Youdao, Inc. ("Youdao" or the "Company") (NYSE: DAO), a leading technology-focused intelligent learning company in China, today announced its unaudited financial results for the third quarter ended September 30, 2022. 

The Company also announced that its board of directors has authorized the Company to adopt a share repurchase program in the near future in accordance with applicable laws and regulations for up to US$20 million of its Class A ordinary shares (including in the form of ADSs) during a period of up to 36 months.

According to the results, total net revenues of Q3 2022 were RMB1.4 billion (US$197.2 million), representing a 35.0% increase from the same period in 2021. Gross margin was 54.2%, compared to 52.6% for the same period in 2021.

Loss from operations for the third quarter of 2022 was RMB219.0 million (US$30.8 million), compared with RMB225.7 million for the same period in 2021.  The company explained that this was primarily due to the early investment in innovative business, including the newly launched AI learning device, education informatization and some new courses.

Net revenues from smart devices reached a new high, gross profit increased by 39.0%

According to the financial results, net revenues from learning services were RMB888.5 million (US$124.9 million) for the third quarter of 2022, representing a 37.2% increase from RMB647.5 million for the same period of 2021. The year-over-year growth was primarily driven by the strong sales performance from the new services initiated after the implementation of the “Double Reduction” Policy.

Net revenues from smart devices were RMB356.5 million (US$50.1 million) for the third quarter of 2022, representing a 40.1% increase from RMB254.5 million for the same period of 2021, primarily driven by the popularity of Youdao’s newly launched products, such as the Youdao Dictionary Pen X5.

Net revenues from online marketing services were RMB157.5 million (US$22.1 million) for the third quarter of 2022, representing a 14.9% increase from RMB137.0 million for the same period of 2021. The year-over-year increase in revenues from online marketing services was mainly attributable to the increase in performance-based advertisements through third parties’ internet properties.

In Q3 2022, gross profit was RMB760.2 million (US$106.9 million), representing a 39.0% increase from RMB546.9 million for the same period of 2021. Gross margin increased to 54.2% for the third quarter of 2022 from 52.6% for the same period of 2021.

Gross margin for learning services was 64.5% for the third quarter of 2022, compared with 65.0% for the same period of 2021.

Gross margin for smart devices increased to 40.4% for the third quarter of 2022 from 33.7% for the same period of 2021. The improvement was mainly attributable to the popularity of Youdao’s newly launched Youdao Dictionary Pen X5, which carries a higher gross margin than other products.

Gross margin for online marketing services was 27.1% for the third quarter of 2022, compared with 29.2% for the same period of 2021. The decrease was mainly attributable to the increase in performance-based advertisements through third parties’ internet properties, which typically have a lower gross margin profile.

Total operating expenses for the third quarter of 2022 were RMB979.2 million (US$137.7 million), compared with RMB772.6 million for the same period of last year.

Sales and marketing expenses for the third quarter of 2022 were RMB709.8 million (US$99.8 million), representing an increase of 28.3% from RMB553.4 million for the same period of 2021. This increase was mainly driven by increasing sales and marketing efforts associated with Youdao’s learning services and smart devices.

Research and development expenses for the third quarter of 2022 were RMB212.9 million (US$29.9 million), representing an increase of 30.1% from RMB163.6 million for the same period of 2021. The increase was primarily due to higher payroll-related expenses associated with a larger number of development and technology professionals in smart devices and education digitalization solutions.

General and administrative expenses for the third quarter of 2022 were RMB56.5 million (US$7.9 million), compared with RMB55.6 million for the same period of 2021.

Loss from operations for the third quarter of 2022 was RMB219.0 million (US$30.8 million), compared with RMB225.7 million for the same period in 2021. The margin of loss from operations was 15.6%, compared with 21.7% for the same period of last year. Net loss from continuing operations attributable to Youdao’s ordinary shareholders for the third quarter of 2022 was RMB183.9 million (US$25.9 million), compared with RMB225.3 million for the same period of last year.

Significant growth in new business after the "double reduction"

To note, in terms of learning services launched by Youdao after the“double reduction”regulations, the sales of digital content services exceeded 400 million yuan, and the gross profit margin has increased to more than 60%. At the meanwhile, the competency-based courses saw rapid growth during the reporting period, and the net income increased by more than 200% year-on-year.

The Company also announced that its board of directors has authorized the Company to adopt a share repurchase program in the near future in accordance with applicable laws and regulations for up to US$20 million of its Class A ordinary shares (including in the form of ADSs) during a period of up to 36 months.

In 2022 Q3, Youdao made more investment in postgraduate entrance examination preparation and vocational education courses with positive progress. Sales of postgraduate entrance examination preparation courses in Q3 increased by more than 150% year-on-year. In terms of customer acquisition, more than 50% of the new sales came from its own traffic flue. Sales of vocational education courses increased by more than 200% year-on-year.

Youdao also launched its first AI learning device in Q3 this year, marking its official march into the field of learning tablets. Youdao believes that user needs are upgrading from traditional learning tablets to intelligent ones, showing more opportunity for technology companies with comprehensive capabilities of “AI + hardware + content”. 

Youdao said that as of the date of the release of the Q3 financial report in 2022, the company has received financial support from NetEase Group including short-term loans of 878 million yuan and long-term loans of 700 million US dollars. In addition, Youdao also announced today that the board of directors has authorized the establishment of a share repurchase program. Under the program, companies can repurchase up to $20 million of Class A common stock or ADSs (American Depository Shares) within a period of up to 36 months, within the scope of applicable laws and regulations.

The Company also announced that its board of directors has authorized the Company to adopt a share repurchase program in the near future in accordance with applicable laws and regulations for up to US$20 million of its Class A ordinary shares (including in the form of ADSs) during a period of up to 36 months.