Youdao, Inc. Q4 FY2020 Earnings Call

Good day and welcome to the Youdao 2020 Fourth Quarter and Full-Year Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wang, Investor Relations Director of Youdao. Please go ahead.

Thank you, operator. Please note that discussion today will contain forward-looking statements relating to future performance of the company, which are intended to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion. A general discussion of these risk factors that could affect Youdao's business and financial results is included in certain filings of the company with the Securities and Exchange Commission, including our annual report filed on Form 20-F. The company does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For the definitions of non-GAAP financial measures and retranslation of GAAP to non-GAAP financial results, please see the 2020 fourth quarter and full year financial results news release issued earlier today. As a reminder, the conference is being recorded. Besides, a webcast replay of this conference call will be available on Youdao's corporate website at ir.youdao.com. Joining us today on the call from Youdao's senior management is Dr. Feng Zhou, our Chief Executive Officer; Mr. Lei Jin, VP of Operations; Mr. Peng Su, our VP of Strategy and Capital Markets; and Mr. Wei Li, our VP of Finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic direction.

Thank you, Jeffrey, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are based on renminbi. The importance of online education has never been as evident as it was in 2020. 2020 was a banner year for Youdao. Let me start by going over financial and operational highlights across our business. Total gross billings from our online courses reached RMB 1.1 billion in Q4 and RMB 3.1 billion in 2020, up to 22% and 33% year-over-year, respectively. Accordingly, the total revenue achieved was RMB 1.1 billion in Q4 2020 and RMB 3.2 billion in 2020 full year, up 169% and 142%, respectively, on a year-on-year basis. Our paid student enrollments from K-12 reached 659,000 in Q4 2020 and 1.64 million in 2020, up 309% and 357%, respectively, on a year-over-year basis. Overall gross margin reached 47.5% in Q4 2020, up over 17% year-over-year. We achieved positive operating cash flow of RMB 129 million in Q4 2020, marking our third quarter of positive operating cash flow in 2020. Our operating cash outflow for 2020 narrowed to RMB 322 million, compared with RMB 372 million in 2019. It means more than tripled gross billings with a RMB 50 million decrease in cash outflow. Quality of our courses and products also received more recognition in the industry. Four of our courses were recently granted a 5A rating for online education service issued by the China Quality Certification Center. We raised approximately US$232 million of net proceeds through a follow-on offering in February 2021. In addition, the Board of Directors of both NetEase and our company have recently approved a proposed revolving loan facility to be expanded by NetEase to us with a total commitment of US$300 million to support our long-term growth. Let me now turn to the progress of our business operations. Firstly, strengthening our instructor team continues to be a focus for us because this drives the improvement of cost quality. During the fourth quarter, we added another 42 instructors, bringing the total to 214. At the end of December 2020, we also had a total of 3,786 highly trained tutors to support our continued growth. For the senior high school segments, we recruited 13 instructors and incubated three senior instructors in Q4. With our customized tiered instruction service, we can now meet the diversified needs of students of different learning levels. We've also improved our assessment process of students to better match students with courses that have the appropriate difficulty level. Secondly, our junior high school teams continue to work on localized instruction, as we mentioned in Q3. We have launched localized versions of our Chinese courses covering over 30 different locales. Students have started to enroll in these courses to be offered in the upcoming spring semester. We will also offer low client test preparation updates and analysis on senior high school entrance exams. Thirdly, we continue to upgrade our interactive features. For example, we introduced a feature called interactive voice sensor for primary school courses in this quarter, which