Youdao, Inc. (NYSE: DAO)

Youdao, Inc. (“Youdao” or the “Company”) (NYSE: DAO), a leading intelligent learning company in China, released its unaudited fiscal results for the 3rd-quarter finished September 30, 2k19.

3rd-Quarter 2k19 Fiscal Highlights

Total net revenues were RMB345.90M (US$48.40M), a 98.40 percent incline from the similar duration in 2k18.
– Net revenues from learning services and products were RMB225.20M (US$31.50M), a 141.60 percent incline from the similar duration in 2k18.
– Net revenues from online marketing services were RMB120.80M (US$16.90M), a 48.80 percent incline from the similar duration in 2k18.

Gross billings from online courses[1] inclined 139.80 percent year-over-year to RMB290.90M (US$40.70M) and the gross billings of Youdao Premium Courses[2] inclined 104.60 percent year-over-year to RMB214.60M (US$30.00M).

Gross margin was 25.80 percent, compared with 23.30 percent for the similar duration in 2k18.

Deferred revenue from online courses was RMB296.70M (US$41.50M), compared with RMB129.10M as of December 31, 2k18.

 

3rd-Quarter 2k19 Fiscal Results

Net Revenues

Net revenues for the 3rd-quarter of 2k19 were RMB345.90M (US$48.40M), a 98.40 percent incline from RMB174.40M for the 3rd-quarter of 2k18.

Net revenues from learning services and products were RMB225.20M (US$31.50M) for the 3rd-quarter of 2k19, a 141.60 percent incline from RMB93.20M for the 3rd-quarter of 2k18. The incline was primarily attributable to strong growth in K-12 paid student enrollments and inclined gross billings for each paid student. The number of K-12 paid student enrollments inclined 179.20 percent year-over-year to 92,700 students in the 3rd-quarter of 2k19. The gross billings for each paid student enrollments of Youdao Premium Courses inclined 48.60 percent year-over-year to RMB905.00 for the 3rd-quarter of 2k19. In addition, revenues from Youdao’s intelligent learning devices inclined 706.70 percent year-over-year, primarily due to a significant incline in sales volume of Youdao Dictionary Pen and Youdao Pocket Translator as such products continued to gain popularity among users due to their premium product quality.

Net revenues from online marketing services were RMB120.80M (US$16.90M), a 48.80 percent incline from RMB81.20M for the similar duration in 2k18.

Gross Profit and Gross Margin

Gross profit for the 3rd-quarter of 2k19 was RMB89.20M (US$12.50M), compared with RMB40.60M for the 3rd-quarter of 2k18. Gross margin for the 3rd-quarter of 2k19 was 25.80 percent, compared with 23.30 percent for the 3rd-quarter of 2k18.

Gross margin for learning services and products inclined to 27.50 percent for the 3rd-quarter of 2k19 from 9.20 percent for the 3rd-quarter of 2k18, primarily attributable to our success in achieving effects of economies of scale, along with the expansion of the business and faculty compensation structure optimization.

Gross margin for online marketing services was 22.60 percent for the 3rd-quarter of 2k19, compared with 39.50 percent for the 3rd-quarter of previous year. The decline was mainly attributable to more revenue generated from inclined distribution of advertisement through 3rd-parties’ internet properties and international markets, which carry lower gross margin.

Operating Costs

Total operating costs for the 3rd-quarter of 2k19 were RMB 324.00M (US$45.30M), compared with RMB126.20M for the similar duration of previous year.

Sales and marketing costs for the 3rd-quarter of 2k19 were RMB231.00M (US$32.30M), compared with RMB65.00M for the 3rd-quarter of 2k18. The incline was primarily due to inclined costs associated with student acquisition, branding enhancement and sales and marketing staff compensation.

Research and development costs for the 3rd-quarter of 2k19 were RMB74.90M (US$10.50M), an incline of 42.10 percent compared with RMB52.70M for the similar duration previous year. The incline was primarily due to inclined payroll-related costs associated with an inclined number of course-development and technology professionals.

General and administrative costs for the 3rd-quarter of 2k19 inclined to RMB18.10M (US$2.50M) from RMB8.50M for the similar duration of previous year. The incline was mainly attributable to inclines in the number of Youdao’s general and administrative staff and their inclined compensation levels.

Loss from Operations

Loss from operations for the 3rd-quarter of 2k19 was RMB234.70M (US$ 32.80M), compared with RMB85.70M for the similar duration in 2k18. The margin of loss from operations was 67.90 percent, down from 49.10 percent for the similar duration of previous year.

Net Loss Attributable to Youdao’s Ordinary Shareholders

Net loss attributable to Youdao’s ordinary shareholders for the 3rd-quarter of 2k19 was RMB 242.20M (US$33.90M), compared with RMB77.00M for the similar duration of previous year. Non-GAAP net loss attributable to Youdao’s ordinary shareholders for the 3rd-quarter of 2k19 was RMB238.80M (US$33.40M), compared with RMB75.00M for the similar duration of previous year.

Basic and diluted net loss for each American Depositary Share (“ADS”) attributable to ordinary shareholders for the 3rd-quarter of 2k19 was RMB2.630 (US$0.370), compared with RMB0.840 for the 3rd-quarter of 2k18. Non-GAAP basic and diluted net loss for each ADS was RMB2.600 (US$0.360), compared with RMB0.820 for the 3rd-quarter of 2k18.

Balance Sheet

As of September 30, 2k19, Youdao’s cash, cash equivalents, time deposits and short-term investments totalled RMB160.30M (US$22.40M), compared with RMB435.40M as of December 31, 2k18. The decline mainly resulted from continued investment in daily operations, including student acquisition and brand enhancement. For the 3rd-quarter of 2k19, net cash used in operating activities was RMB142.10M (US$19.90M), capital expenditures totalled RMB4.40M, and depreciation and amortization costs amounted to RMB2.80M.

As of September 30, 2k19, the Company’s contract liabilities, which mainly consists of deferred revenues, was RMB343.60M (US$48.10M), an incline of 93.50 percent from RMB177.50M as of December 31, 2k18.

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