Very confident in maintaining this.
Speaker Change #103: Optimizing <unk> trend in the long run.
Operator: And that concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments. Thank you once again for joining us.
Speaker Change #104: And that concludes the question and answer session I would like to turn the conference back over to management for any additional or closing comments.
Operator: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Youdao directly or reach out to Pearson Financial Communications in China or the U.S. Have a great day!
Speaker Change #105: 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 <unk> financial communications in China or the U S have a great day.
Speaker Change #104: Yes.
Speaker Change #104: [music].
Operator: [inaudible] ???
Speaker Change #104: Yes.
Speaker Change #104: [music].