Good day, and welcome to the Youdao 2021 First Quarter 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 the 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 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. The company does not undertake any obligation to update these forward-looking information, except as required by law.

During today’s call, management will also discuss certain non-GAAP financial measures, for comparison purpose only. For the definitions of the non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please see the 2021 first quarter 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 Finance -- 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, 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. We achieved sound and sustainable growth across our businesses in the first quarter of this year. Total revenue in Q1 was RMB 1.3 billion.

Net revenue from K-12 is RMB 639 million, up 217% year-over-year. Meanwhile, gross billings from K-12 reached RMB 442 million in this quarter, up 130% year-over-year. Paid student enrollments from K-12 climbed to 306,000, up 100% year-over-year. With larger scale, we have also achieved higher operating efficiency.

Gross billings from K-12 and adult segments reached approximately RMB 742 million. Brand and performance advertisement spending on courses amounted to approximately RMB 556 million. Compared with Q3 2020, the last quarter with mostly new student acquisitions and almost no renewals, our return on investment, or ROI, improved by more than 30%.

Gross billings from the adult segment reached RMB 299 million in the first quarter this year, up 17% year-over-year. Remember that the outbreak of COVID-19 in Q1 2020 led to a higher base, and thus more moderate year-over-year growth of the adult segment. Margins were also improving.

Gross profit margins from learning services reached 65% in the first quarter this year, up from 51% in Q1 2020. It is the best level since we became public. Operating loss margin narrowed down to 23.9% in the first quarter this year compared with 32% in Q1 2020. With that financial overview, I would like to review some business highlights.

Looking at our K-12 segment, we launched the industry’s first localized version of junior high school Chinese with 2 instructors during the spring semester in Q1. One instructor covers nationwide content and the other covers localized content.

More than 50% of our junior high school Chinese course students opted for this localized version of junior high school Chinese, reflecting high interest in this course format. Course participation and satisfaction data were also promising.

As for high school and primary school segments, we continued to polish courses and offered more tailor-made math content to students of different learning levels. Gross billings of high school math increased by over 210% year-over-year in Q1 2021. We had 197 instructors and 4,093 tutors at the end of Q1 2021.

For our extracurricular segments, Youdao Weiqi, or Youdao Zongheng in Chinese, we maintained a strong momentum from last quarter and achieved more than 100% quarter-over-quarter growth in gross billings. In the meantime, Youdao Zongheng sponsored Jiangsu Weiqi Youth Team, and we signed Ke Jie, 8-time Weiqi world champion as our brand spokesperson.

As for our adult segment, in March 2021, we established Adult Education business unit. This put several teams under the same umbrella, including the adult-oriented courses in Youdao Premium Courses, NetEase Cloud Classroom and China University MOOC.

New courses will be released under the NetEase Cloud Classroom brand, concentrating our investments in a single brand. According to our data, the Extraordinary Memory [Foreign Language] course has become the #1 memory-oriented course in the industry, only 3 quarters into its operation.

Our intelligent learning devices also grow at an accelerated clip in Q1. I’d like to highlight that gross profit margin hit 44% in the first quarter, a record high for our devices compared with 25.6% in Q1 2020.

In March, we introduced Youdao Dictionary Pen 3 Pro, further supporting a bilingual translation of Japanese and Korean to meet the demand of more language learners. We shipped over 297,000 units of our Dictionary Pen series in Q1, up 198% year-over-year. We are only getting started.

We have more device products in the pipeline for 2021, and our teams are very excited about them. As for our mobile learning apps, we launched a short video feature called WOW Community, WOW trend in Youdao Dictionary. Users and content creators could finally share short videos about learning and fun things in their life in Youdao Dictionary.

This led to users staying much longer on Youdao Dictionary. And that is more ways for us to engage with our users down the road. This, along with other improvements of our apps, facilitated organic traffic growth. In the first quarter of this year, 26% of all newly enrolled students’ gross billings came from organic traffic.

Gross billings from the K-12 segment generated by organic traffic increased by 129% year-over-year. Let us quickly discuss the potential additional regulations on the AST market. The new regulation is not out yet. Obviously, we will not know the details until it is out.