simultaneously converted many students' voice answers to text, so the instructor can quickly identify valuable answers. Features like these effectively improve the quality of interaction during our large classes. With these and other advancements in place, we saw significant improvement in retention for our K-12 courses during Q4. Taking junior high school Chinese courses, as an example, the retention rate approached 70%. Overall paid enrollments for our Chinese courses for all grades rose nearly 4x year-over-year. For the primary school segment, I'd like to highlight one extracurricular course, Youdao Go. The course is an online course for Go, or the game of Go. It is a fun course with live video instructions, colorful animations and also AI-powered practice. Leveraging our new AI capabilities, students can practice their Go game skills adaptively with various levels of difficulties with the AI, which generates learning reports automatically for parents and kids. Youdao Go is a hit product and is growing very rapidly. The retention rate for this course was above 70% in Q4. We have prepared a short video about the product, and it is available on our investor’s website, ir.youdao.com for your convenience. Turning to our courses for adult learners. In addition to existing courses like Logic English, we have a fast-growing new course, extraordinary memory, which helps learners gain new techniques for better memorization and improved concentration while learning. The approach is effective for learners of different ages and backgrounds and helps them become more productive in studying various subjects. The compound quarterly growth rates for gross billing of this course is about 90% in 2020. I'd like to pause and talk a little about our strategy. Our current product strategy has two sides. One, we are implementing the interactive large class model we talked about a few quarters back and building more live interactions, some of them AI-powered, into our courses. The voice answer interaction I just discussed is a good example, among many other features. The second part of our product strategy is that we focus on a small set of star courses, or we call them blockbusters internally, instead of evenly distributing our investments in all subjects and age groups. For example, the Chinese course makes up a large portion of our junior high school business. By focusing on a few courses that are truly innovative and solve students' and parents' vital needs, we attract more satisfied and loyal customers and gain better economics for our business. This two-fold strategy of interactivity and focused courses has driven our rapid growth in 2020 and will continue to propel us forward. It fits us because fundamentally, it requires a diverse set of skills our teams have, including hardware design, AI technology, and deep user research. And maybe more importantly, the NetEase Youdao culture of patience and collaboration. Turning to our Learning Products segment, we continue to ramp up our R&D of smart learning devices, investing in hardware technology, AI capability, and learning content. We launched the Youdao Dictionary Pen 3 in December. It builds on the successful business of Youdao Dictionary Pen 2 by adding unique features like tap and check, and interactive reading, which allow even faster word lookups and helps young learners read English reader like picture books. We are thrilled to see hundreds of primary, secondary and high schools, as well as universities from more than 25 provinces and municipalities across China adopt the Youdao Dictionary Pen as a valuable learning tool. We have a strong learning device pipeline ahead of us, and we cannot wait to show them to our customers. As we close our books on a pivotal 2020, our teams are more excited than ever about our journey in 2021. As an intelligent learning company, we are committed to delivering great learning content, exciting AI technology, and high-quality service. We work tirelessly to capture the growth opportunity of the secular online learning adoption. As we achieve more scale, a natural byproduct will be profitability. We are on the right path to achieve our goals, and we invite you to join us on this journey. Thank you for your time and continued support as we work to bring curious Chinese minds to our intelligent learning vision. With that overview, I will now turn the call over to Su Peng to review our financial results. We will then open for questions.

Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some financial highlights from our 2020 fourth quarter and full-year. We encourage you to read through our press release issued earlier today for further details. As Dr. Zhou mentioned, we have exceptional progress in terms of scale and our financial availability is sound. We made considerable strides, reaching more students, products, and customers. With that, we have changed our segment reporting to more clearly delineate our offering, which better reflects the emergence of our products into three distinct categories. As we continue to grow in each area, we will not be reporting learning services, learning products, and online marketing services. In doing so, we can more readily see the performance from our courses versus our intelligence devices. Let's move to the financial and operating results of the fourth quarter. Total gross billing from our online courses reached RMB 1.12 billion for the first quarter, up 222.8% from 2019. The gross billing from our premium courses rose to RMB 1.04 billion, up 268.8% and 18.2% year-over-year and quarter-over-quarter, respectively. Our K-12 segment continued to lead our growth, reaching a record RMB 767 million in gross billing in the fourth quarter, up 354.5% year-over-year and up 13.5% from the third quarter. Paid enrollments from our K-12 group reached 659,000 in Q4, up 309% year-over-year. Paid enrollment for premium courses was up by 208% year-over-year. 29% of all newly enrolled students' gross billing came from our organic traffic for Q4, which grew 183% year-over-year. This growth shows not only our determination but our ability to quickly expand our business and that our model is working. For the fourth quarter, total net revenue reached a record RMB 1.1 billion or US$169.6 million. This represents an increase of 169.7% from the fourth quarter of 2019. Looking at this growth by segment, net revenue from our learning services was RMB 731.6 million or US$112.1 million, up 198.8% from the same period in 2019. We attribute this growth to a substantial increase in both the enrollment pace and the gross billing for paid student enrollments of Youdao premium courses. Net revenue from our learning products was RMB 237.3 million or US$36.4 million, up 253.8% from the same period in 2019, driven by increased sales of our Youdao Dictionary Pen of over 390,000 units in the fourth quarter. The net revenue from our online marketing services was RMB 137.8 million or US$21.1 million, representing a 39.9% increase from the same period in 2019. For the fourth quarter of 2020, our total gross profit greatly improved, reaching RMB 525.5 million or US$80.5 million, up 329.2%, compared with the fourth quarter of 2019. Gross margin for learning services increased to 53.9% for the fourth quarter of 2020, up from 30% for the fourth quarter of 2019. The large margin growth was primarily attributable to the better economics of scale and the further optimization of our business and faculty compensation structure. Gross margin for learning products increased to 39.5% for the fourth quarter from 26.7% for the same period in 2019. The growth was driven by the tremendous increase in the sales of our Youdao Dictionary Pen, which carries a higher gross margin profile than other learning products. Gross margin for online marketing services was 26.9% for the first quarter of 2020, compared with 31.6% for the same period in 2019. The decrease was mainly due to the increase in performance-based advertisement through third parties' Internet properties, which carry lower margins. For the fourth quarter, total operating expenses were RMB 978.2 million or US$149.9 million, compared with RMB 326.5 million for the same period last year. We continue to invest in our future and the top-line expansion, specifically technology, acquiring talent, teachers, and in sales and marketing efforts focused on student acquisition and expanding our brand awareness. In Q4, brand and performance advertisement spending on courses amounted to approximately RMB 530 million. As we mentioned in Q3, brand and performance advertisement spending reached a zenith in Q3 this year. These strategies are yielding immediate gains that we expect to also positively impact our brand and retention over the long-term. In line with our investment, our model is much more efficient today than it was a year ago. We have been fortunate enough to benefit from the economies of scale. This is our path forward for the foreseeable future. With that, for the first quarter, our sales and marketing expenditures were RMB 804.8 million, compared with RMB 205.8 million in the fourth quarter of 2019. Research and development expenses were RMB 128.1 million, compared with RMB 89.3 million in the first quarter of 2019. Our operating loss margin was 40.9% in the fourth quarter of 2020, compared with 49.7% for the same period of last year. For the first quarter of 2020, our net loss attributable to ordinary shareholders was RMB 447.8 million or US$68.6 million, compared with a loss of RMB 205.7 million for the same period last year. Non-GAAP net loss attributable to ordinary shareholders for the first quarter was RMB 433.1 million or US$66.4 million, compared with a loss of RMB 186.1 million for the comparable period last year. Basic and diluted net loss per ADS for the fourth quarter was RMB 3.93 or US$0.6. Non-GAAP basic and diluted net loss per ADS for the first quarter was RMB 3.8 or US$0.58. Our net cash provided by operating activities for the fourth quarter was RMB 129.2 million or US$19.8 million. Turning to our full-year results. Our total revenue for 2020 increased by 142.7% to RMB 3.2 billion or US$485.4 million. Net revenue from our learning services for 2020 was RMB 2.2 billion or US$330.2 million, up 207.9% from 2019. Net revenue from our learning products for 2020 grew by 265.1% year-over-year to RMB 540 million or US$82.8 million. Net revenue from online marketing services for 2020 was up 4.4% year-over-year to RMB 472.9 million or US$72.5 million. Total gross profit for 2020 was RMB 1.5 billion, compared with RMB 370.6 million in 2019. Total operating expenses for 2020 increased to RMB 3.3 billion or US$499.6 million, compared with RMB 971.5 million in 2019. Net loss attributable to ordinary shareholders for 2020 was RMB 1.8 billion or US$268.6 million. The basic and diluted loss per ADS was RMB 15.53 or US$2.38. Looking at our balance sheet, as of December 31, 2020, our contract liability, which mainly consists of the deferred revenue for our online courses, was RMB 1.4 billion or US$220.8 million, representing an increase of 215.3% from RMB 456.8 million as of December 31, 2019. At the end of the period, our cash, cash equivalents, time deposits, and short-term investments totaled RMB 1.2 billion or US$183.1 million. This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions.

