25 February 2020
NetEase Youdao is seeking to raise at least US$300 million in a US initial public offering. Photo: YouTube
NetEase Youdao is seeking to raise at least US$300 million in a US initial public offering. Photo: YouTube

NetEase e-learning arm builds up content and reach ahead of IPO

Nasdaq-listed NetEase Inc., widely known for its online games, is expanding its e-learning unit in preparation for a separate US listing.

NetEase Youdao is now China’s largest online education brand, serving over 800 million internet users across the country.

The company completed its first funding round in the United States in April 2018, giving it a valuation of US$1.1 billion.

The funding exercise is a step towards an initial public offering, which is expected to raise at least US$300 million, Bloomberg reported, citing people familiar with the matter.

Founded in 2014, the company offers an array of online education products such as NetEase Youdao Dictionary, Youdao Course, Youdao Translator and Youdao Note.

To grow its user base, it initially offered a free-of-charge online dictionary and other apps, relying on advertisements for revenue.

But since the end of last year, its online courses have surpassed advertisements in generating sales.

About 5 million people took Youdao courses last year for a total of 20 million attendances.

The courses range from primary school lessons to review classes for those preparing for university admission exams, languages, coding, image processing and other workplace skills.

Fees for the courses range from a few hundred to thousands of yuan. Youdao also offers free lessons to attract subscribers.

Among the most popular are its K12 live-streaming courses, whose 2018 revenue tripled from the previous year.

Typically, a course is hosted by one or two tutors and is live-streamed to thousands of viewers. Each class, which has an assistant tutor, consists of 30 to 40 people.

The Youdao Course website lists the schedule for the live-streaming sessions.

When the live-streaming ends, a video of the lesson will be uploaded to the website in an hour or two, thus enabling subscribers to watch it countless of times within a specified period. An assistant tutor is on hand to answer questions and follow up on assignments.

Youdao follows an online education model called TEACH, which stands for its five key business segments, namely Tools, Educator, Artificial Intelligence, Content and Hardware.

Briefly, the company aims to provide a platform for people to study online. It adopts a stringent process to select its tutors based on their experience and qualifications. Quality control is also strictly implemented.

On top of that, it continues to develop and enhance its AI technology and hardware for greater learning efficacy.

Its Translation Egg, for example, can translate 27 languages. Weighing only 65 grams, the device can be used continuously for six hours without having to recharge the battery.

In Hong Kong, some tutorial schools such as The Beacon College and Modern Education follow a similar business model.

These schools record the tutorial lessons and offer the videos for students who are unable to attend the classes to watch in their tutorial centers. The videos are also uploaded on their websites for limited viewing.

The Beacon College’s parent BExcellent Group (01775.HK), which listed in Hong Kong last year, currently has a market value of HK$325 million.

NetEase Youdao aims for a much bigger valuation in view of its more advanced online streaming platform and larger market.

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EJI contributor