Good day, and welcome to the Youdao 2020 Third Quarter Earnings Conference Call. Today's conference call is being recorded. At this time, I would like to turn the conference over to Regina. Regina, please go ahead..

Thank you, operator. Please note the discussion today will contain forward-looking statements related to future performance of the company, which are intended to qualify for the Safe Harbor from liability as established by the US 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 those 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 the 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 reconciliations of GAAP to non- GAAP financial results, please see the 2020 third quarter financial results news release issued earlier today. As a reminder, this 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. Wayne 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, Regina, 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. Online education is more relevant today than ever before and it is profoundly transforming how people learn.

We accelerated our rapid growth momentum in the third quarter and generated total revenue of RMB 896 million. Gross billings from online courses reached RMB 955 million, up 228% year-over-year and 76% quarter-over-quarter, supported by our large-scale marketing and branding campaign during the summer.

Growth in our K-12 segment was particularly strong, reaching a record high. Gross billings from this group were RMB 676 million, up 369% and 120% year-over-year and quarter-over-quarter, respectively. K-12 paid enrollments reached 499,000, up 52% quarter-over-quarter.

The K-12 gross billings proportion of Youdao Premium Courses increased to 77% from 67% in the same period last year. ASP for the K-12 segment was slightly down, primarily due to the increased proportion of primary school enrollments, which have relatively lower ASPs than our high and junior high school courses.

Also, 22% of all newly enrolled students gross billings came from organic traffic from – for Q3, which grew 188% year-over-year. Gross margins also continued to improve with product improvements and larger scale. Overall gross margin was 45.9% and the gross margin for our learning services was 53.9%, up 220 basis points from Q2.

We expect to maintain this growth momentum of our GP margin, mainly due to further improvement of economy of scale. We continue to strengthen our star instructor and teaching assistants’ teams. More than 70% of our current instructors come from Tsinghua University, Peking University, or a top 50 university in the world.

This year, we hired only about 0.3% of all instructor candidates. We are committed to continue hiring elite instructors and to offer high-quality courses. Regarding TA teams, we continue to expand our capacity. Total TAs reached 3,368 at the end of Q3 at operation centers around the country.

On the product side, our K-12 math courses made significant progress in Q3. The number of paid enrollments for math students in grades 1 to 12 increased in the third quarter by over 800% year-over-year. For primary school, we added more interactions in classes for key knowledge points.

For junior high school, we started to offer regional and textbook-specific courses. For high school, several newly recruited star teachers are available for students to meet diverse demands. We released a new set of kids' programming courses, including Python programming and a custom hardware programming kit in Q3.

Student retention of the programming course exceeded 85%. Q3 is the main quarter for our summer marketing campaign. The campaign included online performance advertisements, TV sponsorships and ads, and et cetera. We expect this marketing campaign to be the largest for fiscal year 2020.

In Q3, brand and performance advertisement spending on courses amounted to RMB 881 million. Although increased spending led to more short-term losses, it helped drive scale and was done under strict unit economics requirements.

We looked at front-loaded marketing spending in this quarter, and the total of expected returns over the next several quarters for each project to make sure it is healthy. Turning to our adult segment, gross billings increased to RMB 201 million, up 185% year-over-year, and 34% quarter-over-quarter. We continue our twofold strategy here.

One, we focus on high-value courses, such as skill-learning and interest-oriented courses, and shift away from low-value courses such as college English. Second, we leverage our expertise in content development in this area to launch and quickly iterate new course offerings. Our staple courses continue to do well.

For example, Logical English [Foreign Language] grew over 100% in gross billings year-over-year.

The practical English courses released this year, including English Recitation Camp [Foreign Language] and Oral English Training [Foreign Language] have ramped quickly, which become the major component of our adult with over five times growth year-over-year in gross billings.

Our intelligent learning devices also grew at an accelerated clip in Q3, with revenues reaching RMB 163 million, up 289% year-over-year and 89% quarter-over-quarter. We shipped about 250,000 units of our Dictionary Pen 2.0, up 59% from Q2. Over 70% of our dictionary pens were purchased by or for a K-12 user.

