Q1 2025 Youdao Inc Earnings Call
Operator: Good day and welcome to Youdao's first quarter 2025 earnings conference call. All participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0.
Good day and welcome to <unk> first quarter 2025 earnings conference call.
All participants are in listen only mode.
Should you need assistance. Please signal a conference specialist by pressing star keep all advising area.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded.
After todays presentation, there will be an opportunity to ask questions.
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Which all your question. Please press Star then two.
Please note this event is being recorded.
Jeffrey Wang: I would now like to call the conference over to Jeffrey Wang, Investor Relations Director. Please go ahead. Thank you, operator.
Now each time.
Jeffrey: Okay to Jeffrey long Investor Relations Director. Please go ahead.
Speaker Change: 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 for the safe Harbor from liability as established.
Jeffrey Wang: 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 safe harbor from liability, as established by the U.S. Private Securities 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. A general discussion of the risk factors that could affect Youdao's business and financial results is included in certain company filings with the U.S.
Speaker Change: We established by the U S. Private Securities Litigation Reform Act, such statements announced 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.
Speaker Change: Materially from those mentioned in today's press release and this discussion.
Speaker Change: General discussion of the risk factors that could affect <unk> business and financial results is included in Stewarding. The company filings with the 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.
Jeffrey Wang: Securities and Exchange Commission.
Jeffrey Wang: The company does not undertake any obligation to update this forward-looking information, except as required by law.
Jeffrey Wang: During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For the definitions of non-GAAP financial measures and recalculations of GAAP to non-GAAP financial results, please see the 2025 First Quarter Financial Results news release issued earlier today.
Speaker Change: Call management will also discuss certain non-GAAP financial measures for comparison purposes, only but the destination itself and non-GAAP financial measures and recalculation yourself GAAP to non-GAAP financial results. Please see the 70 35 first quarter financial results news release issued earlier today.
Jeffrey Wang: As a reminder, this conference is being recorded. A web coverage replay of this conference call will be available on Youdao's corporate website at ir.youdao.com.
Speaker Change: As a reminder, this conference is being recorded a rep coverage replay of this conference call will be available all your Dallas coffee wife's site at IR Dot Dot dot com.
Feng Zhou: Joining us today on the call from Youdao's senior management are Dr. Feng Zhou, our chief executive officer, Mr. Lei Jin, our president, Mr. Peng Su, our senior president, and Mr. Wayne Lee, our VP of finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic directions. Thank you, Jeffrey, and thank you all for participating in today's call.
Joining us today on the call from <unk> Senior management.
Speaker Change: After some Joe our Chief Executive Officer.
Speaker Change: Total aging of our President let me start polling so our senior President and Mr. Wayne Lee <unk>, our VP of finance.
Speaker Change: I will now turn the call over to Dr. Joe to review some of our recent highlights and our strategic direction.
Dr. Joe: Thank you Jeff. Thank you all for participating in today's call.
Feng Zhou: Before we begin, I would like to remind everyone that all numbers are based on M&B, unless otherwise specifically stated. In the first quarter, we significantly boosted profitability while executing our AI-native strategy through product development. Operating income reached a Q1 record of RMB $104.0 million, surging 247.7% year-over-year. Net revenues were RMB1.2 trillion, declining 6.7%, primarily due to decreased learning services revenue. Operating cash outflow narrowed by 34.7% to RMB255.5 million, reflecting stronger financial efficiency. Product R&D accelerated in Q1. We launched Confucius 01, our first open source reasoning model. We trialed with KeyClient's Youdao MagicBox, an AI-powered app creator suite.
Speaker Change: Before we begin I would like to remind everyone that one number it's not based on renminbi unless otherwise specifically stated in.
Speaker Change: In the first quarter, we significantly boosted profitability, while executing our AI and nature of strategy through product development.
Speaker Change: Operating income reached a Q1 record of RMB 104.0, mainly.
Speaker Change: Surgeon 247, 7% year over year.
Speaker Change: Net revenues were RMB, one 3 billion declining <unk>.
Speaker Change: 7%, primarily due to decreased the learning services revenue.
Speaker Change: Operating cash outflow.
Speaker Change: Hello to buy 34, 7% to RMB $255 5 million.
Speaker Change: Reflecting stronger financial efficiency.
Speaker Change: R&D accelerated in Q1, we launched Confucius Oh, one our first open source reasoning motto.
Speaker Change: We trials with key clients, you doll Magic box and AI powered at creative suite. We also introduced space won our first large screen shooter in pet.
Feng Zhou: We also introduced SPACE ONE, our first large-screen tutoring pen. These advances reinforce our AI-native strategy. that is applying large-language model technology to critical learning and advertisement scenarios, solving real-world challenges, driving user satisfaction and business growth.
Speaker Change: These advances reinforce our native strategy.
Speaker Change: That is applying.
Speaker Change: Large language motto technology, two critical learning and advertisement scenarios southern real world challenges driving user satisfaction and business growth now lets look at our business lines.
Feng Zhou: Now let's look at our business line. In the first quarter, although net revenues from learning services segment declined by 16.1% year-over-year, The rate of decline narrowed by approximately 5 percentage points compared to the previous quarter. Never-be-Knews covered the segment's costs and operating expenses, and the yield is meaningful plus 5. Within the learning services segment, the revenues from digital content services were RMB 410.8 million in Q1. The product team enhanced Youdao Linshi's college planning solutions using our proprietary Confucius LRM. the upgraded AI college admission advisors. now features six integrated components. 24x7 Online Q&A Services Comprehensive University and Program Database Specialized.
Speaker Change: In the first quarter, although net revenues from learning services segment declined by 16, 1% year over year.
Speaker Change: The rate of decline narrowed by approximately five percentage points compared to the previous quarter net revenues cover the segments costs and operating expenses and the yield is meaningful profits.
