After the double reduction, the transformation of online education enterprises is imperative, and the valuation logic of education and training enterprises will ultimately be different according to the pace of business transformation.
While the market value of many K12 enterprises has shrunk significantly and the revenue has shown negative growth, Netease Youdao temporarily handed over a relatively beautiful transcript. On February 24, NetEase released its financial statements for the fourth quarter and the whole year of 2021. NetEase’s net income in 2021 was 87.6 billion yuan, and the net profit attributable to shareholders of the company was 19.8 billion yuan.
After excluding the subject income of compulsory education, NetEase Youdao’s net income reached 1.049 billion yuan in the fourth quarter of 2021, up 22.6% year on year; In this fiscal quarter, Netease Youdao’s operating loss and net loss also narrowed year-on-year. In Q4 2021, NetEase Youdao’s operating loss was 248.3 million yuan, compared with 256.2 million yuan in the same period last year. The net loss attributable to NetEase Youdao common shareholders was 215.9 million yuan, compared with 251.2 million yuan in the same period last year.
Without including the subject income of compulsory education, Netease Youdao will achieve a net income of 4.016 billion yuan in 2021, up 58.9% year on year.
01 | Accelerate transformation
In 2021, the online education industry, which once reached a trillion market size, experienced a “sudden” winter.
Under the pressure and vitality of collapse and transformation, head education and training institutions, such as New Oriental, TAL, ape counseling, homework help, Gaotu, Netease Youdao, and Headmaster Education, have placed their hopes on quality education, adult education, vocational education, intelligent education hardware and intelligent education, and even cross-border trial live delivery and catering.
According to the financial report data disclosed by Netease Youdao this time, in terms of specific business, the net income of course services was 2.441 billion yuan, up 61.3% year on year; The net income of intelligent hardware was 9.8 billion yuan, up 81.6% year on year; The net income of online marketing services was 594 million, up 25.6% year on year.
After the “double reduction” policy, Netease Youdao primary and secondary school teams have turned to focus on quality courses. Among them, in the fourth quarter, AI Go products had a strong growth momentum, with a year-on-year growth of about 130%. In the fourth quarter, the company launched the Youdao Zongheng Chess Academy APP, which is open to all users for free. At present, Youdao Zongheng is gradually opening up the online and offline full links of Go learning, and continuously expanding the audience range of AI chess system.
In addition to quality education, some platforms also focus on transforming smart education. On October 20, 2021, Ape Tutoring announced its entry into the to B smart education market, and will soon launch a new educational technology brand “Flying Elephant Planet” for the government and schools; On October 20, Headmaster Education announced that it would further increase the B-end business layout, and its smart education service has been launched in many regions across the country; On November 3, CUHK Education and Grape Intelligence reached a strategic cooperation, which will focus on smart education and other fields to explore the future education model.
In addition, with the introduction of relevant national policies, vocational education has become the preferred transformation direction of many institutions.
New Oriental, which started as an English training company, will focus on adult training courses. Yu Minhong will personally test live selling and explore other businesses, and use its brand awareness and educational resources accumulated in its business history to gain opportunities; High-track education, which focuses on “lecturer+double teacher guidance”, will focus on adult education and training, vocational education and training and intelligent digital products; TAL, which started from after-school math training, said that it would further adjust its business according to the policy and launch the “Qingzhou” brand plan to make efforts in the three major businesses of postgraduate entrance examination, language training and overseas study; Ape guidance vigorously publicizes its quality education business “Zebra”, programming business “Ape programming” and STEAM science education business “Pumpkin science”.
On the whole, starting from search engine, English translation software, Youdao cloud notes and other instrumental software, NetEase Youdao, which was involved in the online education race later due to its own traffic pool characteristics, has a relatively rich product type, and the volume of subject education itself is not very large. In addition, relying on the big tree of NetEase, the adjustment will be faster. The original disadvantage in K12 has unexpectedly become a transformation advantage.
On the other hand, Youdao had to do a lot of marketing in the online education competition in order to compete for students. With the implementation of the “double reduction” policy, the marketing solicitation war of all companies ended abruptly. Youdao’s marketing investment immediately shrunk, and the operating loss rate in the fourth quarter fell to 23.7%, which gave a good boost to the company’s profit data.