With that said, we continue to hold a cautiously optimistic attitude towards business operations under the new regulatory environment. We believe the purpose here is to curb unorderly competition and promote healthy developments of the industry. This will ultimately benefit highly compliant players of scale in the mid to long term.

We believe our product and strategy are very competitive with our high-quality content and increasingly advanced application of AI technology. And our diversified business lines, including learning devices and adult courses, could help us better navigate the evolving online education company -- industry.

Now let us turn our attention to other aspects of the company. We pay attention to fulfilling social responsibilities while we operate our business. In Q1, we made several donations, including to Leibo Middle School in Liangshan, Sichuan province.

NetEase donated RMB 66 million to the Yau Shing-Tung Science Foundation, [Foreign Language] to support its math research. And we are looking forward to further cooperation with Mr. Yau’s team in AI and basic education areas. As we are still working towards profitability, in Q1, we secured additional funding to support our long-term plan.

We raised approximately USD 232 million through a follow-on offering in February. NetEase recently offered us a USD 300 million loan facility agreement. In addition, a bank group provided a commitment letter in April with a 3-year USD 150 million revolving loan facility under the guarantee of NetEase.

In total, that is over USD 680 million of additional funding. Looking ahead, we are confident we can build on our position as a top-quality course provider and producer of the industry-leading intelligent learning devices -- services and products to meet our customers’ needs.

Our diversified business model, along with products and technologies that truly improve learning efficiency will help us navigate the evolving AST and EdTech market. 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 2021 first quarter. We encourage you to read through our press release issued earlier today for further details. We started the year with a robust first quarter with multiple operational and financial achievements.

Total gross billings from our online courses reached RMB 808.7 million for the first quarter, up 55.9% from Q1 2020. And the gross billings from our premium courses rose to RMB 741.5 million, up 66.2% year-over-year.

Our K-12 segment continued to lead our growth, reaching RMB 442.2 million in gross billing in the first quarter, up 130.2% year-over-year. Paid student enrollments from our K-12 group reached 306,000 in Q1, up 100.3% year-over-year. Paid student enrollments for premium courses were up by 75.6% year-over-year.

29% of our K-12 newly enrolled students’ gross billings came from organic traffic for Q1, which grew 129% 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 first quarter, total net revenue reached a record RMB 1.3 billion or USD 204.5 million.

This represents an increase of 147.5% from the first quarter of 2020. Looking at this growth by segment. Net revenue from our learning services were RMB 998.9 million or USD 152.5 million, up 156.8% from the same period in 2020.

We attribute this growth to the increased revenue generated from our online courses, which were further driven by a substantial increase in paid student enrollments for the K-12 courses of the Youdao premium courses.

Net revenue from our learning products were RMB 201.9 million or USD 30.8 million, up 279.8% from the same period in 2020, driven by increased sales of our Youdao Dictionary Pen of over 297,000 units in the first quarter.

And net revenue from our online marketing services were RMB 139.1 million or USD 21.2 million, representing a 40.1% increase from the same period in 2020. For the first quarter of 2021, our total gross profit greatly improved, reaching RMB 767.5 million or USD 117.1 million, up 225.6% compared with the first quarter of 2020.

Gross margin for learning services increased to the 65.6% for the first quarter of 2021, up from the 51.9% for the first quarter of 2020. The growth was primarily attributable to better economies of scale and the further optimization of our faculty compensation structure.

Gross margin for learning products increased to 44.1% for the first quarter from 25.6% for the same period in 2020. The growth was driven by tremendous growth in sales of our Youdao Dictionary Pen Version 3, which carry a higher gross margin profile than other learning products.

Gross margin for online marketing services was 16.4% for the first quarter of 2021 compared with 20.5% for the same period in 2020. The decrease was mainly due to the increase in performance-based advertisements through the third-party Internet properties, which carried lower margins.

For the first quarter, total operating expense were RMB 1.1 billion or USD 166.1 million compared with RMB 411.7 million for the same period last year.

We continue to invest in our future and top line expansion, specifically technology, acquiring talented teachers and sales and marketing efforts focused on student acquisition and expanding our branding awareness. In Q1, brand and performance advertisement spending on courses amounted to approximately RMB 555.9 million.

