Shulou(Shulou.com)11/24 Report--

On August 24, NetEase youdao (NYSE:DAO), an educational technology company, released its results for the second quarter of 2023. According to the financial report, the net income of Q2 NetEase youdao in 2022 reached 1.21 billion yuan, an increase of 26.2% over the same period last year. Among them, the net income of learning services is 690 million yuan, the net income of intelligent hardware is 220 million yuan, and the net income of online marketing services is 300 million yuan.

In the first half of this year, the demand of the advertising market gradually picked up. The overall performance of online marketing services is particularly outstanding, with Q2 net income rising 98.7% year-on-year, the third consecutive quarter of year-on-year growth of more than 50%. Thanks to the application of self-developed AI technology, the gross profit margin of online marketing services is 31.9%, up 4.2% from the same period last year.

More than 10 years of business accumulation to meet the development opportunities, AIGC helps advertisements to be more accurate

According to the financial report, the net income from advertising and marketing services in the second quarter was 300 million yuan, an increase of 98.7% over the same period last year. There has been a year-on-year increase for three consecutive quarters. It is reported that in this quarter, there is an online HENG AI engine, which is based on the self-developed ASR algorithm, video processing algorithm and Transformer business value evaluation algorithm, carries out in-depth analysis and multi-dimensional tagging of KOL videos, accurately identifies the industry segments and commercial value of KOL, and achieves a comprehensive and full understanding of KOL. The marking accuracy is more than 90%, and advertising based on these data is more accurate. In addition, youdao uses AIGC in the advertising business to automatically generate digital human advertising material video based on speech audio, covering dozens of mainstream languages around the world, with industry-leading simulation, not only reducing the production time of advertising material by more than 80%, leading to the improvement of user satisfaction, but also reducing the production cost of some advertising materials by more than 90%, leading to the increase of gross profit margin.

It is understood that youdao advertising business was born out of NetEase youdao's search technology. In more than 10 years of development, it has systematically experienced the evolution from search advertising, display advertising, DSP business, mobile native advertising to content advertising. Even though there is a transformation of educational technology enterprises in recent years, leading to the gradual increase of learning services and intelligent hardware in the scale and proportion of revenue, the advertising business still maintains the resilience of growth and is an important part of the company's performance.

With the blessing of AI technology, Youdao has achieved full coverage of online service, games, tourism, e-commerce, fast consumer, IT3C, daily cosmetics, luxury goods, clothing, wine, financial industry and so on, contributing to the growth of advertising revenue. The advertising business grew by more than 50% year-on-year for three consecutive quarters, which once again shows that marathon investment and accumulation, as well as the long-term thinking of using technology to deal with challenges, have been rewarded.

Take advantage of the recovery of consumption and Chinese enterprises to go abroad, both domestic and overseas advertising business is growing.

Since the beginning of this year, a series of policies and measures to restore and expand consumption have been introduced and implemented, and market demand has been gradually restored, promoting consumption to maintain a relatively rapid growth. Among them, games, entertainment, beauty makeup, food and beverages and other areas to achieve the first recovery, while the post-90s, post-00 become the main consumers, have a higher willingness to spend.

Relying on previous core businesses such as Youdao Translation, Youdao cloud notes, NetEYun Music and China University MOOC, youdao has accumulated a large number of user portraits between the ages of 18 and 35, which are highly consistent with the target audience of advertisers. All these enable Youdao advertising business to better understand the needs of these users, so as to achieve accurate matching between brands and users.

In fact, since the advertising system was upgraded in the fourth quarter of last year, by optimizing the delivery engine and data solutions, Youdao has seen the help of real-time and accurate process data to users' decision-making and the improvement of advertising revenue. After having a sound user reserve and mature technology accumulation, youdao quickly seized the opportunity of the relevant industries to take the lead in recovery and successfully achieved the growth in the second quarter.

Overseas social media marketing layout is also one of the growth drivers of youdao's advertising business. According to the 2023 confidence report of Chinese Enterprises going abroad released by Feishu, more than 80% of Chinese enterprises are full of confidence in overseas business development in 2023, and 63% of overseas enterprises have indicated that they have clear opportunities for overseas expansion. More than 70% of enterprises said they would increase the proportion of marketing investment in 2023. Youdao has unique advantages such as resources, language and experience in helping enterprises to go to sea.

Youdao has laid out rich KOL resources in overseas markets and signed a large number of high-quality KOL exclusively, covering more than 2 billion users in 75 countries and regions. At the same time, relying on the technical support of self-developed AI technology, recommendation algorithm and neural network translation, youdao's marketing services can accurately mark KOL, improve delivery efficiency, help China's overseas enterprises to accurately reach target users through major platforms, and successfully achieve overseas business layout.

AI accelerates enabling diversified services, and technological innovation brings incremental space.

In addition to further expanding and deepening the application of AI in the advertising field, Youdao also comprehensively empowered the entire business line through self-developed AI large model technology in the second quarter, bringing new incremental space for performance.

In July this year, youdao officially released Zi Yue, the country's first vertical model in the field of education, and released six innovative applications based on the Zi Yue model-- "LLM Translation", "Virtual Human spoken English Coach", "AI composition Guide", "intensive Grammar", "AIBox" and "document Q & A".

Since the second quarter, youdao has continued to accelerate the landing of AI technology in a number of business scenarios, and has made remarkable progress.

For example, after the official launch of AIBox in Youdao Translation, the number of dictionary subscription members increased by nearly 100% in the second quarter compared with the same period last year, and the income of dictionary members increased by more than 200% year-on-year. Virtual human oral coach has also taken the lead in the newly released dictionary pen X6 pro, users can enjoy one-to-one, multi-scene, 24-hour AI oral conversation service. Through the self-developed evaluation system, the virtual human oral coach can also generate evaluation reports to provide users with feedback on grammar, vocabulary, pronunciation and other aspects, helping users to improve their oral ability.

In terms of learning services, in the second quarter of this year, the youdao leading voluntary reporting system based on AI technical capabilities was quickly welcomed by users, and the website has been viewed more than 2 million times. At the same time, through the App upgrade, youdao Vertical and horizontal Chess Institute has not only expanded the category of chess projects, but also introduced new features such as AI ultra-high-speed review and original voice review, making the renewal rate of the advanced class close to 70%.

"our goal is very clear, that is, to promote educational innovation through actual educational scenarios and with the help of scientific and technological progress," said NetEase youdao CEO Zhou Feng. "We look forward to achieving a deep integration of technology and products to provide personalized teaching that varies from person to person."

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