Speaker Change: Within the learning services segment net revenues from digital content services were RMB.
Speaker Change: 410, and a point $8 million in Q1.
Speaker Change: The productivity enhanced yield all insurers college planning solutions using our approach its proprietary from future salary.
Speaker Change: The upgraded college admission advisors.
Speaker Change: Now features six integrated components.
Speaker Change: Four of five seven online Q&A surfaces comprehensive University and program databases specialized.
Feng Zhou: courses and materials, professional assessment tools, an AI-powered recommendation system for school selection, and predictive admission analytics. This comprehensive ecosystem has significantly improved our differentiated user experience, contributing to over 25% year-over-year gross billing growth in Q1 and recently improved retention rates. In STEAM courses, our programming courses saw strong gross billing growth of over 40% year-over-year. filled primarily by strong demand for GESP, that is, Grade Examination of Software Programming. preparation cost us and more efficient customer acquisition. Our AI-driven subscription services generated nearly RMB70 million in Q1 sales, growing over 40% year-over-year. On the model development front, we open sourced Confucius 01 in Q1.
Speaker Change: That's very close to the same materials professional assessment tools and AI powered recommendation system for school selection predictive.
Speaker Change: Mission analytics.
Speaker Change: This comprehensive ecosystem has significantly improved our differentiated user experience contributing to over 25% year over year gross gross billings growth in Q1, and recently improved retention rates.
Speaker Change: In steam clauses are programming courses saw strong gross billing growth of over 40% year over year.
Speaker Change: Fueled primarily by strong demand for GSP that is great examination of software programming.
Speaker Change: Our preparation cost us and more efficient customer acquisition channels.
Speaker Change: Our AI driven subscription services generated nearly RMB 70 million in Q1 sales growing over 40% year over year.
Speaker Change: On the motto development fronts, we open sourced Confucius Oh Wow in Q1.
Feng Zhou: a lightweight 14 billion parameter reasoning model that delivers competitive K-12 performance while being significantly more cost effective and easier to deploy than larger alternatives. We also enhanced our flagship translation model through multi-model fusion and online direct preference optimization, DPO training, achieving quality improvements, cost reductions, and increased adoption. The translation model now processes over 1.5 billion tokens daily as of April, representing 100% growth since Q1. Additionally, we recently started self-posting full-size DeepSeq R1 imprints for our products instead of relying on third-party DeepSeq model services, improving latency and stability while reducing costs at the same time.
Speaker Change: A lightweight <unk> 14 billion parameter.
Speaker Change: There isn't any model that delivers competitive caito trials performance, while being significantly more cost effective and easier to deploy it.
Speaker Change: Larger alternatives.
Speaker Change: We also enhanced our flagship translation law through multimodal fusion and online direct preference optimization a P. P O training.
Speaker Change: <unk> quality improvements cost reductions and increased adoption.
Speaker Change: The translational model now processes over one 5 billion tokens daily as of April representing 100% growth since Q1.
Speaker Change: Additionally, we recently started self hosting full size keep seek all one in France.
Speaker Change: All our products instead of relying on third party deep sea tomato sauces, improving latches stability, while reducing costs at the same time.
Feng Zhou: Moving on to our applications, the upgraded Mr. P AI Tutor now features a multi-modal visual system with over 92% accuracy for kiddo child problems. up from 85% last year. And it is available across both the Mr. P app and our hardware device.
Speaker Change: Moving onto our applications.
Speaker Change: Upgraded Mr. P. A a tutor now features a multimodal video system with over 92% accuracy for caito child common stocking.
Speaker Change: Up from 85% last year and he's available across both amidst the PR and our hardware devices.
Feng Zhou: We recently launched Youdao AI podcasters. Youdao, Wendao an innovative audio synthesis platform that instantly converts text documents like pdf word files and web pages into studio quality podcasts earning a featured recommendation on the apple We also introduced our AI-powered academic paper plagiarism detection. which detects AI-generated content in academic writing while providing actionable suggestions to enhance originality and quality.
Speaker Change: We recently launched AI podcast ecosystem.
Speaker Change: Linda.
Speaker Change: And innovative quality a synthesis platform that instantly converts text documents like P. D F word spouse and web pages into student quality podcasts.
Speaker Change: Featured recommendation on the Apple App store.
Speaker Change: We also introduced our AI powered academic paper plagiarism detection system.
Speaker Change: Which the tax generated contents in academic writing, while providing action.
Speaker Change: Actionable suggestions to enhanced originality and quality.
Feng Zhou: Turning to online marketing service. Q1 net revenues rose 2.6% year-over-year to RMB505.4 million. Our performance-based advertising client base grew by 20% in Q1, reflecting the successful scaling of our client acquisition efforts, a key driver for future performance growth. In overseas advertising, we have recently secured official Google partner certification, complementing our existing TikTok. These collaborations provide access to premium ad inventory and optimization tools, enabling more impactful international Technology remains at the heart of our advertising strategy. Leveraging our Confucius LRM, we launched the Youdao MagicBox, an AI-powered creative suite that automatically produces high-quality ad assets, including images, videos, and dynamic templates.
Turning to online marketing services.
Speaker Change: Q1, net revenues rose two 6% year over year to RMB 505, and five formula.
Speaker Change: Our performance based advertising.
Speaker Change: Advertising client base grew by 20% in Q1, reflecting the successful scaling of our client acquisition efforts a key driver for future performance outgrowth.
Speaker Change: And overseas advertising, we have recently secured official Google partner certification complementing our existing Tictoc partnership.
Speaker Change: These collaborations provide access to premium AD inventory and optimization tools, enabling more impactful international campaigns.
Speaker Change: Technology remains at the heart of our advertising strategy.
Speaker Change: Leveraging our competition so all right.
Speaker Change: We launched the Utah Magic box and AI powered creative suite stops automatically produces high quality assets, including images videos and dynamic templates.