The first question comes from Brian Gong of Citigroup. Please go ahead.

Thanks management for taking my question. Congratulations on the decent results. So, I have a very quick question. So, can management share some information about student enrollment and the marketing cost for the winter session in the first quarter? And also, how does management see the competition or upcoming summer session? And what's our marketing budget for this year? Thank you.

Thank you for the question. Brian, there's a little break in your background. So, my understanding is you're asking to share some color regarding the sales margin computation or the customer acquisition costs in this winter, and any trend regarding customer acquisition in the summer, right?

Yes, yes, and also some of the information about the student enrollment for the winter session.

Okay. And yes, as we discussed over the call – yes. And as we mentioned in the script, we did achieve great achievements in the last year, especially in Q4, and all the student enrollments and also the retention and also the gross billing of the K-12 business reached record numbers in the past. And we think, for this winter, right now, we didn't offer – give any official guidelines, but we can share some trends with you. For this winter, everything, because we are all dedicated to our content creation, and we believe that the quality of the content and the instructors' teaching behavior will be the core value given the growth of the business. So – also we'll be dedicated to the high-quality content creation. We are looking at the path involved with the deep involvement combining the online course content with learning devices. Therefore, we think that through that perspective, the key metrics to drive growth of our business is not the sales and marketing but the quality of the content. That's what we believe. So, right now, everything is in line. We didn't see too many liabilities for the customer acquisition costs in the past. We think that will be strictly related to content creation and our product quality. That's what we care about. So, I think from our trend, regarding the summer promotions, that's a little bit further away from now, but I think we will definitely be focused. First, we'll be focused on content. Secondly, we will ensure a healthy, fast growth. We care about the unit economics, meaning we will focus on what returns we can get on our investment. So, I think that will be the other strategy as we deliver into the summer. We can share more information when the summer season comes, we expect.

And just to add to that. So yes, customer acquisition recently has been relatively stable. Part of that is because ads that people use have been regulated more, and there are stricter rules around those ads. Therefore, competition among the players has been a little bit lower recently. This has resulted in more stable prices. Additionally, we are seeing diversification in customer acquisition methods. We are exploring different ways to achieve that, and we see other players doing so as well.

Yes, thank you. Very helpful.

The next question comes from Sheng Zhong of Morgan Stanley. Please go ahead.

Thank you for taking my question. I have a few questions. First one is thanks for the update about the interactive technology. I remember, in the last quarter, management mentioned that you were focused on differentiation, so that your primary school courses can be differentiated from others. Would you mind giving some more updates on your primary school tutoring strategy? And the second one is, if we look at the full year, for the K-12 segment, what do you think the major growth will be from in terms of subjects or grades? Because you said you will be focusing on very core star courses. Lastly, would you mind giving some number breakdown about your revenue and gross billing for K-12 and adult learning services? Thank you very much.

Yes, thanks, Sheng. I'll take the first question. Regarding primary school, this is a very important segment for us. Right now, junior high school and senior high school are bigger for us, and we talk about wanting to have more innovation and differentiated products for the primary school segment. There have been ongoing projects, and I can give you two updates. First, we have extended our Chinese course, with which we have a very good reputation for junior high school to primary school. We have adapted content accordingly, including technical features for younger students. Unlike the voice sensor I talked about, we are also introducing stronger interactions. This project is going well. The second update is that we believe primary school extracurricular courses are attractive. The extracurricular course I mentioned, Go game course, represents an excellent example. Students and parents are interested in extracurricular courses to develop skills and talents in various areas. We believe this area is highly promising, and the Go course is performing well. You will see us working more in this area.

Before addressing the second question, I need to touch on the third question first. For the revenue and growth for 2021, I want to repeat, we didn't provide any official guidance as in-line with our net group. We care about healthy and fast growth, which means we focus on unit economics and the quality of the content we deliver to our students. We believe we can achieve our growth goals in 2021. Regarding your second question about the star courses, we will focus on some star courses where we have quality and leading positions in the market. This does not mean we will ignore the upgrade of content for all subjects. We expect to produce high-quality content consistently, just like we mentioned earlier when discussing growth.

Regarding – sorry, if I may. Sorry for the confusion on the gross billing. I want to ask about the fourth quarter gross billing and revenue breakdown for K-12 and adults, if I may. Thank you.