We continue to integrate software and hardware here to deliver even more seamless experiences. For example, you can now scan words or phrases with your Dictionary Pen and read the results on your phone screen, which is even faster than using the phone – using the pen alone.

In Q4, we are launching a new Dictionary Pen and we are confident that it will further strengthen our leading position in intelligent learning devices. Let me say a few more words about how we look at learning devices.

During the last two years in the market, we have clearly witnessed the introduction of a flourishing set of smart learning devices that parents and kids both love. We believe every kid will eventually own one or more of these devices.

And these devices will be more and more tightly integrated with online learning services, leading to important cross-selling and other opportunities. At Youdao, with our expertise in AI, learning content, hardware design, and brand recognition, we believe we are well positioned to lead this fledgling area.

Overall, our strategy this year is to seize key expansion opportunities. One important principle we base many decisions on is the principle of value accumulation.

We have put a lot of effort into ensuring that, along with revenue growth, we also accumulate a large amount of value regarding product innovation ability, customer base expansion, teaching expertise, learning content, learning-oriented AI technology, distribution channels and - on the ground and et cetera.

Accumulating all this value enables us to offer constantly better courses now and long into the future, to a huge population of parents willing to pay for high-quality education products. With that overview, I will now turn the call over to Su Peng to review our financial results. We will then open to questions.

Su Peng?.

Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some financial highlights from our 2020 third quarter. We encourage you to read through our press release issued earlier today for the further details. We continued to scale our operations in the third quarter achieving considerable year-over-year growth.

Our strong technology, curriculum and supporting intelligent devices and apps are well suited for exponential growth as we pursue additional marketing and branding activities to support our growth. For the third quarter, total net revenues were RMB 896 million or US$132.0 million. This represents an increase of 159% from the third quarter of 2019.

Looking at this growth by segment, net revenues from our learning services and products grew 239.1% year-over-year to RMB 763.5 million or US$112.4 million. We attribute this growth to a sharp uptick in K-12 paid student enrollments and gross billing per paid student enrollment of Youdao Premium Courses on a year-over- year basis.

Net revenue for online marketing services were RMB 132.6 million, or US$19.5 million, an increase of 9.8% compared with the same period of 2019. For the third quarter of 2020 our total gross profit greatly improved, reaching RMB 411.6 million, or US$60.6 million, up 361.2% compared with the third quarter of 2019.

Gross margin for learning services and products improved to 48.8% for the third quarter of 2020, up from 27.5% for the third quarter of 2019. The large margin growth was primarily attributable to improved online course margins, better economies of scale, and further optimization of our business and faculty compensation structure.

Gross margin for online marketing services was 29.5% for the third quarter 2020 compared with 22.6% for the third quarter 2019. The increase was mainly the result of more revenue contribution from brand advertising services, which carry higher margins.

For the third quarter, total operating expenses were RMB 1.3 billion, or US$192.3 million, compared with RMB 324.0 million for the same period last year. We continue to invest in our future and top line expansion.

In addition to our investments in technology and acquiring talented teachers to support our growing business over the long-term, we greatly ramped our sales and marketing efforts focused on student acquisition and expanding our brand awareness. This was especially important to accelerate during our busy summer campaign.

These investments had immediate positive impact on our growth, which we expect to be long lasting. In tandem with these investments, we are also structuring our model to become more efficient, and recognizing economies of scale. We'll continue to invest in our future growth, as appropriate.

With that in mind, sales and marketing expenses for the third quarter were RMB 1.1 billion compared with RMB 231 million in the third quarter of 2019. Research and development expenses for the third quarter were RMB 121 million compared with RMB 74.9 million in the third quarter of 2019.

Our operating loss margin was 99.8% in the third quarter of 2020 compared with 67.9% for the same period of last year. For the third quarter of 2020, our net loss attributable to ordinary shareholders was RMB 877.8 million, or US$129.3 million, compared with a loss of RMB 242.2 million for the same period last year.

Non-GAAP net loss attributable to ordinary shareholders for the third quarter was RMB 865.7 million, or US$127.5 million, compared with a loss of RMB 238.8 million for the comparable period last year. Basic and diluted net loss per ADS for the third quarter was RMB 7.73, or US$1.14.

