NetEase Youdao Achieves Steady Growth for Fifth Consecutive Quarter
COVID-19 and China
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Youdao has released its 2019 Q1 financial report. Total net revenue reached CNY 541.4 million, a 139.8% increase from the same period in 2019.
►Net revenues from learning services and products were CNY 442.1 million, an increase of 226.4%, whereas net revenues from online marketing services were CNY 99.3 million – a 9.9% increase from the same period in 2019.
►Online education market is expected to reach CNY 453.8 billion this year.

NetEase’s (NTES:NASDAQ) education arm Youdao (DAO:NYSE) has published its unaudited financial report for the first quarter of 2020. The financial report shows that Youdao's net income in the first quarter of 2020 reached CNY 540 million, an increase of 139.8% YoY; of this, net income of education services and products contributed more than 80% and reached CNY 440 million, an increase of 226.4% YoY. The gross profit margin of Q1 in 2020 has been continuously optimized, reaching 43.5%. At the same time, the firm achieved an overall positive operating cash flow for the quarter. 

The growth of Youdao's education services and products has benefited from the healthy and rapid growth of its K12 online courses. The firm’s ‘Quality Course’ achieved sales of CNY 450 million during the first quarter, a YoY increase of 311.9%. The number of people paying for regular-priced courses reached 276,000, and the number of people paying for regular-priced K12 courses reached 153,000, which is an increase of 358.7% YoY.

It is worth noting that, after continuous optimization of product structure, according to financial reports, the gross profit margin of NetEase Youdao educational services and products reached 48.7% in the first quarter of 2020, compared with 29.3% in the previous quarter. 

At the same time, in order to cope with the growing number of users, Youdao Quality Course expanded the teaching team in Q1 2020, increasing the number of tutors to 865.

“There is no doubt that 2020 is a crucial year for the development of online education. Product innovation and technology penetration will accelerate," Netease Youdao CEO Feng Zhou said in a conference call, “Our team is well prepared, we are confident that we will provide higher quality courses and products in the following summer and autumn courses this year.”

China's rapidly growing online education market has given Youdao’s parent company NetEase reasons to look beyond its video games business. Going forward, Youdao can accelerate the poor international expansion of NetEase. Instead of spending money on trying to develop more hit international mobile games, it might be better for NetEase to concentrate on growing its presence in China's education system.

According to a recently released iiMedia's (艾媒) research report on the development of China's online education industry, the online education market in China reached CNY 404.1 billion in 2019 and it is expected to reach CNY 453.8 billion in 2020. The report further stated that the total number of online education users in China is expected to reach 309 million by the end of 2020.

Editor: Luke Sheehan

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