Youdao Inc ADR Class A (DAO.US) third quarter financial report: net income was 1.57 billion, with single quarter profit hitting a record high.

On November 14, the educational technology company Youdao Inc ADR Class A (DAO.US) released its unaudited financial report for the third quarter of 2024. During the reporting period, under the "AI + Education" dual-wheel driving strategy, Youdao Inc ADR Class A's products and services continued to upgrade iteratively, and the commercialization of AI made breakthroughs again, leading to steady growth in overall performance, significant improvement in business health, and operational efficiency. The financial report shows that Netease Inc Sponsored ADR Youdao Inc ADR Class A's net revenue in the third quarter reached 1.57 billion yuan, a 2.2% year-on-year increase. Operating profit reached 110 million yuan, marking the first time in history that profit was achieved in the third quarter, and the quarterly profit amount hit a record high. Operating cash flow narrowed to 85.4 million yuan, a 71.0% year-on-year decrease. CEO of Netease Inc Sponsored ADR Youdao Inc ADR Class A, Zhou Feng, stated, "Looking ahead, we will focus on enhancing user experience as the core goal, continuously optimizing the Youdao's big model for education. At the same time, we will continue to deepen our presence in digital content services, AI subscription services, and smart hardware fields, creating more value. In terms of advertising business, we will explore new growth points in the domestic market and seize new opportunities for Chinese companies to enter the international market. In terms of financial management, we will continue to adhere to sound operation principles and enhance the company's profit-making capacity." AI empowers education and advertising business, with continuous improvement in the profitability of core businesses Following the launch of the first domestic educational big model "Youdao", Youdao Inc ADR Class A accelerated the commercialization of big models in courses and advertising scenarios. Additionally, Youdao Inc ADR Class A continued to adhere to the strategy of high-quality content, providing users with high-quality, personalized learning content services. During the reporting period, Youdao Inc ADR Class A continued to focus on core courses, with net revenue of learning services reaching 770 million yuan. By controlling costs and expenses reasonably, the overall health of the business saw significant improvement. Among them, net revenue from digital content services reached 510 million yuan, contributing substantial operating profit while covering costs and operating expenses. Based on the iteration of its AI capabilities and data accumulation, Youdao Inc ADR Class A continued to upgrade its products. In the third quarter, Youdao Inc ADR Class A's Ling Shi intelligent learning system was upgraded, with knowledge videos expanded to nearly 40,000 and added difficulty levels, and the question bank increased by approximately 100,000 questions. In terms of academic planning services, Youdao Inc ADR Class A's Ling Shi has developed a service system covering live teaching methods, academic planning, planning with counselors, and tiered small group services. Additionally, Youdao Inc ADR Class A's Bo Wen has added AI essay correction functions to its trial courses, increasing conversion rates by 7 percentage points. In the third quarter, net revenue from online marketing services of Youdao Inc ADR Class A reached 490 million yuan, a 45.6% year-on-year growth, maintaining a high growth rate, with gross margin increasing by 4.4 percentage points year-on-year. The growth of online marketing business was attributed to Youdao Inc ADR Class A's continuous expansion into new fields and the optimization of advertising effects using AI. In terms of performance advertising, this quarter, Youdao Inc ADR Class A achieved a historical high in RTA revenue driven by AI technology, with a year-on-year growth exceeding 100%. Regarding brand advertising, Youdao Inc ADR Class A's "Campus Tour" has expanded to nearly 500 universities nationwide by the end of the third quarter, helping brands complete nearly 80 offline campus events. Additionally, Youdao Inc ADR Class A continued to actively develop overseas advertising business, seizing the peak demand for overseas promotion of games in the third quarter, with overseas KOL advertising revenue increasing by over 50%. "Youdao" leading the commercialization, significant growth in AI subscription services In the progress of big models, Youdao Inc ADR Class A follows the strategy of "scenarios first, applications supreme", actively promoting the deep application and upgrading of artificial intelligence technology in business scenarios. With the further maturity of big model technology and the continuous upgrading of AI products, Youdao Inc ADR Class A's APP subscription membership services also witnessed significant growth. According to the report, the sales of AI subscription services of Youdao Inc ADR Class A reached nearly 70 million yuan in the third quarter, exceeding 150% year-on-year growth. During the reporting period, leveraging the technical advantages of deep learning and big models, Youdao Inc ADR Class A's translation services underwent a new upgrade, including enhancing sentence understanding capabilities, supporting multimodal information input for image documents, and enabling continuous follow-up questions on translation content. These upgrades significantly improved the professionalism, fluency, and overall user experience of translation. Among them, Youdao Inc ADR Class A's AI document translation has translated a cumulative total of 100 million documents. In the third quarter, Youdao Inc ADR Class A's dictionary achieved full AI transformation. In September, Youdao Inc ADR Class A's dictionary announced a new slogan upgrade, changing from "Word to World, accompanying you to see the world" to "All is AI, the AI learning assistant for a billion people", and adding over 20 AI features such as AI simultaneous interpretation and AI English essay generation. Among them, the AI simultaneous interpretation function became the top conversion feature for Youdao Inc ADR Class A's dictionary, with user usage exceeding 4 million times. In October.Youdao Inc ADR Class A Dictionary Hongmeng Edition officially released, and it is one of the few applications within the system that supports full AI functionality.Since the third quarter, Hi Echo has also gained high recognition in the market and has been recommended as the only educational technology AI application, receiving a heavy recommendation on the homepage of the Apple Inc. App Store. In addition, as one of the important applications in the "Confucius" series, the AI comprehensive learning assistant Youdao Inc ADR Class A XiaoP had nearly 20 million users in the third quarter, with a monthly compound growth rate of over 100%. AI smart hardware focuses on flagship products, leading the way in new products for Singles' Day This year, AI hardware has seen new market opportunities. In the third quarter, Youdao Inc ADR Class A smart hardware achieved a net income of 320 million yuan, a year-on-year increase of 25.2%, and the gross profit margin further increased to 42.8%, reaching its highest level since 2023. During the reporting period, Youdao Inc ADR Class A launched the Dictionary Pen X7 series, which has a vocabulary of 78 million words and an AI camera, equipped with AI big model functions such as XiaoP teacher and Hi Echo, and it is the industry's first learning device to achieve offline AI big model translation. The new smart learning experience of the new product also drove a net income growth of over 50% year-on-year for the Dictionary Pen series in the third quarter. For this year's "Singles' Day" promotion, Youdao Inc ADR Class A's Dictionary Pen topped the sales volume on both JD.com, Inc. Sponsored ADR Class A and Tmall platforms, achieving a continuous five-year industry's top spot. Among them, the Dictionary Pen X7 Pro from Youdao Inc ADR Class A dominated the single product sales on JD.com, Inc. Sponsored ADR Class A and Tmall platforms. Another popular single product, the Dictionary Pen A6 Pro from Youdao Inc ADR Class A, also won the sales champion on both JD.com, Inc. Sponsored ADR Class A and Tmall platforms for the dictionary pen category. In addition, in the third quarter, Youdao Inc ADR Class A continued to create a more personalized and intelligent learning environment for students. As of August 2024, Youdao Inc ADR Class A Dictionary Pen has entered over 1,800 primary and secondary schools and universities across the country, including over 160 top-tier institutions such as Tsinghua University, Peking University, University of Science and Technology of China, and Fudan University, as well as covering over half of the top 100 schools in the country, including Hengshui High School, Changsha No. 1 Middle School, and Nanjing Foreign Language School. "In the fourth quarter, we plan to launch a new product that integrates more big model functions to significantly improve user experience," Zhou Feng revealed.