Feng Zhou: This innovative solution is poised to play a pivotal role in transforming content creation workflows.
Speaker Change: This innovative solution is poised to play a pivotal role in transforming content creation workflows.
Feng Zhou: In addition, we have deepened the collaboration with NetEase Group through two operational initiatives. First, we strengthened our partnership with NetEase Games. driving over 50% year-over-year growth in advertising revenue from gaming industry. Second, we enhanced the collaboration with NetEase Cloud Music, expanding the range of advertising scenarios available to advertisers. Gross margin from online marketing services moderated to 30.5% in Q1 and approximately 4 percentage point decline year over year. This primarily reflects our Strategic Emphasis on Client Acquisition. as newer clients typically impact margins during initial onboarding.
Speaker Change: In addition, we have deepened our collaboration with Nazi scoop through to operational initiatives first we strengthened our partnership with Netease games driving over 50% year over year growth in advertising revenue from gaming industry clients.
Speaker Change: Second we enhanced the cooperation with Nat is cloud music expanding the range of advertising scenarios available to advertisers.
Speaker Change: Margin from online marketing services moderated at 235% in Q1, and approximately four percentage point decline year over year.
Speaker Change: This primarily reflects our stroud strategic emphasis on client acquisition.
Speaker Change: As the newer clients typically impact margins German initial on boarding.
Feng Zhou: Looking ahead, we anticipate the segment's gross margin to stabilize between 25% to 35% in the medium to long term.
Speaker Change: Looking ahead, we anticipate the segments gross margin to stabilize between 25% to 35% in the medium to long term.
Feng Zhou: Our smart devices segment delivered RMB 190.5 million. in Q1 revenues, representing a 5.1% year-over-year growth. In February, we introduced Youdao Space One, an AI-powered large-screen tutoring pen featuring our Confucius multimodal LLM. This innovative device offers precise image recognition, photo-to-speech conversion, and voice dictation capabilities, significantly broadening application scenarios while improving the learning experience. The product's strong market reception was evident as the initial inventory sold out within 10 days, contributing to over 20% yield rate of growth.
Speaker Change: Our smart devices segment delivered RMB 195.
Speaker Change: $5 million.
Speaker Change: In Q1 revenues, representing a five 1% year over year growth in February we introduced you without spacewalk, an AI powered large screen tutoring pants, featuring our kingfisher small tomorrow L O N.
Speaker Change: This innovative device offers precise image recognition photo to speech conversion and voice dictation capabilities significantly broadening application scenarios, while improving the learning experience the product strong market reception was evident as the initial inventory sold out within 10 days.
Speaker Change: Contributing to over 20% growth in our dictionary pen.
Feng Zhou: In our dictionary pan. revenue during the quarter. Moving forward, we will accelerate the integration of our Confucius large language model across both learning and advertising verticals, executing our AI native strategy to elevate user experiences while driving great greater growth.
Speaker Change: Revenue during the quarter.
Speaker Change: Moving forward, we will accelerate the integration of our Confucius Lodge language model across both learning and advertising verticals executing our AI native strategy to elevate to user experiences while driving greater growth.
Feng Zhou: Having achieved our first full-year operating profit in 2024, we are now strategically positioned to maintain this positive trajectory. targeting accelerated profit growth and achieving operating cash flow break-even for four years.
Speaker Change: Having achieved our first full year operating profit in 2024, we are now strategically positioned to maintain this positive trajectory.
Speaker Change: Getting accelerated profit growth and achieving operating cash flow breakeven for full year 2025.
Peng Su: With that, I'll pass the call to Supong for a detailed review of our financial performance. Thank you.
With that I'll pass the call to Sue Palmer.
Sue Palmer: The review of our financial performance. Thank you.
Speaker Change: Yeah.
Peng Su: Thank you, Dr. Zhou, and hello, everyone. Today I will be presenting some financial highlights from the first quarter of 2025. We encourage you to visit our press release issued earlier today for further details. For the first quarter, total net revenue RMB 1.3 billion, or U.S. dollar 178.9 billion, representing a 6.7 percent decrease from the same period of 2074. Net revenue from our London services were RMB 602.4 million, or US dollar 83 million, representing a 16.1% decrease from the same period of 2004. The year-over-year decrease was mainly because we continued to take a strategic approach to customer acquisition, which placed greater emphasis on high ROI, return on investment engagement.
Speaker Change: With Doctor, Phil and Hello, everyone today, I will be presenting some financial highlights from the first quarter I'll put 75 being calculated to be swallowed press release issued earlier today for further details.
Speaker Change: Well, it's first quarter total narrow revenue RMB by Prince Rupert in U S dollar behind with $78 9 million, representing a 6.7% decrease from the same people who are at all time.
Speaker Change: Net revenue from our live services were RMB 602 point for a minute.
Speaker Change: Dollar 83 minutes, representing a 16, 1% decrease from the same people out of off time hunting for.
Speaker Change: The year over year to Chris was mainly because we continue to take a strategic approach to customer acquisition, which placed greater.
Speaker Change: After I say, it's a high ROI return on investment engagements.
Peng Su: We believe despite the short-term revenue decline, this strategy has enhanced the overall resilience and operational efficiency of our business. Net revenue from our smart devices were RMB 190.5 million, or US$26.3 million, up 5.1% from the same period of 2024, which was primarily driven by the continual increase in sales of Youdao Dictionary Pen in the first quarter of 2025. Net revenue from our online marketing services were RMB505.4 million, or US$69.6 million, representing a 2.6% increase from the same period of 2024.
Maybe my belief is that the short short term revenue decline. This strategy has enhanced the overall resilience and operational efficiency of our business.
Speaker Change: Net revenue for our smart glasses were RMB 495 minute or U S. Dollar 26 point through a minute up five 1% in the province simply write off kind of in that four which was primarily driven by the continuing Chris and philosophical without different opinion in the first quarter up 10 to 35.