Non-GAAP basic and diluted net loss per ADS for the third quarter was RMB 7.63, or US$1.12. Our net cash used in operating activities for the third quarter was RMB 593.4 million, or US$87.4 million.

Looking at our balance sheet, as of September 30, 2020, our contract liabilities, which mainly consist of deferred revenue for our online courses, were RMB 1.1 billion, or US$156.9 million, representing an increase of 133.3% 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 1.1 billion, or US$166.9 million. This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead..

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question today comes from Brian Gong with Citigroup. Please go ahead..

[Foreign Language] Thanks, management, for taking my questions. My first one is still about the competition.

Can management give some updates on recent competitive landscape and the outlook and how does management see student acquisition cost trend to be for first quarter and for next year? And what would be our marketing budget for 4Q and next year? Thank you. .

Yes, this is Zhou Feng. So, first, a couple of points on the competitive landscape. So, I think what's obvious is the sector as a whole is growing quickly, yes, probably quicker than last year. And the sector is investing money, not earning money yet. So, I think players are willing to invest because two things.

One is, parents are willing to pay for really high-quality education, and so profitability in the long run is very much there. And the second is total market size potential is huge. So, these two factors, they remain true.

They're very much true in 2020, and that's why we invested in marketing in the summer and that's why I think what everyone is thinking about. So, we're bullish about the future, yes. So, that's one. And second is, I think, we see greater concentration in 2020 compared with last year.

So in the sense that we only have five, six main players kind of doing K-12 large courses. So, with the investment we made in marketing in Q3, we significantly increased our customer base. So with the – I think with very competitive customer acquisition cost. So, this gives us better reach and more leverage.

So, yes, I don't want to comment too much on our peers. So that's for us. Thirdly, I think in terms of – in the future, Q4 and how everyone competes and how fierce the competition is, I believe, it is important to appreciate the fact that we're still in the early days. So early in how we create content and present it.

We're early in how we acquire customers. We're early in how we deliver and monetize the content. So, we expect a lot of these things to change, a lot of new ways to do these things. So – and we are doing performance ads to acquire new customers. And we're also looking at O&O and other ways and kind of expansion on the ground in that.

So it is not a simple math question of putting money on one side and acquiring that many students. So our approach is to look at this as a dynamic process and innovate and focus on healthy and robust growth. So I'll just say that very high level.

And regarding marketing, yeah, maybe Su Peng, you can talk a little bit in details?.

Thank you, Doctor, and Brian, for your questions. So first of all, the colors for the marketing expense for the upcoming quarters, I think, so first, we don't give any official guidance to the market, in line with [indiscernible] school. That's the first. But yearly, we can share.

For Q3, it will be our biggest investment season due to the summer campaign. So on a full-year basis, indeed, we significantly enhanced our marketing investment in the Q3 in this year, but we believe it is highly valuable for us to acquire the amount of new students with healthy unit economics.

But because it is not one-time – for the K-12 business, it's not really the one-time track model for the K-12. Think of the lifetime value of the K-12 students, we expect those users to be able to stay with us for a long time.

And we estimate to cover the – all the sales and marketing costs with one to two times for the repurchase for our K-12 users for our product. So, we achieved a great outcome through the summer marketing campaigns. And as Doctor mentioned, the payroll - paced enrollments increased over 400% in the – during the Q3.

And if you discover the growth of subjects, our math product increased over 8 times year-over-year in terms of the paid enrollments. So we are dedicated on the continued – our fast healthy growth, we think. And we will not hesitate to keep investing in our top line expansion for those projects with healthy unit economics.

And on the other hand, we believe because our pretty unique product mix, and we do not rely on the sales and marketing to expand our business. We can also rely on our apps. And like Dr. Zhou mentioned, for our intelligent devices, we shipped about over 250,000 units for our Dictionary Pen 2.0.

In those users, over 70% of our Dictionary users were purchased by the or for our K-12 users. And I think that we can – in the future, we will deploy – discover more synergy between our intelligent devices and our online services. So I think for the last question about student acquisition costs, I think – I just mentioned about this as well.

