The Zhitong Finance App learned that on May 23, the educational technology company NetEase Youdao (DAO.US) released an unaudited financial report for the first quarter of 2024. During the reporting period, benefiting from the two-wheel drive of “AI” and “education,” performance exceeded market expectations, and business health improved dramatically.

According to financial reports, NetEase Youdao's net revenue for the first quarter reached 1.39 billion yuan, an increase of 19.7% over the previous year. Operating profit reached a single quarter of 30 million yuan, maintaining profit for two consecutive quarters for the first time. Under non-US GAAP, net profit attributable to NetEase Youdao for the quarter was 0.2 billion yuan, turning a year-on-year loss into a profit. Operating cash outflow improved 10.5% compared to the same period last year.

Zhou Feng, CEO of NetEase Youdao, said, “We will focus on digital content services, online marketing services and AI subscription services. We will continue to use our AI capabilities and understanding of education to explore more application scenarios for the Ziyue Education Model in the fields of education, advertising, etc. At the same time, we will accelerate the implementation of products and applications to better help users improve learning and work efficiency.”

Digital content services maintained a strong momentum, and online marketing rose sharply for the sixth quarter

Following the launch of “Ziyue,” the first major education model in China, NetEase has accelerated the commercial implementation of the big model in education and advertising scenarios. At the same time, Youdao continues to adhere to the content quality strategy to provide users with high-quality and personalized learning content services.

During the reporting period, revenue from Youdao Learning Services reached 720 million yuan, which is basically the same as the same period last year. Among them, digital content services continued to maintain a strong momentum. Net revenue for the first quarter was 50 billion yuan, up 11.0% year on year, and gross margin remained above 70% for three consecutive quarters. Furthermore, net revenue covers costs and operating expenses, creating good operating profits for digital content services.

In the first quarter, Youdao continued to use the advantages of AI technology to provide users with differentiated and personalized products and services. During the reporting period, leading product upgrades were introduced to help teach according to abilities through the introduction of hierarchical teaching methods. You Dao Ling Shi's comprehensive renewal rate was over 70%, a record high, with a year-on-year increase of more than 10%.

YouDao Bowen's AI Writing Precision Approval Service exceeded 30,000 efficient and high-quality corrective essays in the first quarter, an increase of 80% over the previous quarter, and led to a 10% increase in the conversion rate. In addition, Youdao Bowen also released the humanities literacy course “Cloud Tour 24 Cities”, which uses 24 famous historical and cultural cities as carriers to help students improve their reading and writing skills in a lively and fun way.

In the first quarter, Youdao's net revenue from online marketing services reached a record high of 490 million yuan, an increase of 125.9% over the previous year. This is the sixth consecutive quarter of the business's net revenue growth of more than 50% year over year. This increase is mainly due to AI technology helping to refine advertising operations and improve customer acquisition efficiency.

Driven by the digital wave, the global business landscape is undergoing profound changes. In order to support enterprises to go overseas quickly and accelerate their global layout, Youdao Ads also quickly launched the country's first one-stop overseas marketing platform in the first quarter, which can help enterprises efficiently reach the world's 5 million+ KOLs and enable the international development of brands. Currently, Youdao Ads has helped many Chinese companies go overseas, including NetEase Games, Miha Tour, BYD, Huawei, Xiaomi, etc.

Youdao Smart Learning Hardware's revenue in the first quarter was 180 million yuan. Youdao dictionary pens continue to lead innovation. In the first quarter, the entry-level A6 Pro series and the all-purpose S6 Pro series were released one after another, and the performance was outstanding. Among them, the A6 Pro topped the Douyin list in terms of sales on the day of its debut, and quickly topped JD's single product sales after launch; the S6 Pro steadily ranked first in JD's single product sales after its release, and became the top single product seller on the JD and Tmall platforms since May.

Generative AI accelerates implementation in multiple scenarios and will focus on the three directions of high growth potential

Scenario first, application first, is a strategy that Dao has always adhered to when it comes to big models. Up to now, Youdao has launched more than 10 major model native applications and implemented them in software and hardware products.

The rapid development of generative AI is also driving the explosive growth of app subscription services. Based on a large user base and long-term experience with algorithm-driven products, AI subscription services achieved outstanding performance in the first quarter. This business includes YouDao Dictionary, YouDao Translator, Hi Echo, and an international app that provides services such as translation and language learning. During the reporting period, sales of this type of service were close to 50 million yuan, an increase of more than 140% over the previous year. According to reports, the business has been growing by more than 50% year on year for five consecutive quarters.

Youdao has been deeply involved in the translation field for many years. According to Questmobile statistics, Youdao Translation currently has over 100 million monthly active users, ranking first in the domestic dictionary translation market. With the advent of the big model era, You Dao also pioneered the introduction of an AI translation function based on big model capabilities, which can better capture contextual information, greatly improve language understanding, and easily translate vocabulary in specialized fields. Now that the feature has been fully launched, YouDao AI translation has been used by over 5 million people, and has been used more than 20 million times.

Youdao Dictionary also achieved full AI transformation in the first quarter, fully integrating the new AI learning assistant “Little P” into word search, loitering, translation, etc., to provide users with a more professional, more personalized, and more powerful language learning and translation experience, so that users can change from passively searching for information to actively explore and ask questions, and redefine AI dictionaries in the new era.

Going overseas is a new commercial trend in recent years. With a deep understanding of overseas markets, Dao has launched a variety of apps based on large model capabilities in overseas markets, and has also achieved great results. In the first quarter, Youdao International App's sales doubled year-on-year. The software currently being launched covers fields such as recording and transcription, translation, and AI entertainment. Among them, the recording and transcription app iRecord ranked in the top two recording tracks in North America.

Focusing on advantageous businesses, Dao has gradually formed three major focus directions — digital content services, online marketing services, and AI subscription services. Zhou Feng said that our strategy is to focus on businesses and products with high growth potential and huge competitive advantages. Our goal is not to do many things well at the same time. Instead, we believe focus, quality, and differentiation lead to long-term growth.

“Direct user-facing products are currently the biggest growth opportunity for AI. AI subscription services are a very natural way to develop AI. We are still in the early stages. Next, we will accelerate the expansion of product scale and increase user subscriptions and return on investment. We are confident in the development of the business.” Zhou Feng said.