Okay. For the K-12, gross billing in the fourth quarter is RMB 767 million. For the adult, the gross billing is about RMB 269 million.

And can you provide revenue as well?

Yes. The total revenue from K-12 in the fourth quarter is around RMB 400 million, and the total revenue for adults is RMB 214 million.

The next question comes from Alex Xie of Credit Suisse.

Okay. Congratulations on very strong results, and thank you for taking my questions. My first question will be about your growth target in 2021. I think for the second half of 2020, we are encouraged to see the acceleration of growth in the second half versus the first half of 2020. Would you care to provide more insights on whether you expect this trend to continue? And since you raised funding recently and got new revolving credit, does that make you more comfortable to increase your targets? Secondly, I see strong results from the growth in the hardware learning products business. Could you give us more color on, for example, the sales volume of your Youdao Dictionary Pen in Q4 and also in the last year? How much percentage of the Dictionary Pen buyers will be K-12 students? What caused the strong sequential growth in the Dictionary Pen, is it due to the new generation of products or new sales channels? Thank you.

Yes, regarding 2021, our teams are very bullish about the year ahead. As you mentioned, for 2020, we saw substantial growth in the second half of the year with 500,000 enrollments in Q3 and already reaching up to 650,000 in Q4. This fast growth is supported by positive retention rates, exceeding our expectations. We are confident that 2021 will be promising for us. Our strategy will continue to focus on different projects for each age group, as they have varying requirements for their courses. High school students, for instance, require multi-level instruction due to their limited time. We aim to provide better learning efficiency and quality of courses for each group. For junior high school, localizing content is essential due to variability in curriculum across different cities and provinces. This will ensure high engagement and performance. As for devices, we believe we are leading in the industry, and we expect new learning device ideas from our teams. We anticipate maintaining a high growth speed in 2021 and are optimistic about customer acquisition as our strategy appears to be yielding results.

Regarding our learning products, they are growing rapidly. The main channel of learning products is primarily online. The official flagship store of Youdao ranked number one in terms of standard diffusion of sales. Our e-commerce platforms, such as Tmall, have also seen success. The Dictionary Pen 3 released last December maintains a leading position in the market. We shipped over 390,000 units of the Youdao Dictionary Pen in the fourth quarter, with about 20% being the latest version 3. In 2021, we expect learning device sales to sustain growth. We believe our learning devices not only serve as a new channel for customer acquisition but also expand awareness of Youdao more broadly. We aim to create more natural scenarios for conversion.

Just a very quick follow-up. So, for the buyers of the learning product devices, how many of them will be K-12 students? And how many will be adult students?

About 70% of the buyers of our Youdao Dictionary Pen fall under the K-12 category.

Yes, as we disclosed in Q3, over 70% belong to the K-12 age group for our Youdao Dictionary Pen. We believe that given the features of the Youdao Dictionary Pen, it is specifically designed for English learners. Thus, we anticipate that the majority of users will continue to be in the K-12 group long-term. We also plan to introduce different learning devices in our pipeline to cater to various learning scenarios.

Got it. Very helpful.

The next question comes from Jessie Xu of Nomura. Please go ahead.

Thanks for taking my question. My first question is on smart devices. The revenue and gross margin of the smart devices are both encouragingly strong in the fourth quarter. I would like to understand the shipment of the Dictionary Pen in January and February. What's the trend? Additionally, how should we think about the gross margin outlook for smart devices in the next few quarters? If you could also comment on the gross margin outlook for premium courses, that would be great.

Hi, thank you for your question. For the gross margin of our Dictionary Pen, I think we're close to 40% in 2020. It's a significant improvement compared with last year due to the volume. We expect stable improvement in the gross margin of our learning products caused by large business scale and new SKUs with higher margins being sold more in the future. For gross margins of our learning services, we saw sharp increases in 2020. We expect continued improvement on an annual basis, but we anticipate more steps from non-upskilled groups. We believe large-class teachers will continue to gain benefits, driving our gross margins to an industry medium-high level, around 60% to 70% in the long run. Secondly, we expect there to be more room to achieve higher average selling prices (ASPs), as our current ASP was around RMB 1,343 in 2020, which is up 49% year-over-year. The ASPs were relatively cheaper compared to some of our online and offline peers. We will continue to invest in our content, and we believe our users will be willing to pay a higher price. Finally, we expect improvements in our compensation structure. Achieving large scale gives us more room to optimize our compensation structure, which also enhances our gross profit margin.

