Youdao, Inc. (NYSE:DAO) Q4 2023 Earnings Call Transcript

So essentially, as these products establish leadership positions in the industry, we can improve the products to cater to more personalized needs of different cities, different age groups and different spending plans. So we think we have good opportunities on this front, yes. Second, yes, there will be new SKUs this year. The learning needs of families in China have been changing very quickly in the last two years because of the macro environment, the policy and trends like AI. So naturally, our teams, we see opportunities of new SKUs. The focus will be on non-curriculum learning of K-12 students. The services aimed to provide high-quality Learning Content and Services to broaden the learner scope to cultivate interests in important STEM and humanitarian areas and strengthening their life-long competencies.

So for new projects, we take an agile and lean approach, so start small and grow organically. So there are a few of these new projects already going on and going through the incubation process right now. So we will see fruits from these projects in the coming quarters. Thirdly, one important area we put our efforts in is we apply AI to differentiate our products and increase our productivity. With our large language model technology, there’s a lot in this area we can do like AI diagnosis, AI tutoring, AI personalized exercises and on and on. The key thing of applying AI, of course, is to focus on learning results and productivity. So we believe the most fundamental challenge in learning, apart from motivation. The motivation is obviously one area that the human teacher is really, really good at to make the students more motivated, want more to learn.

But the other very, very important area is the teachings is a very labor-intensive activity. So we focus on activities that are really important for learning results and also require a lot of labor from teachers. If we can do that, then we can get good results. For example, that is the idea behind the AI writing refinement. For Youdao Literature, we already refined 25,000 writings from students in just one quarter. So if each one saves like half an hour, then that is over 12,000 hours saved for the teachers. So that’s really significant. And a lot of writing skills improvement delivered. So this is a very important win-win, both for kind of the unique value we can add to the course and also increase the productivity from the company’s perspective.

So we have more projects like this going on. And so I think it will have a more and more important impact on the business this year, yes. So that’s — yes, Su Peng, if you have anything to add.

Peng Su: Yes, I can add more color after Dr. Zhou’s comments and on the digital content services. And I believe most of people knows a news about in province has been confirmed — has confirmed the implementation of the reform in [indiscernible] exam — for the college entrance exam in this year. And the reform, including a reduction in the number of questions, adjustments in the question scored and other innovative approach in the problem solving. So I think if you see the trend of the — in the past and every single time when the college entrance exam has been updated for the new format of the test. And we expect about the demand for the consulting for the — how to deal with the new test formats will go up in the whole year.

And internally, we have been — we have upgraded our digital content — digital content services, including the consultings and otherwise and teach them how to prepare and in the family scenarios and for this update for the college entrance exam. In addition, we think that’s also the further opportunities for the plan for the strengthening basic academic discipline, [Foreign Language], they are sophisticated in this consultation services, and we think we have built a very strong reputations in domestic [indiscernible] and high school. And we think that will be the kind of the driving of the growth of digital services in 2024.

Operator: The next question is from Thomas Chong with Jefferies.

Thomas Chong: Following the rapid growth for online marketing services in 2023, what are the new growth drivers that we should expect in 2024?

Lei Jin: This is Lei Jin. In 2023, the advertising market is across the product range, this is a major domestic player like Tencent, [indiscernible] and Baidu. They are all growing maybe 20% or 25% in their AD business. The life of the performance space [indiscernible] is the significant driver of this trend. As we scale up the development of the AD market, we are — we have integrated AI into our AD business, resulting in much higher growth compared with the [ regular level ] in the market. We achieved the continuous quarter-over-quarter growth in every quarter in 2023 and net revenue were RMB 1.3 billion for the whole year and an increase of nearly 100% growth year-over-year. Besides the AI capabilities, we have a deep understanding of client demand, effective utilization of the data and our strong focus on AD performance.

Those internal capabilities are the key drivers to gather a great result. In 2024, we will focus on digital advertising, paying attention to the AD performance, continue to strengthen our advantage just mentioned above and explore the new growth in the following two areas. First is the overseas market. Youdao ADS provides a digital marketing solutions for the brand promotion of the Chinese enterprises, global influencer marketing and the overseas AD placement. This is our extensive business and expertise in the translation field, Youdao ADS excels in providing translation services for 108 languages. Moreover, our self-developed AI technology, recommendation algorithm and the neural network translation enabled us to connect with over 1 million high-quality influencers in various industries worldwide.