Speaker Change: Net revenue from our online marketing services were RMB, $505 4 million or U S.
Speaker Change: Dollar $69 6 million, representing a 26% increase from the same period often anymore.
Peng Su: For the fourth quarter, our total gross profit was RMB 614.2 million, or U.S. dollar 84.6 million, representing a 9.9% decrease from the same period of 2024. Gross margin for London services was 59.8% for the first quarter of 2025, compared with 63.1% for the same period of 2004. Of course, margin for smart devices was 52.3% for the first quarter of 2025, compared with 32.6% for the same period of 2024. Course margin for online marketing services was 3.5% for the first quarter of 2025, compared with 34.3% for the same period of 2024.
Speaker Change: For the fourth quarter. Our total gross profit was RMB $614 2 million or U S. Dollar $84 six minute, representing a nine 9% decrease from the same period of about 24.
Speaker Change: Gross margin for learning services was 59, 8% for the first quarter of $10 five compared with a six 3% for the same period of time paying for.
Speaker Change: Gross margin for smart devices was 52, 3% and for the first quarter. All the time 75, compared with three two and three to six months out for some period of time 74.
Speaker Change: Gross margin for online marketing services was three 5% plus quarter on 75, compared with historical 3%, what's the C peer out upfront 25 24.
Peng Su: For the first quarter, we reduced our total operating expense to RMB 510.2 million, or U.S. dollar 70.3 million, compared with RMB 651.6 million for the same period of the last year. Looking at our expense in more details, sales and marketing expense declined to RMB 357.6 million, compared with RMB 455.4 million in the first quarter of 2024. Research and development expense was decreased to RMB 115.5 million, compared with RMB 146.7 million in the first quarter of 2024. Our operating income margin was 8% in the first quarter of 2025 compared with 2.1% for the same period of last year.
Speaker Change: Well the fourth quarter, we've reduced our total operating expense to RMB $510 2 million or U S. Dollar 70 points of limited compared with RMB 650 people on planes 6 million for the same here quite a bit last year.
Speaker Change: Looking at all expense seemed more details. She also marketing expense declined to RMB 357.6 minutes.
Speaker Change: Paradise, RMB $555 4 million in the first quarter I'll put it anymore.
Speaker Change: So we're trying to do often expense decreased to RMB 115.5 minutes compared with RMB $146 seven minutes in the first quarter are plentiful.
Speaker Change: Yeah.
Speaker Change: Our operating income margin was 8% in the first quarter of 295 compared with two 1% for the same people are out of last year.
Peng Su: For the first quarter of 2095, our net income attributable to ordinary shareholders was RMB 76.7 million, or US$10.6 million, an increase of over six times from the RMB 12.4 million for the same period of last year. Non-GAAP net income attributable to the ordinary shareholders for the first quarter was RMB 81.7 million, or US$11.3 million, significantly increased from RMB 20.3 million for the same period of the last year. Basic and dilute net income per ADS, attributable to the ordinary shareholders for the first quarter of 2025, were RMB 0.65 or USD 0.09 and RMB 0.64 or USD 0.09, respectively.
Speaker Change: But first quarter all of a sudden it at five our net income attributable to ordinary shareholders was RMB $76 7 million or U S. Dollar at $10 6 million an increase of one six times from RMB $12 4 million for the same people write off last year.
Speaker Change: non-GAAP net income attributable to ordinary shareholders for the first quarter was RMB three 1.7 minute O U S. Dollar you know what I'm going through them at it she can make.
Speaker Change: Increased upfront the RMB 23 million for the same people out of the last year.
Speaker Change: Basic and diluted net income attributable to ordinary shareholders for the quarter of 25, or RMB 0.650 U S dollar to euro playing field.
Speaker Change: And the RMB zero plans six floor or U S dollar general Plainfield, respectively.
Peng Su: Non-cap basic and diluting net income per ADS, attributable to ordinary shareholders for the first quarter, was RMB 0.69 or USD 0.10. and RMB 0.68 or US dollar 0.0 respectively.
Speaker Change: Basic and diluted net income per ADR.
Speaker Change: Ball to ordinary shareholder was the first quarter was RMB 0.690 U S dollar euro playing what.
Speaker Change: And the RMB the old plants, six eight or you're a thought or two airplanes effectively.
Peng Su: All net cash used in operating activities was RMB255.5 million, or US$35.2 million for the first quarter. Looking at our balance sheet, as of March 31, 2025, our contract liabilities, which mainly consist of the deferred revenue generated from our lending services, were RMB 711.2 million, or US$98 million, compared with RMB 961 million as of December 31, 2024. At the end of the period, our cash, cash equivalent, current and un-currently restricted cash, and short-term investment, total RMB 424.5 million, or U.S. dollar, 58.5 million.
Our net cash used in operating activities was RMB $255 5 million.
Speaker Change: S dollar three 5.2 million for the first quarter.
Speaker Change: Looking at our balance sheet as of March 31st 2005.
Speaker Change: Our contract liabilities, which are mainly has to stop looking for revenue generated from our services were RMB $711 2 million or U S. Dollar 98 million compared with RMB $961 million. After the after December 31st funds anymore at.
Speaker Change: At the end of the period, our cash cash equivalents current and currently restrict cash and short term investment totaled RMB $424 5 million.
Speaker Change: All U S dollar 58.5 minutes here.
Peng Su: This concludes our prepared remarks. Thank you for your attention.
Speaker Change: 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.
Operator: We would now like to open the call to your questions. Operator, please go ahead. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys.
Speaker Change: We will now begin the question answer session.
Ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up the handset before pressing the keys.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then two.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then Kate.
