Youdao, Inc. (NYSE:DAO) Q3 2022 Earnings Call Transcript

Wayne Li: Thank you for your question, Candis. This is Wayne. You’re seeing our gross margin for quarter 3 arrived at around 55%, up 13% quarter-over-quarter, which mainly contributed to the benefit from economic skill from the higher revenue base and improved margin for the digital content services. We are pleased to see the gross margin return to the similar level as last year after we experienced a transitional period since the release of double reduction policy last year. In last quarter, we got a relatively low revenue base for our learning services due to the service transition, which directly resulted in decreased gross margin performance during the last quarter. With the launch of our new services with digital content services since quarter 2 and the relevant sales increased very quickly and reached over RMB 400 million in this quarter, along with over 60% gross margin increased from 50% in Q2.

With the further expansion of our new services, we expect to enjoy good benefit on the economic skills and higher gross margin whatever for Q4 or next year. Although business fluctuation will expect it. But in the long run, we are very confident in our revenue growth of learning services as well as its gross margin. Just for the learning services gross margin, Actually, I’d like to add some other color to our Smart Devices gross margin performance as well. In this quarter, the gross margin of smart devices increased to around 40% from 34% for the same period of last year, which mainly contributed from the sales of X5 which carry with a higher gross margin. Youdao has the advanced AI technology has reached learning content and good at technology innovation, which brings us the advantage in product and more premium price.

But note, we also believe a higher gross margin will be achieved for our smart devices. So that’s all. Thank you for your questions.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to the management for any closing comments.

Jeffrey Wang: Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Youdao directly, or reach out to TPG Investor Relations in China or the U.S. Have a great day.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.