Youdao, Inc. — FY2023 Form 20-F
Reporting period: Fiscal year ended December 31, 2023; filed April 25, 2024. This is an annual report, not a standalone fourth-quarter filing. The provided filing text does not provide a clear standalone Q4 revenue, profit, cash-flow, or margin value. Financial statements are prepared under U.S. GAAP. Unless stated otherwise, amounts below are RMB millions.
Business context and reporting period
Youdao is a Cayman Islands holding company operating mainly in China through subsidiaries and contractual variable interest entities (VIEs). Its businesses include learning services, smart devices, online marketing, and education digitalization solutions. Following China’s 2021 after-school tutoring rules, Youdao disposed of its Academic AST Business; its historical results are presented as discontinued operations. In 2023, the company continued its shift toward technology-focused intelligent learning and introduced products and services using its Ziyue large language model.
Financial performance and liquidity
| Metric | FY2022 | FY2023 | Change |
|---|---|---|---|
| Net revenue | 5,013.2 | 5,389.2 | +7.5% |
| Gross profit | 2,586.4 | 2,767.5 | +7.0% |
| Gross margin | 51.6% | 51.4% | -0.2 percentage points |
| Operating loss | (774.7) | (466.3) | Loss narrowed |
| Net loss from continuing operations | (739.8) | (550.1) | Loss narrowed |
| Net loss attributable to ordinary shareholders | (727.0) | (549.9) | Loss narrowed |
| Operating cash flow, continuing operations | (531.4) | (438.1) | Cash use decreased |
- Revenue mix: Learning services generated RMB3,148.1 million (+2.1%); smart devices RMB909.2 million (-27.6%); and online marketing services RMB1,331.9 million (+98.1%). Learning services accounted for 58.4% of revenue, smart devices 16.9%, and online marketing 24.7%.
- Segment gross margins: Learning services 63.2% (62.0% in 2022); smart devices 39.2% (39.1%); online marketing 31.7% (27.4%).
- Expenses: Cost of revenue rose 8.0% to RMB2,621.7 million. Operating expenses fell 3.8% to RMB3,233.8 million, including sales and marketing of RMB2,268.4 million (-2.6%) and R&D of RMB743.4 million (-7.5%).
- Cash and liquidity: At year-end, cash and cash equivalents were RMB454.5 million, restricted cash RMB0.4 million, and short-term investments RMB71.8 million. Current assets were RMB1,300.0 million against current liabilities of RMB3,099.3 million, a working-capital deficit of RMB1,799.3 million, compared with RMB1,308.6 million in 2022.
- Debt: Year-end loans from NetEase Group included RMB878.0 million of short-term loans and RMB630.4 million of long-term loans. The revolving facility was extended to March 31, 2027; by March 31, 2024, reported long-term borrowings under it were US$124.2 million (RMB881.1 million equivalent).
- Cash flows: Continuing investing activities provided RMB125.6 million; continuing financing activities used RMB18.9 million. Cash, cash equivalents, and restricted cash declined RMB329.6 million during 2023 to RMB454.9 million at year-end.
- Other items: Long-term investment impairment was RMB43.7 million, up from RMB10.3 million in 2022. No goodwill impairment was recorded. Youdao repurchased ADSs for RMB127.5 million in 2023. Shareholders’ deficit was RMB2,167.1 million at year-end.
Material changes versus the prior comparable period
- Revenue growth was led by online marketing services, supported by performance-based advertising through third-party internet properties and AI-related investment. Learning services grew modestly; tutoring-service revenue increased 1.0% to RMB2,914.1 million.
- Smart-device revenue declined after Youdao streamlined marketing channels with low returns on investment, beginning in the second half of 2023.
- Operating losses and continuing-operations net losses narrowed, while operating cash outflow also decreased. The company nevertheless remained loss-making and had a larger working-capital deficit.
- Interest expense increased to RMB69.5 million from RMB45.6 million. Long-term investment impairment increased substantially.
- The Academic AST Business generated no discontinued-operation loss in 2023, compared with RMB6.1 million in 2022; its disposal makes historical comparisons less representative of the current business.
Outlook, management commentary, and risks
- Outlook: No numerical revenue, earnings, or cash-flow guidance is provided. Management expects tutoring services to remain a major revenue source, seeks growth in education digitalization and overseas advertising, and says it will continue investing in technology, product development, sales, and marketing. Management expects available liquidity and NetEase support to fund operations and obligations for at least 12 months from the report date; this depends in part on continued support and execution of operating plans.
- Profitability and liquidity: Youdao has a history of net losses and negative operating cash flow, significant working-capital needs, and reliance on NetEase financing. The filing warns that repayment demands, unavailable financing, or inability to improve cash generation could materially affect liquidity.
- China structure and regulation: VIEs generated 77.0% of 2023 revenue. Investors own shares in the Cayman holding company, not equity in the VIEs; contractual control arrangements have not been tested in a PRC court, and their enforceability and regulatory treatment remain uncertain. Cash transfers and dividend distributions are subject to PRC restrictions.
- Education and licensing: Youdao no longer offers academic-subject AST courses for compulsory-education or high-school students. Rules for non-academic tutoring and required permits continue to evolve; the filing notes that some current practices may not be fully compliant. A February 2024 draft after-school tutoring regulation remained subject to consultation and uncertainty.
- AI, data, and technology: Ziyue was launched in 2023 and its filing with the CAC was completed, but generative-AI rules are new and evolving. Risks include compliance, data privacy and security, output quality, intellectual-property claims, and whether products can be commercialized successfully.
- Other risks and controls: The filing highlights intense competition, customer and supplier concentration, credit and inventory risk, foreign-exchange and cross-border cash restrictions, and potential changes in PRC oversight of overseas listings. The PCAOB reported full inspection access had been restored in 2022, but future access and HFCAA trading restrictions remain potential risks. Management and the auditor reported effective internal control over financial reporting as of December 31, 2023. Ordinary-course litigation was disclosed; management did not expect its resolution to have a material adverse effect.
Most important facts an investor should verify
- Obtain Youdao’s separate Q4 2023 results: this annual filing provides full-year results, not a clear standalone Q4 income statement or cash-flow presentation.
- Check the latest cash, current liabilities, NetEase loan balances, facility availability and repayment terms, and whether NetEase’s stated support continues beyond the disclosed period.
- Track whether online-marketing growth and margin gains persist, whether tutoring revenue stabilizes, and whether smart-device channel reductions improve returns.
- Review the status of non-academic tutoring permits, AI and data-protection filings, and any new CSRC, CAC, or other PRC requirements relevant to operations or fundraising.
- Assess VIE contractual enforceability and practical access to PRC cash, alongside the company’s continuing losses, investment impairments, and path to positive operating cash flow.