Brian Gong: Your first question comes from Brian Gong with Citi. Yeah, thanks, Michael, for taking my question. A very quick question on AI. I noticed our AI tutor integrated deep-seats ahead of our peers in the first quarter. So from a medium-to-long-term perspective, how does management view the differentiation between results, large-language model confusions, and other large-language models in educational scenarios? Thank you.
Brian: Your first question comes from Brian <unk> with Citi.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah. Thanks for taking my question, a waterproof question Oh, yeah.
Speaker Change: I know, it's our Cooper.
Speaker Change: The head of our peers in the fourth quarter.
Speaker Change: So from a medium longer perspective, how does real depreciation.
Speaker Change: Calls lots of languish mobile computers, and other large language models out there.
Speaker Change: Yes. Thank you.
Speaker Change: Yes.
Feng Zhou: Hi Brian, so let me take the question. From day one of large language model development back in early 2023, we've emphasized the importance of embracing open technologies. So this year, the release of DeepSeek R1 provided the perfect opportunity for us to exercise that strategy. So that is why we are the first in the tech industry to integrate it into our stack and Mr. P, AI tutor in Q1, giving users options of models to solve K to 12 problems. So at the same time, our proprietary model, Confucius, has been evolving since 2023. In January, we released a major leap with Confucius R1, actually before the DeepSeek R1 release.
Speaker Change: Oh, Hi, Brian Yeah, So let.
Speaker Change: Let me take the question from day, one of our large language model development and back in early 2023.
Speaker Change: We've emphasized the importance of embracing open technologies.
Speaker Change: This year the release of deep CCAR, one provided the perfect opportunity for us to.
Speaker Change: Due to exercise that strategy. So that is why we are the first in the AD tech industry to integrate it into our stack and Mr. P. A tutor in Q1, giving users are options for us.
Speaker Change: Of models to solve stock okay to child pumps. So at the same time, our Cartwright proprietary motto Confucius has been evolving since 2000.
Speaker Change: 23 in January we released a major leap with Confucius 010 actually before the deep CCAR what movies are so convinced this was.
Feng Zhou: So Confucius R1 was the first open source educational reasoning model capable of step-by-step exposition, while being far more GPU efficient than general purpose models. So this next generation Confucius is now also deeply integrated across our learning services. solidifying our leadership in deploying large language models for education in China.
Speaker Change: It was the first to open source of education of reasonably motto capable of step by step exposition, while being far more GPU efficient than a general purpose models. So this next.
Speaker Change: Next generation Confucius is now also deeply integrated across all of our learning services.
Speaker Change: So AI driven subscriptions and also smart devices.
Speaker Change: Solidifying our leadership in deploying large language models for education in China.
Feng Zhou: So let me highlight three key advantages of combining open and proprietary technologies for you. The first we believe is this dual approach enhances the user experiences. Confucius delivers faster responses while deep seek often provides more comprehensive answers. We've observed that users very naturally adopt the Confucius for quick checks and the deep seek for in-depth explanation. So currently, actual usage is split roughly even. Second, we believe open technologies accelerate our teams and technology growth. Just as Google Android leverages the Linux kernel, we benefit from the broader ecosystem while contributing back. This dynamic environment pushes our teams to iterate faster, keep us at the forefront of innovation.
Speaker Change: So so.
Speaker Change: So let me highlight three key advantages of combining opened in proprietary technologies for Ya.
The first one we believe is a this do approach enhances our user experiences.
Speaker Change: Confucius delivers faster response as well.
Speaker Change: Deep seek all one often provides more comprehensive answers.
Speaker Change: Observed that our users are very naturally adopt the Confucius for quick checks.
Speaker Change: And deep seek for in depth explanation. So currently our actual usage is split roughly evenly.
Speaker Change: Second we believe open technologies accelerate our teams and technology gross.
Speaker Change: Just as a Google.
Speaker Change: Google Android Leverages, the Linux kernel.
Speaker Change: We we benefit from the broader.
Speaker Change: Broader ecosystem, while contributing back this dynamic environment pushes our teams to iterate faster keep us at the forefront of innovation.
Feng Zhou: Thirdly, Confucius excels in education-specific scenarios. So thanks to the continuous refinements, it outperforms general purpose models in a few very important areas. First is translation quality. Confucius leads the industry in translation accuracy, a core capability for our platforms, while operating at a fraction of the cost of general purpose models. As noted earlier, we've completed our year-long transition from NMT to LLM translation, now processing over 1.5 billion tokens every day. The second strength of Confucius model is a Q&A accuracy. So with recent multi-model upgrades, Mr. P. A. I. Tudor achieves over 92% accuracy in K-12 problem solving.
Speaker Change: Thirdly convinced of 6000, Uh Huh education specific scenarios. So thanks to the continuous.
Speaker Change: Refinements.
Speaker Change: Foams General purpose models in a in.
Speaker Change: In a few very important areas.
Speaker Change: First is a translation quantity convinced.
Speaker Change: Vicious leads the industry in translation accuracy of core.
Speaker Change: Capability for our platforms are well operating at a fraction of the cost of general purpose models.
Speaker Change: As noted earlier, we've completed our year long transition from empty to.
Speaker Change: Translation now processing over one 5 billion.
Speaker Change: Billion tokens everyday.
Speaker Change:
Speaker Change: The second just strength of Confucius motto is Oh Q&A accuracy, so with recent multimodal upgrades Mr. P. A a tutor.
Speaker Change: Over 92% accuracy in keto child problem solving so that is seven points year over year.
Feng Zhou: So that is a 7-point year-over-year improvement over last year, significantly surpassing standalone deep-seek performance in these scenarios. So we're also optimizing our use of deep-seek by migrating deep-seek R1 inference to our fully internal deployment. We've achieved 99.9% availability, lower latency, and also greater cost efficiency, with further optimization still ongoing. So our progress has, again, a lot of recognition.
Speaker Change: Improvement over last year.
Speaker Change: Significantly surpassing standalone keep seek our performance in these scenarios.
