On November 16th, educational technology company NetEase Youdao (NYSE: DAO) released its unaudited financial report for the third quarter of 2023. According to the financial report, NetEase Youdao's Q3 net income reached 1.54 billion yuan, a historic high, with a year-on-year increase of 9.7%.
Since the third quarter, benefiting from the continuous upgrading of the product system by AI technology, sales of multiple businesses in Youdao have significantly improved, driving the improvement of multiple financial indicators. The financial report shows that the gross profit margin of Youdao Q3 has increased to 55.9%, reaching a new high in the past two years. And quarterly operating losses narrowed by 73.7% year-on-year, total operating expenses also decreased year-on-year, and operational efficiency further improved.
AI continues to promote the development of our learning services, intelligent hardware, and online marketing services, improving product quality and user satisfaction. In the early stages of the implementation of the education model, we have also received positive feedback from users. Looking forward to the future, Youdao will continue to communicate with users, accelerate the implementation of products and applications, continuously improve user experience, and strive to achieve a win-win situation of improving user learning efficiency, effectiveness, and sustainable development of the company  Youdao CEO Zhou Feng said.
In July of this year, Youdao released the first education model in China, "Ziyue", and launched six major application achievements. Recently, 'Confucius' became one of the first batch of educational models to be registered. The Confucius' educational model and its application products can be officially opened to the public.
With the support of AI technology, many businesses in Youdao have received positive feedback from the market. For example, the virtual human oral private teaching Hi Echo, which was launched on the mobile app in October, has had over 100000 users so far. In addition, the upgrade of AIBox and the launch of AI writing function have driven a year-on-year increase of over 160% in Q3 membership fees for Youdao Dictionary and Youdao Translation.
In terms of learning services, Youdao is also continuously enriching new functions and services with AI. In the third quarter, the AI video question pushing function was launched. After students watch the knowledge point explanation video, the system will push corresponding questions to test the learning effect. During the reporting period, students have completed over 7.6 million questions. In addition, Youdao has also launched a creative guidance service, which utilizes AI correction technology to shorten the time for precise approval and modification by 50%.
During the reporting period, online marketing services achieved strong growth for four consecutive quarters, with a net income of 340 million yuan, reaching a historic high, with a year-on-year increase of 113.5%. The growth is mainly attributed to the advantages of AI technology and industry data accumulation, which have enabled Youdao to achieve precise crowd targeting and real-time traffic screening, thereby promoting the improvement of conversion efficiency, user satisfaction, and net income.
During the reporting period, Youdao's learning services business continued to maintain a steady growth trend, with sales of digital content services exceeding 400 million yuan and gross profit margin reaching a historic high. At present, the net income of learning services can already cover costs and operating expenses.
In the field of quality education, Youdao has designed a one-stop service for programming courses, including informatics learning, competition preparation, and post competition scoring. It has been highly recognized by users and has driven the sales of Q3 programming courses to increase by over 30% year-on-year. In particular, it has upgraded its self-developed CSP scoring system, which has led to a year-on-year increase of over 100% in the number of visitors to the scoring system on the day of the competition.
Since the third quarter, intelligent hardware has also performed well. In August, Youdao held a new intelligent hardware product launch event, and the Dictionary Pen X6 Pro became the first intelligent hardware product equipped with the Confucius Education Big Model. It launched functions such as grammar intensive speaking and virtual human oral coaching. The new product experience has increased the usage frequency of the X6 Pro dictionary pen by over 50% compared to S6 in the third quarter.
During the "Double Eleven" shopping festival, the sales performance of intelligent hardware products such as Youdao Dictionary Pen and Listening Treasure was impressive. The dictionary pen has won the first place in sales on JD and Tmall during the "Double Eleven" for four consecutive years; Among them, the dictionary pen X6 Pro won the first place in the sales of single products on multiple platforms of JD, Tmall and Tiktok. Listening Treasure has also achieved the top spot in both single product and store sales in the Tmall repeater industry category.