With that, for the first quarter, our sales and marketing expense were RMB 883.9 million compared with RMB 299.2 million in the first quarter of 2020. Research and development expense were RMB 155.1 million compared with RMB 84.1 million in the first quarter of 2020.

Our operating loss margin was 23.9% in the first quarter of 2021 compared with 32.5% for the same period of last year. For the first quarter of 2021, our net loss attributable to ordinary shareholder was RMB 325.8 million or USD 49.7 million compared with RMB 169.4 million for the same period last year.

Non-GAAP net loss attributable to ordinary shareholders for the first quarter was RMB 307.8 million or USD 47 million compared with RMB 161.9 million for the comparable period last year. Basic and diluted net loss per ADS for the first quarter was RMB 2.75 or USD 0.42.

Non-GAAP basic and diluted net loss per ADS for the first quarter was RMB 2.6 or USD 0.4. Our net cash used in operating activities for the first quarter was RMB 517.8 million or USD 79 million. Looking at our balance sheet.

As of March 31, 2021, our contract liability, which mainly consists of deferred revenue for our online courses, were RMB 1.2 billion or USD 186.5 million compared with RMB 1.4 billion as of December 31, 2020. At the end of the period, our cash, cash equivalents, time deposits and short-term investments total RMB 2.2 billion or USD 333.7 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..

[Operator Instructions] The first question comes from Sheng Zhong with Morgan Stanley..

I have 2 questions. The first one is, can you share more color about the current promotion and advertisement status on the market? And what’s your promotion plan for the summer holiday, whether do you have any budget you can share with us, marketing budget? And secondly is, we know there were a lot of uncertainties about the regulation.

And can you please share us some more about your operation, like the retention rate after your localized content? And also, we -- what’s your current growth target for K-12 after-school tutoring business? And at the same time, we see with the regulation tightening or uncertainty, a lot of competition increased in the non-K-12 segment, including the hardware learning devices and also like adults education.

So what’s your view about these sectors, the growth and whether you will also invest more in this non-K-12 business?.

Thanks, Sheng. So regarding the current proposed promotional activities on the market. Yes, the first is that currently, we are running advertisements on non-mainstream media only, yes. So because recent changes doesn’t allow AST business to run ads on mainstream media anymore right now. Yes. So we’re running ads on the non-mainstream media.

And also the scrutiny for the materials, the ad materials, become stricter. And from our side, we have always been fully compliant with the regulation. So this is -- we think it’s a smooth process for us. We do need some changes, but the changes are not much. And -- so that’s the current update on the ads.

And as you probably know, we have suspended advance enrollments and fee collection for the fall semester as required by the authority. And these courses will be sold at a later time. And right now, only spring and summer semester courses are being sold. So overall, we have already been compliant with the current regulation.

And regarding the new regulation, it’s not out yet. So we don’t know -- or at least -- we don’t know the details. And as I said in the prepared remarks, we are cautiously optimistic about the coming future operation, in particular, the summer operation. Yes, so obviously, there’s a cost to being compliant under stricter regulation.

So we will understand that once it’s out. However, we have a couple of reasons that we think we can be cautiously optimistic about. So first is the leading companies used to be more -- have been more compliant and -- compared with the smaller ones.

So relatively speaking, the leading companies could be at an advantage here when the new regulation is out. And also, as we talked about, you don’t have a diversified business line.

Yes, so this is basically a choice we made a couple of years back, not for regulation per se, not for being compliant per se, but more for broadening our potential for innovation. And surely it benefited us. However, diversification obviously has its benefits when there is more regulation.

So our learning devices and adult education business will probably not be impacted by this round of regulation as far as we know. So for the summer, basically, we will -- the current actions the teams have taken is that we get several plans ready for the summer. And the structure of the courses will be a little bit different.

But as far as we know, we think we will have solid plans to execute when the regulation comes up. So we -- again, we remain cautiously optimistic. And lastly, I want to mention that the industry has sort of a theater effect. It’s not a good thing. So everybody goes forward.

Yes, so for example, institutions compete to set their enrollments dates earlier and earlier every year. So now the enrollment dates pushback kind of together. So we think -- in our experience, we think this leads to more orderly business. So actually, the date, when it gets closer to when the course starts, actually, conversion rates get better.