Speaker Change: So we're also optimizing our use of deep sea by migrating a deep CCAR one influence to our to our fully internal deployments.
Speaker Change: We've achieved a 99, 9% availability lower allowed Tennessee, and also a greater cost efficiency.
Speaker Change: With further optimizations to ongoing.
Speaker Change: So our progress has.
Speaker Change: Again, a lot of recognition actually.
Feng Zhou: Actually, the Time magazine recently ranked Youdao as the world's number two ad tech company among over 7,000 firms, underscoring our leadership in our deployment and operational excellence. So moving forward, we'll deepen our focus on educational verticals, enhancing Mr. Pei's accuracy while also expanding Confucius into more areas, including lesson planning, grading, and assessments. So exciting products and model updates are coming this summer, and we look forward to sharing them soon. Thank you.
Speaker Change: The time magazine recently ranked you at all as the worlds number two AD Tech company I'm on.
Speaker Change: Kevin Southern's firms underscoring our leadership and now am deployment and operational excellence. So moving forward. It will deepen our focus on education educational verticals enhancing Mr. Pease accuracy, while also expanding Confucius into.
Speaker Change: More areas, including lesson planning grading and assessments are so exciting products and model updates are coming this summer.
Speaker Change: We look forward to sharing them soon thank you.
Speaker Change: Thank you.
Speaker Change: Yeah.
Liping Zhao: Your next question comes from Liping Zhao with CICC. Good evening Dr. Zhou, Mr. Su and Ms. Li. My question is about your learning service. So I noticed that the net revenue from learning service segment remind year-over-year decline during the first quarter. When does you project the segment revenue to return to growth? Thank you.
Speaker Change: Your next question comes from Mckinsey <unk> with CIBC.
Mckinsey: Good evening, Dr. Joe Mr. Xu and it makes me my question is about your lending service also I noticed that the net revenue from that new service segments remind them year over year decline.
Speaker Change: The first quarter it.
Speaker Change: When does do you project the segment's revenue to return to growth. Thank you.
Peng Su: Thank you, Brenda. This is Su Feng. I will handle the question first, and I think our adjustment for the learner service segment initiated last year remains ongoing right now, and we have intensified our focus on service with robust demands and significant growth potentials, such as the Youdao Lingshi, while getting back non-essential offerings.
Brandon: Second Brandon this is for Paul I will handle the pressroom first and.
Speaker Change: I think our adjustments for the lunar surface settlement you shape lofty reman.
Speaker Change: I've been out and go in right now and we have intensified our poker self service with the.
Speaker Change: Robust demand that that's connected to the growth potential such as the true well, it's getting back 90 central offering.
Peng Su: And as we mentioned in the last two quarters, and it will be accomplished in this year. And although the net revenue from the learning services segment still declined from year-over-year basis in Q1, the rate of decline narrowed by roughly 5% compared to the previous quarters. This improvement was primarily driven by the resilient performance of Youdao Lingshi during these quarters. And we believe there are several points to support the sustainable growth of the Youdao Lingshi business. The first is about the China's paid college entrance exam advisory service market has been demonstrated significant growth potentials in recent years, driven by the evolving college and school selection rules under the new Gaokao policies.
Speaker Change: And as we imagine in the last two quarters and it will be accomplished in D. C.
Speaker Change: And although the net revenue from the donor services segments to decline from year over year basis in Q1, the rate of decline narrowed by the roughly five 5% compared with the previous quarters. This improvement was primarily driven by.
Speaker Change: Resilient for myself to you without interest during this quarter.
And maybe if there are several points to support the sustainable growth, Australia without interest business.
Speaker Change: Firstly, it's volatile so China's paid college entrance exam advisory services market has been demonstrated significant growth potential in recent years driven by the evolving college on the SKU selection of goes under the you know the Gulf of policies.
Peng Su: and sometimes the family's urgent needs to bridge the information gaps. In Q1, we launched an upgraded AI college as a mission advisors of power by our large library models, offering the user professional, efficient, and tailor-made one-stop services. This service gain the immediate users recognizations and driving the Youdao interest Q1's growth speed to grow by over 25% year over year. And looking forward, we expect a sustained rapid growth with our AI college admission advisors. Our computers modeling continuous advancement will further refine the recommendation accuracy with our pricing, which at least adds less than the 10% of the traditional advisory fee, and make quality guidance accessible to more families.
Speaker Change: And sometimes it's the families are gonna needs to breach the information gaps.
Speaker Change: In Q1, we launched our upgraded AI College admissions advisors.
Speaker Change: Powered by our luxury modal offerings, the user professional efficient and.
Speaker Change: Hello mate it that's a one stop services disservice gains like media as you all sorts of recommendations and driving without interest Q1's, more expedient to grow by over 25% year over year.
Speaker Change: And looking for award we expect our sustained rapid growth with our yeah, I apologize Alicia devices, our computer smoldering continuous device advanced much bill.
Speaker Change: Further refined recommendation accuracy, they are our pricing, which at least that's our last time that 10% also traditional otherwise receipt.
Speaker Change: And they make a quality guidance accessible to more families.
Peng Su: And at the same time, we just noticed about the recent education construction plan online has been released, which emphasizes cultivating the top peers' innovative talents and including the outstanding talent program for exceptional high school students. We will definitely actively monitor the policy development and leverage our premium resources and product expertise to capitalize on these emerging opportunities.
At the same time, so we just notice of all the recent educations construction plan all lines that's been released.
Speaker Change: I'm precise calculations of pop here's innovative talents and including the outstanding talent program.
Speaker Change: For exceptional high school students, maybe I'll definitely actively monitored the policy development and leverage our premium resources and product expertise.
Speaker Change: Expertise to capitalize on B.
Speaker Change: Emerging opportunity.
