NetEase's Edtech Unit Youdao Records A Positive 2023, with Net Income Soaring to CNY 5.4B

Technology Author: EqualOcean News, Jiahui Liao Editor: Yiru Qian Mar 01, 2024 05:02 PM (GMT+8)

"Ziyue" continues to lead innovation, accelerating the implementation of multiple large-scale model applications, and AI empowers business in multiple aspects, demonstrating the effectiveness of the "application-first" strategy.

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On February 29, the education technology company NetEase Youdao (DAO: NYSE) released its unaudited financial report for the fourth quarter of 2023 and the full year of 2023. This is also the first performance report for Youdao Education's large-scale model "Ziyue" (Chinese: 子曰) three months after its approval.

The financial report shows that in the fourth quarter of 2023, Youdao's net revenue reached CNY 1.48 billion, continuing to grow year-on-year; achieving operating profit of CNY 80 million, a year-on-year increase of 209.2%; and net operating cash flow of CNY 160 million, a year-on-year increase of 91.0%. Both operating profit and net operating cash flow reached historic highs. In the fourth quarter of 2023, under non-US GAAP, the net profit attributable to Youdao's common stockholders was CNY 69.3 million, compared to CNY 31.1 million in the same period last year.

For the whole fiscal year of 2023, Youdao's main financial indicators improved year-on-year, achieving a net revenue of CNY 5.39 billion, a year-on-year increase of 7.5%; and narrowing the operating loss by 39.8% year-on-year.

Zhou Feng, Youdao's CEO, stated that they will continue to leverage AI technology advantages, continuously upgrade the "Ziyue" large-scale model, further explore the application scenarios of large-scale models in the education and advertising fields, accelerate the implementation of products and applications, and better help users improve learning and work efficiency.

Since last year, ChatGPT has sparked a global craze for artificial intelligence, ushering in another major revolution in downstream application scenarios. Large-scale models naturally adapt to education, making education one of the best fields for the application of AI technology. Relying on years of accumulation and layout in the field of artificial intelligence, NetEase Youdao has been accelerating its pace since launching the first domestic educational large-scale model "Ziyue" in July 2023, and has successively implemented a series of large-scale model applications. In January of this year, Youdao released the "Ziyue 2.0" version, achieving comprehensive improvements in knowledge questioning and answering in spoken dialogue and educational scenarios, as well as text processing capabilities.

With the assistance of AI technology, Youdao's various businesses have gained market attention and positive feedback. Based on "Ziyue 2.0," Youdao launched the virtual human oral coach Hi Echo 2.0 version, which added the "oral level setting" function and expanded the range of virtual human roles. In addition, Youdao established a strategic partnership with the British Council, the organizer of the IELTS exam, and it is expected that users will be able to experience IELTS oral simulation exercises in Hi Echo in March of this year. With innovative technology and professionalism, Hi Echo has gained a large number of users' favor. Currently, it has nearly a million registered users.

In the fourth quarter of 2023, NetEase Youdao's intelligent learning hardware revenue reached CNY 220 million, and channel optimization has been essentially completed. Empowered by AI technology, the intelligent hardware products continue to undergo iterative updates. During this period, Youdao launched another native application based on the Confucian education model, the AI home tutor "Xiao P Teacher." This application provides students with instant Q&A services covering all subjects across all academic stages and has been first implemented in Youdao's new intelligent learning hardware, the AI Study Machine X20, which was introduced in early January of this year. Xiao P Teacher has reportedly become the most widely used innovative application on the X20. In November of last year, Youdao released the latest edition of the Youdao Dictionary Pen P6 Professional, achieving significant advancements in content resources, AI capabilities, and hardware technology. Simultaneously, Youdao made a push into the mid-range market, introducing the Dictionary Pen A6 Pro and the Listening Treasure E6. The A6 Pro achieved sales of 50,000 units in its first week on the market, while the E6 secured the top spot in sales on, Douyin, and Tmall in its category during its initial release.

Moreover, as a leader in AI education, Youdao is also driving the development of large-scale model industries by supporting their growth through an open-source ecosystem.

In the fourth quarter of 2023, Youdao's learning services business continued to maintain a stable growth trend, achieving a net income of CNY 780 million for the quarter, which was relatively stable compared to the previous year. Within this, net income from digital content services reached CNY 510 million, representing a 13.4% year-on-year growth, with a gross profit margin exceeding 70%. Looking at the entire year, Youdao's net income from digital content services in 2023 reached CNY 2 billion, reflecting an 11.7% year-on-year growth. Additionally, the net income from digital content services has been able to cover costs and operational expenses.

In the field of quality education, NetEase Youdao has continually innovated and upgraded to provide high-quality courses and services. For instance, Youdao's independently developed Software Capability Certification (CSP) re-evaluation scoring system introduced the functionality of offline machine code calculation, optimized code evaluation and estimated scoring algorithms, leading to a 200% year-on-year growth in the system's user base.

Youdao's online marketing services also maintained strong growth momentum in the fourth quarter of 2023, achieving a record high net income of CNY 470 million for the quarter, representing a 96.9% year-on-year growth. This marks the fifth consecutive quarter of this business segment achieving over 50% year-on-year net income growth. Financial report data indicates that this growth is mainly attributed to advanced AI technology and strengthened data capability building. It has been revealed that approximately 20% of advertising materials are currently integrated into AI workflows.

It is worth noting that with the deepening of the new round of technological and industrial revolutions, the digital transformation of education has become a global consensus and a new frontier for companies to develop education. Youdao's educational informatization business saw its contract signing amount surpassing 100 million yuan for the first time in 2023. Since its release in August of last year, Youdao's "Qudong Screen" has successfully entered over 100 schools and has been regularly utilized, with a product usage rate exceeding 95%.

As of press time, NetEase Youdao's stock is priced at USD 4.36 per share, with a total market value of USD 542 million.