NetEase’s Youdao to Spin Off Disciplinary Tutoring Business of Compulsory Education Stage

On September 30, Netease’s Youdao announced that it plans to sell its off-campus tutoring business of compulsory education stage, with the sale expected to be completed before the end of this year.

China’s General Office of the Ministry of Education and three other departments issued a notice on September 7 that off-campus disciplinary training institutions for students during compulsory education will be registered as non-profit institutions, while enrollment and charging of the institutions should be suspended before registration is completed.

The off-campus disciplinary training business of NetEase‘s Youdao during the compulsory education stage mainly focuses on its top courses. According to Q2 financial results, the total revenue of Youdao online courses was 1.1 billion yuan ($170.56 million), up 99.7% year-on-year. The total revenue of Youdao’s top courses was 1 billion yuan, up 124.1% year-on-year. The number of paid students enrolled in its top courses was 919,500, among which the number of paid adult students accounts for 13.4%.

In the second quarter of 2021, Youdao had a net income of 1.3 billion yuan, a year-on-year increase of 107.5%; the net losses expanded from 258 million yuan in the same period last year to 524 million yuan this year. According to the financial report, Youdao’s core business includes three parts: Learning services based on online courses, learning products based on intelligent hardwares and online marketing services.

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On the conference call after the second quarter financial report, Zhou Feng, CEO of Youdao, explained that due to the influence of the country’s “double reduction” education policy, the company expects that the tutoring business will be severely restricted in the next few quarters. “However, this is not the only business of company. According to the data, K12 tutoring business accounted for about 41.2% of the total revenue of the second quarter. We believe that our other businesses, which account for more than a half of the revenue, will not be directly affected by China’s regulation,” he said.