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On August 18, intelligent learning company NetEase Youdao (NYSE: DAO) released its unaudited financial report for the second quarter ended June 30, 2022. Under the dual pressure of repeated epidemics and business transformation, Youdao’s Q2 net income was 956 million, a year-on-year decrease of 2.4%, and its net loss narrowed by 12.3% year-on-year. The financial report shows that the company’s Q2 operating net cash inflow exceeded 100 million, which has improved compared with the operating net cash outflow in the previous quarter.

Youdao CEO Zhou Feng said: “The revenue contribution of new services and new products launched after the ‘double reduction’ has accounted for more than 40% of Q2’s net income, and the company’s revenue structure has undergone tremendous changes. Year-on-year, diversified business And the technology-driven business model made Youdao’s transformation smooth and fruitful, reflecting the effectiveness of the company’s strategy.”

Youdao 2022 Second Quarter Results Summary

Specific to each business category, in Q2 2022, Youdao’s learning service net income was 564 million yuan, a year-on-year decrease of 7.3%. Youdao said that the reason was the decline in demand for adult courses caused by the new crown pneumonia epidemic; smart hardware net income was 240 million yuan, a year-on-year increase. 16.3%, Youdao said that it benefited from the launch and popularization of new products; the net income of online marketing services was 153 million yuan, a year-on-year decrease of 8%, mainly due to the reduced budget of advertisers.

In the second quarter of 2022, Youdao’s gross profit was about 410 million yuan, down 18.1% year-on-year. Gross profit margin decreased from 51.0% in the same period of 2021 to 42.8% in the second quarter of 2022.

The gross profit margin of learning services decreased from 58.8% in the same period of 2021 to 52.2% in the second quarter of 2022, mainly due to the scale reduction caused by the decline in net income of learning services in the second quarter of 2022; the gross profit margin of smart devices decreased from 43.0% in the same period of 2021 % decreased to 30.6% in the second quarter of 2022, due to the larger proportion of sales of offline distributors, and the lower gross profit margin of offline distributors; compared with 32.7% in the same period of 2021, the second quarter of 2022 Gross profit margin for online marketing services was 27.7%.

Total operating expenses for the second quarter of 2022 were approximately $865 million, compared to $755 million in the same period last year.

Sales and marketing expenses for the second quarter of 2022 were RMB 596 million, an increase of 7.4% from RMB 555 million for the same period in 2021. This was due to an increase in reimbursement expenses for learning services and smart devices for the expanded sales and marketing teams.

R&D expenses in the second quarter of 2022 were approximately RMB 208 million, an increase of 42.9% from approximately RMB 146 million in the same period in 2021, mainly due to salary-related expenses associated with a large number of development and technical professionals in the areas of smart devices and digital solutions for education Increase.

Operating loss for the second quarter of 2022 was approximately RMB 455 million, compared to approximately RMB 255 million for the same period in 2021. Operating loss ratio was 47.6%, compared to 26.0% in the same period last year.

In the second quarter of 2022, Youdao’s ordinary shareholders’ net loss from continuing operations was approximately RMB 454 million, compared with approximately RMB 235 million in the same period last year. In the second quarter of 2022, Youdao’s ordinary shareholders’ non-GAAP net loss from continuing operations was approximately RMB 436 million, compared with approximately RMB 215 million in the same period last year.

Youdao’s cash, cash equivalents, restricted cash, term deposits and short-term investments totaled RMB 1.3 billion as of June 30, 2022, compared to RMB 1.6 billion as of December 31, 2021.

The transformation has achieved remarkable results, and the new services and new products launched after the “double reduction” accounted for over 40% of the revenue

The financial report data shows that intelligent hardware has become the second growth curve supporting Youdao’s revenue. Even with objective factors such as economic downturn and poor logistics in April and May, the business’s revenue in the second quarter still achieved a year-on-year growth of 16.3%, reaching 240 million.

“Technology and innovation are the cornerstones of our business development.” Youdao believes that the stability of revenue benefits from long-term investment and innovation in product technology, which is also the core reason for the company to improve its ability to resist risks.

Youdao currently has domestic leading technologies such as OCR, NMT, and ASR. The company has long attached importance to the implementation and innovation of AI technology, and has continuously strengthened the construction of a growth engine centered on education technology. In the second quarter, Youdao continued to expand its intelligent hardware product matrix, and successively launched a number of new products such as intelligent learning lamps, AI learning machines and Youdao dictionary pen X5.

In terms of learning services, affected by the macro economy and seasonality, Q2 revenue was 564 million yuan, a year-on-year decrease of 7.3%. Youdao emphasized that, looking at the full year, it is expected that the decline in learning services revenue in the second quarter will be a short-lived one-time event.

Youdao also insists on using technological advantages to empower the course product experience. For example, by applying AI technology to Youdao chess, the course’s sales in the second quarter increased by more than 60% month-on-month; the daily compound growth rate of the Youdao Zongheng Chess Academy APP, an AI game platform for chess enthusiasts, exceeded 130%. %.

The analyst conference call revealed that in adult and vocational education courses, due to the significant increase in the number of domestic postgraduate entrance examination students in recent years, Youdao postgraduate entrance examination sales increased by three digits year-on-year in Q2. During the reporting period, Practical English upgraded its learning system to create immersive interactive courses from a first-person perspective, and sales increased by over 30% month-on-month.

“Looking into the future, we will adhere to the support of technology and innovation, constantly upgrade products and services, and focus on building long-term competitiveness while addressing short-term macro market challenges. Driven by new services and new products, we will The development prospects in the second half of the year are full of confidence.” Zhou Feng concluded.

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