Thank you, management. If I may, I have another question regarding preschool learning products. It seems to be increasingly popular among parents. We know we have multiple online learning tools and courses. Could you please provide your view and strategy in this area?

Yes, we have been working on preschool courses for quite some time now. We have Youdao Math, along with a Chinese reading app and other offerings that cover preschoolers. Extracurricular learning and preschool offerings are areas we find very interesting. We offer a variety of AI courses and small group options that add fun to the learning experience. Striking a balance between being interactive and achieving actual learning outcomes is crucial for us. We think it's important that kids genuinely love our courses, as many existing products on the market don't reach the standard we desire. We are investing in multiple ongoing projects in this area because we believe the directions we are pursuing are promising.

In addition to the comments made regarding our preschool products, we think the Youdao Dictionary Pen 3 also enables interactive reading functions specifically for preschool kids. This will create a new channel for us to convert users into our services. We believe this combined strategy will effectively develop the preschool market.

Thank you. That’s very helpful.

The next question comes from an unidentified analyst of CICC. Please go ahead.

Hi. Can you hear me?

Yes.

Yes. Congratulations on the good results. Some of my questions have been answered, so I just have a quick follow-up question about learning devices. The learning project took up 20% of the revenue this quarter. What is our expectation of this proportion in the future, like, in the long-term? My second question is, we learned a lot about our strategy for K-12 learning services. Could you provide more information about the online cases? Do we have any future plans to develop the business or engage in strategic cooperation with universities? Thanks.

The Dictionary Pen is performing remarkably well in Q4. We only released Dictionary Pen 3 at the end of December. We believe our devices have considerable room for growth. While I won't put a percentage on future revenues, in the short to midterm, the courses will remain a substantial part of our business. This is due to their rapid growth and many exciting star courses that are set to launch. Furthermore, we also have plans for new devices this year. We feel optimistic about both aspects of our business, aiming for them to strengthen each other. We will continue to promote cross-selling between the two categories and provide updates when we achieve meaningful results. Regarding university products, we categorize all products targeting learners over 18 years old under the same division. We want our teams to work collaboratively to create a holistic strategy for adult-oriented products. We have significant products, such as China University MOOC and NetEase Cloud Classroom, which are among the most successful online learning platforms for university-level education. We are responsible for ensuring that they succeed in the future, and we will announce something soon, as we have been working on plans for a while.

Thank you.

And the last question today will come from Binnie Wong of HSBC.

Thank you, management, for taking my questions. I just wanted to understand, looking into 2021, what are your investment priorities? Additionally, with technology for user acquisitions, how will our strategy to compete differ from last year, especially in light of regulatory scrutiny regarding aggressive subsidies or sales and marketing strategies? Do you expect these will rationalize the competitive landscape among players and create favorable or unfavorable conditions for Youdao? Thank you.

Regarding competition, we prepare for the long haul. We don’t assume the market will be friendly to us. Given the adoption of online courses continues to rise, we still anticipate large-scale customer acquisition activities being high-level. We have highly competitive content and courses. Our customer acquisition costs are low, which is reinforced by three consecutive quarters of positive operating cash flow in 2020. We think we are well-positioned, and as you pointed out, players will become more rational due to restrictions from regulators. This will ultimately benefit the health of the industry, as our customer acquisition techniques have abided by regulations.

So, do you think that marketing spending, in general, will decrease among players, resulting in less aggressive sales and marketing strategies? Or do you think overall, Youdao's sales and marketing spending direction will be to expect a deleverage, at least as a percentage of revenue?

Yes, it's the beginning of this year, and it's perhaps too early to predict this uncertainty. We think we can only share more insights as we approach summer, which is typically a key season for acquiring new students in the online education business.

Okay, great. Thank you so much. I appreciate it.

That concludes the question-and-answer session. I would like to turn the conference back over to management for any additional remarks or closing comments.

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.

Thank you. The conference has ended. You may disconnect your lines.