So that’s our view on the regulation. And summer plan, so we have a couple of plans ready. We will know which plan to execute when the regulation actually comes out. And I think you also asked about more competition on the non-K-12 front, hardware, adults.

So obviously, this overall kind of new direction plays in our favor, I think, because we have been working on the hardware business for 3, 4 years now, yes, almost 4 years. So we all know that it’s really hard to make devices.

So the -- a lot of challenge is, so how do you manage inventory, how do you manage your supply chain, what is the products’ quality issues, a lot of that. And we have gone through all that. So we think it is a good thing, actually, more and more people pay attention to learning devices.

And other people, when they go to advertisements, it also help people pay more attention to the whole segment. We think it’s a way to build the segment as an industry. Yes. So we think, yes, we’re not worried about more competition.

And obviously, we will treat every competitor very seriously, pay a lot of attention, but we think it’s a good thing that people are paying more and more attention to these segments. And it’s a testament to the strategy that we set some time ago..

Yes. Just one more point to add with Dr. Zhou’s comments. And yes, the first as far as -- definitely, Youdao right now is strictly -- is in compliance with all the existing regulation as well as definitely we are really confident about to be complied with all the upcoming regulation in the future. And also, just like Dr.

Zhou mentioned, although there is some effect on the mainstream medias for the advertisement, but right now, for the new media platform as well as some Internet and as well as the mobile net, maybe the social network right now, didn’t change right now.

And so we can just execute our plan with our attachment to -- for the customer acquisition in the -- by now. And -- but we are -- I should go back to the regulation questions, definitely, we will keep our eye open to watch closely about regulation movement. And definitely, we will put ourselves into the -- compliant with upcoming regulations..

The next question comes from Brian Gong with Citigroup..

So my question is still regarding the regulation. So given the current regulatory environment, so can management share our growth strategies going forward for the whole company. And do we figure out any new ways to gain students? Yes.

And another quick question is about our GP margin of learning services, which jumped a lot in the fourth quarter? And how should we -- what -- may we know the reason behind this? And also, how should we look at the trend ahead?.

Okay. I’ll take the first question. So regarding new ways to acquire customers. So we are obviously, as we talked about in meetings before, so we are looking at many different fronts, including customer referrals and subject expanding of the existing customers. And these actually have recently picked up really well.

And also, another area we are putting a lot of efforts into is conversion of our organic users. And as we just talked about, 26% of K-12 gross billing actually comes from our traffic.

And in Q1, we -- the WOW community, the short video community on the dictionary actually is a good example of that effort because video is really becoming -- short video becomes kind of really, really popular given that traffic has kind of -- the cost of the bandwidth has really come down to near 0.

And also the young generation really loves to watch videos on their cell phones. So that has been -- we have been working on that for some time. And really, Q1 is the quarter where we released it and actually really already get very good results. As we said, the average time a user spends on the Dictionary actually doubled because of this feature.

So it’s a very good feature. And because these short videos, we can show a lot of content with this media. So one of the key types of content is actually conversion to our courses. So we also have some progress on the offline channels. And there are many, many different ways to do offline conversion.

And we have some that has already yielded good results. And on the other hand, some we are still working with them. And -- so overall, put together, we are -- we were somewhat -- the teams are confident that they can do a good job.

And even if we do get some loss from the regulatory front, the other channels can make up most, if not all, of all the losses. So we think we are cautiously optimistic about that. So I don’t know, Su Peng, if you have anything to add..

Yes, I just have one more point to add, and it’s just, as you asked, Brian, and you asked about how we grow our business. And besides Dr. Zhou mentioned regarding how we handle about the impact on our business for the K-12 potentially by the potential possible upcoming regulations.

And also besides the K-12 business, we are also operating about several -- multiple different business in our -- under Youdao like the adult education business as well as the hardware business. We don’t think that will have any impact on the upcoming potentially or the possible upcoming regulations.

And as for the adult and for those 2 business we operate over several years, and we have already had some of the more experience and some insight about how to operate that kind of business, whatever it was, adult education or the hardware business. And we think about rebuilding some of the barriers in these sectors.

