Decent Financials To Push Youdao Toward Profitability In Burgeoning Industry

  • Tailwinds: 

China's increasing Internet penetration rate 

According to data compiled by Statista, the penetration rate of Internet users in China was at a mere 22.6% in 2008 but approximately 70% of the population had access to the Internet by the end of 2020. Over the past decade, the number of Chinese Internet users has grown at a remarkable pace. As of the first quarter of 2020, the total volume of Internet users in the world's most populous country had amounted to approximately 904 million, up from 829 million at the end of 2018. Apart from extended access to broadband internet connections, mobile Internet took up a large share in Internet user growth. The share of users accessing the Internet via mobile device had significantly exceeded that of those via desktop in the country. About 98.6% of Chinese Internet users accessed the web via mobile phone. Developed regions such as North America boast of a penetration rate of close to 90%, and China is well on its way to achieving a similar penetration rate. Online education service providers will reap the rewards of this macroeconomic development in the next few years.

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State support 

The Chinese government has ramped up spending on education over the last few years as a predicted trend in the near future. Higher spending on education will open up doors for many/ students to embrace online education platforms. Furthermore, during the digital era, the focus is to develop the required IT infrastructure to promote distance learning.

Educational spending

According to Statista in 2020, public spending on education in China reached CNY 3,633.7 billion. Education expenditure increased continuously over recent years, but growth rates are considerably lower than ten years ago.

Since the beginning of the reform era, the Chinese government attached great importance to the development of the educational sector. Besides structural reforms, public spending on education has increased considerably. However, the whole educational sector lagged far behind international standards in terms of quality as well as quantity. Although Compared to the public spending on education of developed countries, China is still in the lower range and did not reach the OECD average of around five percent of the GDP in 2015.

The education industry is known as one of the world's largest industries, making up more than 6% of the world's  GDP. According to market research firm HolonIQ, the total global expenditure from governments, companies, and consumers in education is estimated to reach USD 7.3 trillion by 2025.

Exploring new segments

On March 3, 2020, Youdao announced the establishment of the education for adults division, an upgrade of the NetEase Cloud Classroom. It is reported that the newly formed division integrates the business and teams of the Youdao premium course adult section, NetEase Cloud Classroom, and China University MOOC (which derived from NetEase Online Open Courses). Youdao's premium courses for adults will be migrated and merged under the 'NetEase Cloud Classroom' brand. The upgraded 'Netease Cloud Classroom' will be positioned as a systematic learning platform, focusing on serving adult learners.

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