Peng Su: And in summary, we anticipate completing our segment restructuring in the second half of this year, with revenue stabilizations expected thereafter. For our flagship Youdao interest services, we project both revenue and profit to achieve the year-over-year growth in this year. Thank you, Brenda.
Speaker Change: And.
Speaker Change: In summary, we anticipated for competing in our segment restructuring in the second half this year with revenue sterilization expected thereafter.
Speaker Change: Our flagship Godaddy career services, they projected bulks revenue and profit to achieve year over year of course in this year.
Speaker Change: Brenda.
Speaker Change: Thank you.
Speaker Change: Okay.
Thomas Chong: Your next question comes from Thomas Chong with Jeffreys. Hi, good evening. Thanks, management, for taking my question. My question is about our online marketing services. As we see, revenue from online marketing services has remained at around $500 million for six consecutive quarters. When does management anticipate the acceleration in revenue growth? Thank you.
Speaker Change: Your next question comes from Thomas Chong with Jefferies.
Thomas Chong: Hi, Good evening. Thanks management politically my question My question is about.
Speaker Change: Okay.
Speaker Change: He brought a new optical one.
Speaker Change: So if I say it has remained at Atlanta Buckhead get medium.
Speaker Change: Got it.
Speaker Change: When does management anticipate valuation.
Speaker Change: Thank you.
Lei Jin: Hi, this is Lei Jin. Assuming the stable market conditions and execution of our business plan, we expect online marketing services revenue will show stronger growth momentum in the second half of this year compared to the first half, driven by three key factors. First, accelerate the overseas advertising expansion. After obtaining both official partnership letters in Q1 and completing certification, we are now implementing collaborative initiative that should contribute meaningful to H2O revenue. Additionally, our TikTok advertising revenue maintains a strong growth in Q1. are trends we aspire to continue to through the year end.
Speaker Change: Hi.
Speaker Change: Hum.
Speaker Change: Liberal market economy.
Speaker Change: Our business plan.
Speaker Change: This pad online magazines and services.
Speaker Change: No real show stronger growth momentum in the second half.
Speaker Change: Yeah.
Speaker Change: Parents with a what's the hot.
Speaker Change: Got it.
Speaker Change: The key factor.
Speaker Change: Uh huh.
Speaker Change: Consolidated to oversee our blood typing.
Speaker Change: Hmm.
Speaker Change: Both of these partnerships in.
Speaker Change: In Q1.
Speaker Change: I agree with you.
Speaker Change: Occasion now.
Speaker Change: Implementing collaborative.
Speaker Change: It is that should contribute meaningful to revenue.
Speaker Change: Additionally, I want to talk about the timing of revenue and loan growth in Q1.
Speaker Change: I triangulate you aspire to continue to do that.
Speaker Change: Yeah Yeah.
Lei Jin: Second, upgrade the AI-powered advertising solutions. Our Q1 launch of Youdao Magic Box, an AI-driven, one-click, ADA-created tool, marked the first step to our enhanced capabilities. We are currently developing our AI advertising optimizer This system will automatically generate the content as it is. Including targeting scenarios and budget allocation, align with advertiser objectives while continuously optimizing through real-time RRM insights and adaptive recommendation models.
Speaker Change: Secondly, obviously, the AI powered tightening solution.
Speaker Change: Our Q1 and I talked about.
Speaker Change: A landfill.
Speaker Change: Paul.
Speaker Change: Yeah.
Speaker Change: Luckily <unk> accretive.
Speaker Change: My market.
Speaker Change: Perfect.
Speaker Change: You have that capability.
Speaker Change: Currently developing or otherwise.
Speaker Change: Advertising optimizer.
Speaker Change: I've been immersed in 19 in Q2, and our food really plan for it.
Speaker Change: This system will automatically generate a comparable.
Speaker Change: Including targeting scenario.
Speaker Change: Our capital allocation alignment with other lighthizer are protected.
Speaker Change: They all come into play.
Speaker Change: In real time.
Speaker Change: Hum.
Speaker Change: Uh huh.
Speaker Change: The common dividend model.
Lei Jin: Third, deepen the collaboration with the net-ease group. In Q1, we leveraged our algorithmic and data analytics. Inc. July 29, 2013 In particular, for global promotions, our overseas influencer network now encompasses 15,000,000 creators across 75 countries. reaching over 2 billion users directly. That is what ties in with us as we study in Cuba.
Speaker Change: Third even though collaborative collaborations.
Speaker Change: Okay.
Speaker Change: I would imagine.
Yeah.
Expertise.
Speaker Change: Thanks.
Efficiency gain.
Speaker Change: Premium constant.
Speaker Change: In particular for our growth.
Speaker Change: Oh, let's see.
Speaker Change: That work now.
Speaker Change:
Speaker Change: Uh huh.
Speaker Change: We didn't create here okay.
Speaker Change: 70 75 countries.
Speaker Change: Reaching over 2 million users directly.
Speaker Change: Not to use a.
Speaker Change: Uh huh.
Speaker Change: And with that.
Speaker Change: Saturday into that.
Lei Jin: With this positive trajectory, it is vital to continue. Regarding tariff impacts, now the uncertainty duties may present challenges for acquiring overseas e-commerce clients. This segment currently represents a minimal portion of total AD revenue. making the overall effect negligible.
Speaker Change: They stated publicly.
Speaker Change: Transitory.
Speaker Change: You might be able to continue.
Speaker Change: I haven't heard it impact now of the African pay duties.
Speaker Change: Cause them to turn again, Oh for crying over C E Commerce.
Speaker Change: Uh huh.
Speaker Change: Currently.
Speaker Change: Wholesale total Abi.
Speaker Change: Making the overall.
Speaker Change:
Speaker Change: Hey, Bob.
Lei Jin: They should note that H2O performance remains subject to macroeconomic conditions in domestic and international markets. which could introduce operational variabilities.
Speaker Change: This will no doubt it's a triple.