The summer campaign season really was the was this higher user acquisition costs due to the increasing customer demand and also – then the costs went down after summer season. But during the semesters, students and parents typically will wait until the winter season or the coastal winter season to choose after school children products.

And we also, I think, actively trying to use the multi customer acquisition channels to attract users, like for our marketing, e-commerce platform and social network. I think the new paid enrollment marketing via the core marketing grow about several times compared with the same period of last year.

So, we will keep close monitor about the customer acquisition cost to keep a healthy growth for our total business. So, I hope that answer your question. Thank you, Brian..

Yes, definitely. Thank you. Very helpful..

Next question comes from Sheng Zhong with Morgan Stanley..

I have a couple of small questions. The first one is a follow-up about the internal MAU customer conversion. So, you have a quick MAU growth. And also, you have smart devices shipment to students.

Can you share the number? How much percent of your enrollment is from your MA and your internal traffic? And do you have any expectation on this number going forward? And the second to me is you have a very strong gross margin improvement in past few quarters, especially the premium online courses.

So, what's your view about the normalized gross profit margin for your online courses? The last one is a quick one. Maybe too early, but can you share some color on your retention rates on this fourth semester to winter courses? Thank you very much. .

Regarding converting MAUs from our organic traffic to paying users, I can give you one data point, is 22% of all our billings in Q3 come from internal traffic. That's 188% growth over same period last year. In terms of long term, you can do the math here.

If you compute that number, the enrollment number as a percentage of MAU, which is over RMB 100 million. So, it's still very low. It's lower than 1%. There's still a lot of room for growth. The end stage – long-term potential, I think the short answer is, we believe a couple of percentage points is doable.

To explain why, first, remember, we do have big price gaps. On one side is the free product, the dictionary. On the other side, it's a course of several thousand yen. So, it is non-trivial to do the conversion. On the other hand, we have become quite experienced at this. We do have the advantage that our dictionary users are quite loyal.

They come back a lot. And we have many opportunities to touch them. We use ways like free trials, of course, and we did the introduction of customization features, letting users tell us who they are, things like that. And they have been quite useful in increasing the conversion.

Our data we have, including the trajectory, shows that a couple of percentage points is credible [indiscernible] in a few bps. We are always experimenting with ways to offer users more relevant courses and other services. So, it could be higher. And you also mentioned the learning devices.

Yeah, we believe it's also a very good source of organic conversion. A lot of these devices are purchased by our K-12 students and there are over 250K of dictionary pens sold in Q3. So, it's already a sizable number. So, we will look at this probably in the future. And the second question regarding gross margin kind of in the long run.

I think the short answer is, right now, we are at around 50%. We think 60%, 70% is completely doable. A lot of factors play into that. So, we will see. And last question is regarding retention. We're still early. But we did start signing up current students for winter and spring courses in late October. It is an ongoing process that extends into Q1 2021.

But what I can share with you is, preliminary data shows that, in general, we've been able to significantly increase both the number of new students and improve the retention rate at the same time, over the same period last year. So, we feel good about the final results at the end of the retention period in January. .

The next question comes from Alex Xie with Credit Suisse. .

Congratulations on the quarter. My question will be about competitive landscape.

Several of the new players in this market made the comment that the top four players in K-12 [indiscernible] Q3, they have advantages and, again, the non-top four will become bigger and bigger and we will also see several players raise the funding in September and then recently.

So, what will be the positioning of Youdao in this market? And how do you think about competitive advantages in this kind of competitive environment? Thank you. .

About competitive landscape, what I'll say is, yes, in general, we are not operating around market share. We think our competitive strength is threefold. We focus on high quality content, product innovations and great technology. Three things, quality, innovation and technology. We don't intend to do all the courses and all the grades.

Right now, if you look at our offerings, the focus is clearly – for K-12 is on junior high and high school, senior high school – junior and senior high school.

If you look at our track record, the three things really, we think they really help us focus on quality, enabled us to deliver bestseller courses like Logic English [Foreign Language] and our junior high school Chinese course [Foreign Language].

Innovation led us to projects like the dictionary pen where we created entirely new product categories that people really loved and it's growing superfast. And technology innovation, like automatic essay grading, which we talked a little bit about in the past, and they're now being integrated into our services during the summer.