We also can just grow our total business, drive by the K-12 as well as the adult and hardware business. And in the long run, that’s our expectation of our business future besides of K-12.

And then go back to the K-12, whatever -- we think the fundamental thing for the K-12 business is about content of products because all the parents really care about the quality of the courses we offer to their kids and students. And just like Dr.

Zhou mentioned in the call and we are -- we are the first one to offer localization content for the junior high school Chinese for the online big class, 2-teachers model. And then we even increased one instructor as a localization content instructor into that model. And we received very positive feedback from parents and students.

And so we think about rebuild. We keep create more innovative way to deliver our content and deliver our products and deliver the message to our student users to try to leverage more beneficial from our product and content upgrades. Thank you, Brian..

Yes. So for the second question, the gross margin of our learning services. Yes. We’ve got a good performance at the gross margin improvement during this quarter. And it is the first quarter to achieve over 50% of the GP margin on learning services segment.

We believe the most key point is our capability to offer good quality service of that with good price, which is further driven by our good instructors and staff, technology, and the synergy of projects and our other businesses. We will insist on the strategy and invest more.

In detail, the continued economic scales on revenue and compensation structure improvement, as we mentioned before, mostly contributes the improvement in GP margin. As for the compensation structure, capability of particularly the talented young instructors is the key to make us maintain good capability to improve our cost structure. Yes.

This quarter’s high GP margin mainly contributed from our high revenue base of our online courses because more courses delivered in Q1. So we believe maybe there’s some seasonal for us in our learning services GP margin. In the long run, we reasonably believe the annual gross margin on our learning services will settle to around 6% in this year.

I think maybe it’s just helpful for your question..

[Operator Instructions] The next question comes from Hongyi Zhao [ph] with CICC..

First, congratulations for the great performance this quarter. And I have 2 questions.

First, since you have introduced many business strategy for the non-K-12 business, does this mean based on the policy uncertainty for the K-12 business, are we going to like switch our attention or put more investment to the adult business and learning projects in the future? So what’s the strategy for the long term? And the second question is, are we considering to develop more offline developed strategy, such as opening some experienced stores as one of the traffic acquisition strategy?.

Yes, I will take the first one. So regarding investments in the non-K-12 segment, yes, I would say that when we did our planning for 2021, we have already taken into account the growth needs of the hardware and also of the adult section for us. So currently, we will keep on executing that plan.

And so we don’t actually foresee kind of significantly different plan to invest in other segments than K-12. And we think both hardware and adults are very, very interesting, so -- and very promising. So I would use this opportunity to maybe talk a little bit about our thinking behind the adult education segment.

So the main point is that we believe in the long-term potential, and we have leading assets and experience. So we think this is a good fit for us. So lifelong learning in China, we think, it’s really going to take off.

It’s a very clear trend because the economy continues to grow and more and more people will realize that they have to, they need to and they would like to be a lifelong learner. So that’s where our adult education products are really positioned at.

So if you look at the sector’s history, yes, so the Chinese adult education kind of industry, really, sector, has a long history. And we see that there are a couple of verticals that are really stand out. So the first one is ESL, English as a Second Language. The second one is Civil Servants Exam test prep [Foreign Language].

These 2 verticals are really kind of good examples of successful business. They have reached the kind of billion dollar annual run rate business level. And I think what’s going to happen in the future is, first, there will be new verticals. These 2 will not be the only verticals that become large business. First, there will be new verticals.

Then, there will be new models for existing verticals. So -- and that’s basically the approach our teams think about it.

So when we look at some vertical, we think whether we have something to -- some way to reimagine it or do we see some new vertical that really has the potential to be as large as civil service test preps or English as a Second Language.

So for example, our ESL course, including the popular, really popular Youdao’s English course, it’s already quite popular. So these are basically reimagining of the existing verticals, English learning. So I don’t have time to talk about details. But for anyone who’ve tried those courses, they will see that it’s really innovative.

And for new verticals, we are already seeing potential ones. For example, our Extraordinary Memory learning course is really picking up and also like others, what others are doing, like personal finance courses, [Foreign Language]. Yes, these are all also quite popular and promising. So this is our thinking behind the adults education sector.

We think it’s really promising, and we will take the long view and we will focus..