Speaker Change: The man.
Speaker Change: Hum to macro.
Speaker Change: Panama economy Huntington.
Speaker Change: This particular in the international market.
Speaker Change: <unk> Cuda introduced operational viability.
Lei Jin: Thank you.
Speaker Change: Thank you.
Speaker Change: Okay.
Bo Zong: Your next question comes from Bo Zong with Hu Tai Securities. Hello, thanks for taking my question.
Speaker Change: Your next question comes from the Sun with <unk> Securities.
Yeah.
Speaker Change: Yes.
Speaker Change: Hello.
Zhan Wu: This is Zhan Wu from Huatai. My question is, last year was Youdao's first full year of mobility. Among the four quarters, only the second quarter reported an up and down. Is there a possibility of a probability in the second quarter this year? Yes. Okay.
Speaker Change: Well, let's taking my question. This is John Wolff on potash.
Speaker Change: My question really last year, what are you at all first of all yes, okay.
Speaker Change: To a microphone.
Speaker Change: The second properly.
Speaker Change: Thank you Ralph.
There are parts of it actually helps our profitability in the second departure I did see.
Speaker Change: Yeah.
Zhan Wu: Thank you, Zhang Guo.
Sandra: Thank you Sandra.
Wayne Lee: This is Wayne Lee. I will take your questions. Our financial performance throughout 2024 and Q1 2025. about trade significance and the planned possibility improvement. This program validates the success of our strategic initiatives across three critical areas. First, sharpen focus on high-margin digital content, advertising, and AI-powered subscriptions. Second, comprehensive AI-native transformation boosting operational efficiency. The last one is decimplifying the cost optimization.
Sandra: Wendy I welcome your questions.
Speaker Change: Our financial fulfillment throughout so if there's any fall and their Q1 'twenty five.
Speaker Change: First Street, Sydney and Kansas.
Speaker Change: And the profitability improvement.
Speaker Change: It's progressing well.
Speaker Change: Great.
Speaker Change: All our chest Judy initiative across three critical areas.
Speaker Change: Firstly sharpen focus on high margin digital content advertising and AI powered.
Speaker Change: Routine.
Second.
Speaker Change: Hence the <unk> transformation.
Speaker Change: Transformation, boosting our accretion or efficiency the laughlin distinct.
Speaker Change: Distinct lines of cost optimization.
Wayne Lee: Thank you for your attention. Concentrating resources on Youdao Linchi, online marketing services, and other key initiatives, we've successfully contained the losses from non-core operations. Our AI integration has revolutionized multiple business functions from cost operations to AD production and R&D. delivering higher efficiency and profitability levels compared to our historical performance. with poverty Q2 has remained unpredictable mainly due to two seasonality reasons, first, Q2 is Traditionally, the weekliest quarter for revenue generation from learning services and the smart devices. Substantial sales and marketing campaigns for summer enrollment, which typically begin in June. For Q2 this year, we will maintain our strategic priorities like large-length model deployment and cost development by further optimizing our cost structure in line with our full-year profitability goals.
Speaker Change: Right.
Speaker Change: Chasing they started on <unk>.
Speaker Change: The true online marketing.
Speaker Change: And the other key initiative we.
Speaker Change: Statistically contained the losses from noncore on accretion.
Speaker Change: AI integration.
Speaker Change: Passive revolutionized the multiple business functions.
Speaker Change: Uh huh.
Speaker Change: Wishes to 80 production and R&D.
Speaker Change: Delivering higher efficiency and profitability.
Speaker Change: Level compared to our historical performance.
Speaker Change: Historically.
Speaker Change: Q2 has remained unprofitable favorable mainly due to seasonality.
Speaker Change: Seasonality reason.
Speaker Change: Q2 is.
Speaker Change: Traditionally the weakness quarter for revenue generation from learning services and the Mark to market.
Speaker Change: Okay.
Speaker Change: <unk> sales and the marketing campaign for summer enrollment, which typically begin in June.
Speaker Change: For Q2 this year, we will maintain our strategic priority like 99 remodel department and the court.
Speaker Change: Development.
Speaker Change: By further optimizing our cost structure in line with our full year profitability good.
Wayne Lee: Our ongoing investment in co-operating like we're doing may temporarily increase.
Speaker Change: Our ongoing investments in core offerings like is the autonomy.
Speaker Change: Kimberly.
Speaker Change: Okay.
Wayne Lee: Thank you very much. competitive position and drive full fiscal.
Speaker Change: These women.
Speaker Change: Good luck getting.
Speaker Change: Competitive position and drive through fiscal profitability.
Wayne Lee: Thank you for remembering. Back to... to reduce Q2's operation losses year over year, while acknowledging potential macroeconomic uncertainty that may affect the Doppler. helpful. Thank Thank you.
Mary Beth: I'm Mary Beth.
Speaker Change: To.
Speaker Change: Reduced Q2s operation losses year over year, while acknowledging potential macro economic uncertainty definitely.
Speaker Change: The Dallas.
Speaker Change: It is.
Speaker Change: Helpful.
Speaker Change: Thank you.
Speaker Change: Sounds good.
Speaker Change: Well.
Speaker Change: Yeah.
Operator: This concludes our question and answer session.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Jeffrey long for any closing remarks.
Jeffrey Wang: I would like to turn the conference back over to Jeffrey Wang for any closing remarks. Thank you once again for joining us today.
Speaker Change: Thank you once again for joining us today, if you have any further questions. Please please feel free to contact US now at your without directly or reach out to <unk> financial communications in China or the U S have a nice day.
Jeffrey Wang: If you have any further questions, please feel free to contact us now at Youdao directly or reach out to Pearson Financial Communications in China or the U.S.
Operator: Have a nice day.
Speaker Change: Okay.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Speaker Change: Okay.
Operator: My YouTube Channel to watch more videos
Speaker Change: Yeah.
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