We believe these three things are vital to our success. And that's the first point I want to make. Then, looking at operation side, in Q3, we added a lot of students. So, we did that because we think the products are ready. They offer a great value and retention potential for the users. So, that's why we did it during the summer.

And for us, it obviously increased economy of scale and the impact of our products among the users. So, we are quickly expanding in our scale, which we expect to continue to do. And lastly, we are really happy about our product pipeline. That's pretty important.

For K-12, for kind of preschool courses and also for adult courses, we have nice projects, really strong projects in R&D. When these products are ready, we will release and promote them. And I believe this is how we grow the business instead of just spending dollars on sales and marketing. .

I have a follow-up on this question. So, since several new players are raise funding recently, what do you think will be the condition for Youdao to raise funding or what will be the conditions that you won't consider raise funding? Thank you. .

We're happy with our current cash position. One thing you want to look at is, if you look at our operating cash flow for the first three quarters, so it's actually a healthy process for us. That's one. And second is, obviously, we have ways to raise funding if we need. So, we will, of course, keep that in mind.

And lastly, our controlling shareholder, NetEase, has always been very supportive of Youdao's business and they believe fully in the vision. So, they will always have our back. .

Next question comes from [indiscernible] with CICC. .

[Foreign Language] I have two questions here. First, we noticed strong growth of our learning devices. And why is that? And what will be Youdao's future strategy on that business? And what's the pen market and the overall market share we will have in a stable future? Second question is related to the GP margin.

We noticed that we have a quite good improvement on the GP margin. Can management share for K-12 courses the average number of students per courses? And in addition, the average number of students served per teacher? Thank you..

This is Su Peng. We think, for the intelligent devices, like Dr. Zhou mentioned, I think it's a sector developed by the Youdao team and you see the numbers of shipped for the dictionary pen in the Q3. I think it's grow very fast in the numbers.

We are fully confident about the numbers growing in the next few quarters and we also we think – we are expecting to build up more hardware pipeline – intelligent pipelines in the future. We think that will combine with – will be part of the online education in the futures.

And I think that combined with the – intelligent devices will combine with services. So, we think the market potential is tremendous, we believe, and we think we will spend more time and resources to develop more intelligent devices in the future. .

We'll have a new version on December 1. We really like the new version. We think there's a lot of innovation there. And I think the other thing about these devices is that it's not just a hardware device. It's actually device plus content. A lot of our thinking went into it by putting really unique content and technology in it.

So, it has good margins and it's really sticky. .

I hope that answers the question about your intelligent devices. And second, for the marketing issues, as you mentioned, we have improved a lot of our GP margin in this quarter compared with the same period of last year.

We think that's also leveraged from our economic scale as well as we restructuring our compensation structures of our business and faculties in this quarter.

And for your questions about average classes, I think that's not really a – I think number of students who run classes, I think it's because we are offering most star teachers in this quarters as well. So, I think thinking about the average number, it has increased a little. But thinking about scales, [indiscernible].

A lot of the new teacher and students had [indiscernible]. And for the tutors – on the teaching assistant side, I think the average number is also around 200. But if you use the total enrollment divided by our total tutors, that will be different because we have to pre hire all the tutors before we offer the services to our students.

So, that means some part of our tutors will be in training process in this quarter. So, from the operating efficiency for this quarter, we are improved a lot compare with the same period last year. So, we are fully confident about to increase our GP margin tremendously – gradually in the next few quarters. .

Next question comes from Binnie Wong with HSBC. .

I have already a question regarding on the competitive landscape. How do you see that get evolved into 2021, especially when like [indiscernible], a lot of these private players have been making a lot of capital and it seems that they're also spending a lot of – like, very low pricing, right, to just drive the user acquisition.

I'm not sure, if into 2020, do you think we will also be stepping up in terms of the marketing expense to just drive a faster growth or maybe using any strategies that we can use more? And then, the second thing is a follow-up from the last question, is in terms of any, like, cross-selling ratio from the Youdao app, the dictionary app to cross-sell into the premium courses? And then, we saw the premium course growth actually accelerated to 300% Y-on-Y from a 200% growth last quarter.