And for the second question and about our offline stores strategies and how we develop our offline -- the growing levels of customer acquisition strategies. And from our point, we actually have disclosed in the last several quarters in our earnings.

We mentioned about we have set up some offline execution stores is that it’s not all -- this is not a learning center because we didn’t deliver any services before.

And in the different province, we talked about how can we be looking for the best strategy or the best solution for the offline or the ground levels customer acquisitions for our online education business operators.

So we think we are on the way because it’s just -- we just started a couple of months ago, and we see the very first -- or the promising feedback from the data. But right now, it’s still in a very small scale. So we didn’t expand the scale too much in the last couple of months, so -- in the past couple of months.

So we think about that we can -- probably we can share more information regarding the [indiscernible] if we have cheaper kind of scale data from offline customer acquisition. But we think about that. Just like Dr.

Zhou mentioned, we are -- right now we are testing different -- several different channels for the customer acquisition through the offline channel, not only in the -- for the execution centers, we value it all.

And then we think about that’s the -- we are looking -- we are now looking for the best solutions for the customer acquisitions with the offline channel..

The next question comes from Jessie Xu with Nomura..

We noticed that the revenue growth of smart devices has been very strong for the past few quarters.

Should we expect the momentum to continue? And on top of that, is there any opportunity of cross-selling with Youdao premium course?.

Thanks, Jessie. Yes. Yes, I’ll talk about the growth, and certainly can talk about the cross selling. Yes. So yes, revenue growth of smart devices, it’s looking very good. And Q4 is a traditional strong quarter. So Q1 numbers, we are happy with ourselves. So we -- as I said in the prepared remarks, we are -- we have new products upcoming, so this year.

So -- and we don’t talk about actual new products before they are launched. So we do have new products and new category of products. So we are -- we really think that this year is the year that we have products serving people’s different needs that’s going to be released in this year. Yes, so different categories.

So the seasonality of the learning devices business is that normally, you will see Q3 and Q4 being the strong quarters. Yes, because Q4 -- Q3 is the beginning of the new learning year, new academic year. And Q4 is the e-commerce most strong quarter. Yes. So these 2 quarters are the stronger quarters. Q1 and Q2, relatively weaker.

And obviously, start of the academic year is a very important time for the smart devices -- for the learning devices business. So I will look at Q3 as a pretty important quarter for that business. So we -- the team is having lot of ideas, a lot of projects going on.

So we think that this is going to be an important and fruitful year for learning devices..

As to the cost setting of the -- our smart devices, we are adding the list apps [ph] on our smart devices. There will be more customer-friendly functions in our apps.

We focus on the productivity and continuously update our existing products, such as the Dictionary Pen series products, which leads to sell under better margins in the learning products segment. In the first quarter, we shipped over almost 300,000 units of our Dictionary Pen series in Q1, up 200% growth year-over-year.

For providing a better learning experience, we delivered an effective learning experience with integrated across all our smart devices and learning apps. Especially, we enhanced the synergy between our Dictionary app and Youdao Dictionary Pens during the period.

We shared that Dictionary Pen users may find their personal learning summary and the vocabulary notebooks in the Youdao Dictionary app. Thank You..

The next question comes from Charlotte Wei with HSBC..

Congratulations on a very strong quarter. I have a small follow-up question regarding the regulation item. There are some news saying that online education players are not allowed to offer class below cost.

Is it a confirmed rule or just a rumor? How will this affect the strategy of entry courses to attract new users? And how are our summer promotion plans going according to this?.

Yes, regarding the course of -- kind of selling courses below cost, so we are having ongoing discussion with the authorities. And right now, I’m basically being conservative. So we have -- actually, for the summer courses, we have reviewed the sales price for our courses and actually raised some of -- the prices of some of the courses.

So obviously, we are awaiting clarification from the authorities on this issue and also other issues. And we believe we will get them in some time. And I think the important thing here is that the conversion funnels for acquiring new customers.

The teams, as we have operated in this business for quite a long time, we have many choices in the way that we convert users from someone who’s interested in getting a course to actually paying customers on our courses. So we have many choices that we can choose one from the other.

