According to Zhitong Finance, on August 22nd, education technology company Netease Youdao (DAO.US) released its unaudited financial report for the second quarter of 2024. During the reporting period, thanks to the continued investment in the "AI+Education" strategy, the company made positive progress in the commercialization of AI, driving steady growth in overall performance and significant improvements in business health and operational efficiency.

The financial report shows that Youdao's net income in the second quarter was 1.32 billion yuan, a year-on-year increase of 9.5%. Operating net cash flow reached a record high of 0.25 billion yuan, an 88.2% increase year-on-year, and operating losses narrowed significantly by 74.9% year-on-year.

In the first half of this year, Youdao achieved a net income of 2.71 billion yuan, a year-on-year increase of 14.5%. While maintaining revenue growth, major financial indicators such as operating losses and operating net cash flow have also significantly improved, further enhancing the company's overall profitability.

Youdao CEO Zhou Feng said, "At the beginning of this year, we have defined our operational strategy focusing on digital content services, AI subscription services, and online marketing services. In the past six months, we have witnessed the positive results brought by the close integration of large-scale model technology and the company's business. This not only promotes comprehensive business progress but also significantly improves major financial indicators. Looking ahead, we are confident in the broad prospects of AI+Education. We will spare no effort to promote the application of large-scale models and use technological innovation to support personalized education."

"AI+Education" dual-drive, significant improvement in three major business health

Under the "AI+Education" dual-drive strategy, Youdao has been continuously focusing on the upgrading and iteration of its core business, realizing the differentiation of Youdao's products and services through the empowerment of AI, and improving users' learning and office efficiency.

During the reporting period, the revenue of Youdao's learning services reached 0.64 billion yuan, with the digital content services continuing to show a healthy growth trend. The net income in the second quarter was 0.4 billion yuan, a year-on-year increase of 6.8%. In addition, the operating net inflow of cash generated by the digital content services has exceeded 0.2 billion yuan.

In terms of product growth, leveraging its strong AI technology capabilities and data advantages, Youdao continues to promote the upgrading of related learning service products. During the reporting period, Youdao's college consulting services have been upgraded to 'AI College Planner', providing comprehensive assessment, application guidance, subject selection, and college admission policy consulting services to students. Since the upgrade of the service, the page views of the AI volunteer application system have reached nearly 3 million, a year-on-year increase of 30%. The continuous upgrade of products and services has driven Youdao's comprehensive re-enrollment rate to exceed 70%, reaching a historical high, a year-on-year increase of more than 10 percentage points. According to reports, in this year's college entrance examination, 125 Youdao students were admitted to top Chinese universities, and more than a thousand were admitted to 985 universities.

In the second quarter, Youdao's online marketing services achieved a new historical high in net income, reaching 0.51 billion yuan, a year-on-year increase of 68.4%. This is the seventh consecutive quarter with a year-on-year growth of over 50% in net income for this business, driven primarily by the strong performance of RTA and domestic KOL advertisements.

Youdao stated that the rapid development of large AI models has greatly increased the demand for promoting these models and their applications by technology companies. Youdao has also seized the opportunity to promote AI tools in the global market and quickly cooperated with industry-leading clients. In the second quarter, net income from AI tool advertisements increased by 100% compared to the previous quarter. In addition, Youdao has strengthened cooperation with NetEase Group's related businesses, and the proportion of advertising revenue in this area has also increased slightly, showing enormous growth potential in the future.

Smart learning hardware has shown significant improvement in multiple indicators during the reporting period, and its product strength continues to lead the industry. According to Youdao, the cumulative sales volume of Youdao Dictionary Pens has exceeded 8 million units.

In the second quarter, Youdao further strengthened its leading position in the smart learning hardware industry and launched two new products. Among them, Youdao Dictionary Pen X7 exclusively carries two heavyweight application features, Youdao Xiaop and Hi Echo, which help users connect the entire learning scene from word lookup and translation to comprehensive subject learning, ushering in the era of AI dictionary pens for all subjects. After its launch, monthly sales of this product reached 0.04 million units, quickly becoming the top-selling product in the price range of around 1000 yuan.

Another new smart learning hardware product, Youdao Listening Power E6 Pro, is not only a listening device but also a dedicated AI oral English coach. On the first day of its sale, E6 Pro won the top spot in single-day sales volume and sales revenue in the repeating machine category on platforms such as JD.com and Tmall, and significantly boosted the sales of the category with a month-on-month increase of 78%.

The application of generative AI is accelerating in various scenarios, with a year-on-year increase of nearly 200% in AI subscription sales.

Currently, the commercialization of artificial intelligence has attracted much attention, and the development of large-scale models has entered the era of 'models as applications'. Under the framework of 'integration of model and product', the synchronization of model and product has become a top priority for enterprise development. Since last year, Netease Youdao has actively expanded the application scenarios of large-scale models and gradually implemented the Sub Yu Education large-scale model into the entire range of software and hardware products, showing initial results in commercialization.

Since the second quarter, the self-developed educational large-scale model 'Sub Yu' has successfully passed the evaluation of educational large-scale models by the China Academy of Information and Communication Technology, becoming one of the first large-scale models in China to pass this evaluation, and Youdao has become the enterprise with the highest current rating.

In terms of commercialization, products directly targeting users are currently the biggest growth opportunity for AI. In terms of performance, relevant businesses have been steadily growing with the help of AI. According to reports, the sales of AI subscription services have exceeded 60 million yuan, with an increase of nearly 200% year-on-year and a increase of over 30% month-on-month.

During the reporting period, Youdao's AI subscription service product matrix continued to expand, and in the second quarter, they also launched the 'new generation AI comprehensive learning assistant' called Youdao Xiaop. This product supports all stages and subjects for answering questions, provides AI word search, AI translation functions, and has additional functions such as free conversation, appreciation of poetry, creative thinking, and anonymous confessions, creating a 'comprehensive subject family teacher' that can solve doubts anytime and anywhere for users. Youdao Xiaop is currently integrated into the Youdao Dictionary Pen X7 and is widely loved by users.

Another native application of the Sub Yu Education large-scale model, Hi Echo, has also undergone a complete upgrade. Hi Echo 3.0 has launched a children's mode and quickly became the second most popular scene within Hi Echo. Recently, Hi Echo, along with high-quality apps such as Bean Bag, Wenxin Yiyin, and Zhipu Qingyan, received heavyweight recommendations on the front page of the Apple App Store due to its unique features and excellent user experience.

Youdao Translate/Dictionary continues to upgrade its features and leads the industry's development. In the second quarter, Youdao Translate upgraded its translation assistant system, supporting multiple languages, terminology libraries, and multi-modal document input. At the same time, Youdao Dictionary also collaborated with NetEase Cloud Music to launch the music example sentence feature. It is revealed that Youdao Translate will launch more than 10 new AI features, including AI PPT, in the third quarter.

'When the big technological wave comes, Youdao takes quick action and iterates and optimizes the model based on application scenarios, enabling it to have capabilities closely related to the company's business, which is the core of continuously improving market competitiveness.' Zhou Feng said that in the future, the 'AI+education' strategy is expected to bring long-term and stable support to the performance of Youdao.