What are some of the key reasons that structurally we should be aware of and that can last into the next quarter now? [Foreign Language].

This is Wayne. I'd like to take the last question. As just mentioned by Dr. Zhou, for the competition landscape, I think [Technical Difficulty] quickly. And with the combination of [Technical Difficulty] mentioned, we believe companies have more cash build definitely have the company in a better position when facing the competition.

We are comfortable with our current cash level. We have some positive cash flow in the first two quarters and we have financial support from our parent company, NetEase, as just mentioned. And in the long run, we cannot expect huge cash position incurred for 2020 fiscal year.

However, at the same time, you may notice our learning service and the products business [indiscernible] very quickly, which improve our business [Technical Difficulty]. In terms of competition in user acquisition, I think market players seems to pick higher paying people at the current stage due to the good market window.

And then, most companies are also are trying to get different user acquisition channels which will bring more cost benefit balance. The market size potential is very huge. And business is more concentrated, as just mentioned.

So, if our unit economic is healthy, I think we will continue to take advantage of the [Technical Difficulty] to get opportunities to grow our business. .

[Foreign Language].

What's your follow-up question?.

[Foreign Language].

I think the Q3 is – so we kind of significantly raised our sales and marketing level. And as we talk about, we think Q3 is the largest of 2020. Obviously, for next year, the next year Q3, the summer, is also a good opportunity to acquire users. I think we're still early in total kind of scale. So, we are still small.

We will basically – as Wayne talked about, unit economics is really key for our decision. I believe in Q1, Q2, we talked about – so we have we have prepared the money, we have prepared the budget, but we will really pull the trigger only when we see good UE for us. So, that reflects our ways of thinking. So, we're still small.

Obviously, if UE is good, we will grow. And to kind of repeat, we talked about this many times. The way we look at UE is that the marketing spending is upfront. It's front-loaded. And then, we will basically look at the current quarter projected return from these investments next two, maybe three quarters, and then we will do a determination.

Yeah, if we see good numbers and we see good opportunities to invest, then we will do it. So, that's the way we think about it. But the market is dynamic, of course, but we think probably next year, we'll also have good opportunities to invest in acquiring users. But we'll see. .

Indeed, as we believe, sales and marketing is one of the drivers for our business. But the second thing, in the fundamental, like Dr. Zhou mentioned, product quality and the differentiation of the product is also the fundamental issues to define about a structural total market.

For example, if the student/parent approves your product, it's not because of sales and marketing, it's because how – what kind of the services you can provide to them and what kind of effect and the results or the consequence they can get from these courses. So, that's the key thing.

That's the reason why we increased our number of star teachers as well as the number of teaching assistants. And simultaneously, with the increase of investment in the summer. So, we think – that's the product and content – the content and products will fundamentally change the structure of this competitive landscape, of all the other things.

So, that's why we spend more time to develop more the different devices and services from Youdao. .

The next question comes from Thomas Chong with Jefferies..

[Foreign Language] My question is about our advertising services. Given our large user scale, can you comment about how these business lines would trend in coming quarters? And separately. regarding our free cash flow, can you comment about – is there any timeline talking about breakeven or positive? Thank you..

[Foreign Language] For the advertisement, although there is very few – also have a very competitive landscape in the advertisement sectors. But [indiscernible] very great opportunity, especially for the young generations.

Although in terms of the revenue as well as the GP margin, we have improved a lot in this Q3 compared to the same period of last year. So, we think we are confident about the growth – about the healthy growth of our advertisement business in the future.

But at the same time, if you see the growth rate of our different segments of our business, you will see the online courses grow much faster than advertisement. So, we believe the futures, we will – majority of the revenue is generated from our courses and education related business like intelligent devices.

So, as a percentage, the advertisement will keep going down in the next few quarters. But we think that will be very healthy and a great business for us. .

This concludes our question-and-answer session. I would now like to turn the conference back over to Regina for any additional or closing comments. .

If you have any further questions, please [Technical Difficulty] at Youdao directly or reach out to TPG investor relations in China or the US. Have a great day..

This concludes our conference. You may now disconnect. Thank you for attending..