So we think as long as we get clear guidance from authority, so our teams will have kind of change that they need to apply to the conversion channel. And that’s true for the low-cost courses. That’s also true for how long before course opens you can sell, you can start selling those courses. So several issues here.

That’s pretty important, but as long as we can get clear guidance, we should be okay..

I have one more question regarding the K-12 business. So I’m wondering what is the revenue contribution percentage from the non-subject tutoring? Yes, because I know that like K-12 courses are very popular in Youdao.

Just want to have a sense of nonsubject tutoring?.

We -- yes, for the nonsubject tutoring end, we think about -- yes, right now, we are -- Dr. Zhou mentioned in the call, we are starting -- we have to -- we received very promising -- we have a very promising product [indiscernible] program. And for the preschool also, for the [indiscernible] school students.

And I think for this business, we see a tremendous potential from the parents and the users and -- for their demand -- of their demand. And we think about and we expect to develop more capability performance-based program offered to the preschool kids or the young students in the primary school.

And we think about that probably maybe in the -- definitely is in different areas. And then we think about it, that will be the -- have the more great potentials for us to produce the size of the program existing like the Youdao Kids programming as well as the Youdao Weiqi program.

We think about that we have to -- we know we have been startup for this business for several years. We have seen -- we had experience how to develop and also build up the kind of momentum for the program for the kids and the young students. And we think about we are in a great position for this program. Thank you..

The next question comes from Linda Huang with Macquarie..

I have one question. This is regarding for our gross billing. Because for this quarter, we saw that gross billing up by 56%. And when I’m looking back for the several quarters after we go listed, I think this probably is the slowest growth for the gross billing.

So how should we think about this number? And is there any reason behind the slowdown for this gross billing? And whether we should worry about that -- imply that our growth is likely to moderate for the coming quarters? Meanwhile, for the enrollment, we also see that this quarter, the enrollment up by almost 100%.

But compared to in the previous quarters, it’s almost up by 200% to 300%.

So that’s also the other question I want to ask is whether we need to think about the moderating trend? And what should be the optimal -- the -- as you say, the growth estimation for this number going forward?.

Okay. The first is about the -- for the total gross billing, indeed, we’ve just gross level moderating compared with the same period last year. That’s also just like we explained in our -- disclosing our course and because that’s a mix by the adult and the K-12. If you just only go to the K-12 sector, it still grew about 130.2% year-over-year.

That’s still in the relatively highest growth rates, thinking of the scale of our business. And in total, it just caused a little bit slow down, it’s because of the adult business only grow about single -- double digits in this -- in the first quarter compared with the last -- same period last year.

That’s because of impact of COVID-19 in the last year. A regular proceeding for the adult business in the last Q1, it’s a little bit high base compared with [indiscernible] that we just achieved only a double-digit growth with adult business.

So if I have to gather, you’ll see about the total number, combined with the K-12 and adult that go through, that’s the double-digit number. But you go back to -- in finally, for the K-12 and adults, you can see the K-12 too in the very good grade growth momentum for our business.

And if you go back to enrollment, and Q1 is not only -- it’s just like the -- I mentioned about, in the last Q1, it’s also whatever business in the K-12 and adults, has been impacted by the COVID-19 in the last year.

And although we are just only -- we are -- most likely in last year, we benefit about the growth through that impact for the adult sessions. But for the K-12 enrollment, we’re also beneficial through that -- yes, beneficial through that growth for the business in last Q1.

And we think in this year, 100%, we think about it it’s a relatively still great momentum to grow. And also for the Q1, it’s not really the big season for our customer acquisition in this momentum.

And we think about -- if you go back to see our growth rate about the K-12 business in last year from Q1 to Q4, if you think about it, it’s also accelerate about growth rates in -- compared with same time last -- the year before.

So we think about we can -- we will expect about more good numbers for the growth in the rest of the quarter in our expectation, but that still depends on the situation, whatever the surrounding environment and also including the regulation or the other issues, probably potentially will be affected of all the growth rate.

But in our expectation, we expect the business will be -- the growth rate for our business, and it will be acceleration by the fourth quarter and 1 year. Thank you..

And that concludes the question-and-answer session. I would like to turn the conference back over to management for any closing remarks..

Yes. 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..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..