02 | Fali Intelligent Hardware
Since the 1990s, the education hardware market has been undergoing intensive iterative upgrading. From learning machines, early learning machines, to electronic dictionaries, rereading machines and other innovative products emerge in endlessly. At the beginning of this century, educational hardware has firmly occupied the “commanding height of mental competition” of parents. Even the rising stars in the industry do not need to carry out market cultivation and cognitive popularization from scratch.
In particular, the “double reduction” policy makes it impossible to hold extracurricular training classes, but for some students and parents, after-class learning is still a necessary necessity. In the absence of human tutoring from teachers, various learning tools may usher in broad development space.
Zhou Feng, CEO of Netease Youdao, said that learning products will be positioned as one of the four growth pillars of the company’s non-disciplinary training business.
In the fourth quarter of last year, Youdao Dictionary Pen reached a strategic cooperation with the Commercial Press, which exclusively included the Xinhua Dictionary to build a copyright barrier; In terms of product technology, the dictionary pen has launched a writing guidance function relying on Youdao’s self-developed OCR technology, which supports accurate recognition of various handwritten English compositions, and uses self-developed NLP technology as the underlying support to realize personalized AI intelligent evaluation by learning stages.
In the four quarters of 2021, NetEase Youdao’s smart hardware revenue continued to grow, especially in the second half of the year. Its revenue reached a new high of 317.7 million yuan in Q4 of 2021. In this quarter, the shipment volume of Youdao dictionary pens exceeded 500000, which is also a record high.
It is worth mentioning that on November 15, the Ministry of Education issued the Guidelines for the Classification and Identification of Off-school Training Projects in the Compulsory Education Phase, which expanded the scope of subject-based training to subject-based AI courses. The educational intelligence hardware loaded with such courses may also have to be adjusted to comply with the requirements.
It can be said that the education intelligent hardware business, which was once regarded as a “sideline”, has become one of the primary driving forces of transformation. With the trend of information technology enabling the campus, the potential and space for the development of intelligent hardware is indeed considerable. However, for the teaching and training institutions that have been in turmoil since last year, they have to face the challenge of combining hard and soft, which also means a major change in business logic.
Under this change, not only new requirements have been put forward for the product R&D and design ability of educational institutions, but also a test of how to understand the needs of consumers and smoothly enter the shopping list of consumers.
03 | The future is full of variables
At this stage, NetEase Youdao’s intelligent hardware products have not yet integrated with offline quality education products. The company’s hardware products and quality education products/adult education products present two completely independent development lines.
But behind the story of “online+offline”, they are more trying to get through the service scenarios of software, and the connection with intelligent hardware is rather reluctant. Still “walking on one leg” means that the future layout is full of variables.
In the future, Youdao is bound to make a choice. If its development potential in the field of smart devices is greater, is it necessary for Youdao to participate in the already competitive quality education and adult education track? Will it repeat the previous mistakes in the field of subject education?
In contrast, the traditional forces that used to be good at hardware capabilities are also not smooth sailing. For example, the history of the original brands in the hardware field of Shulang, Xiaocai and Bubu higher education can be traced back to the era of the parents after 00 and 10. The professional ability in brand precipitation, market channel and hardware supply chain is ahead of the industry. However, under the trend of software and hardware integration, its content weaknesses are also gradually emerging.
As for those online education players with content advantages, up to now, the top players of online education, such as Homehelp, Ape Tutoring and TAL, are planning their own education hardware blueprints. In addition, Internet giants such as Xiaomi, Byte and Baidu have also explored relevant fields. In addition, iFLYTEK, which has advantages in its products, the competition in the circuit of intelligent hardware is also fierce, and the competition situation will enter the Warring States from the Spring and Autumn Period sooner or later. The waves will wash away the sand, and the strong will rise. At that time, how many moats can Netease Youdao have?
Moreover, more attempts mean more investment.
According to the financial report, as of December 31, 2021, NetEase Youdao’s total cash, cash equivalents, restricted funds, fixed deposits and short-term investments amounted to 1.577 billion yuan. A year-on-year increase of 32.1%. Since its establishment, the company has also continued to receive financial support from Netease Group, including short-term loans of 878 million yuan.
In the current opportunity period, Youdao may need more financial support from NetEase, but whether it can transform the investment into sustainable revenue is also a question that must be considered.
It can only be said that the “crazy era of education and training”, which burns money to expand the scale, drives growth by marketing, heaps capital crazily, and has relatively abundant cash flow and is expected to make a lot of money, has completely ended, and the remaining “soldiers” who have experienced hundreds of battles are ushering in a good time to stop thinking and actively explore the future.
The road is blocked and long.