What’s going on with YouDao?
Youdao Inc. (DAO) stock cratered 28.53% after the Chinese intelligent learning company acknowledged that the General Office of the Community Party of China Central Committee and the General Office of the State Council jointly released new guidelines, intended to curb “excessive homework and after-school tutoring” for K-12 students, have far-reaching impact on the company's business.
The guidelines require all institutions providing online tutoring to be registered as nonprofits and secure regulatory approval. Tutoring companies are also prohibited from raising funds through public markets and through foreign investments. Shares of DAO were trading $9.20 per share on Monday afternoon.
What does this mean for DAO?
The Chinese government’s new guidelines are effectively changing Youdao’s business, as the Communist Party is banning foreign investments in school curriculum-based tutoring institutions via variable interest entity arrangements, mergers and acquisitions and other means. The guidelines require that all businesses that are in violation of the rules implement corrective steps.
The new guidelines will have “material impacts on our K-12 course business, financial condition and corporate structure,” Youdao acknowledged in a press release. The company initiated “exploring measures to comply with the requirements in the guidelines for our K-12 course business, we will continue to seek guidance from regulatory authorities to improve our operations in strict compliance with all laws and regulations, fulfil our social responsibilities, provide our users with high-quality, innovative products and services, and promote the long-term development of China’s education industry.”
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Youdao Inc develops and markets software applications. It engages in developing technologies to provide learning content, applications, and solutions. The firm operates in three segments: Learning services, Learning products, and Online marketing services. Nearly half of its revenues come from the Learning services segment, which generates revenues from online courses, mainly including Youdao Premium Courses, NetEase Cloud Classroom, and China University MOOC. The learning products segment includes sales of smart devices such as Youdao Dictionary Pen and Youdao Pocket Translator. It generates revenues from the online marketing services through the provision of different formats of advertisement, including but not limited to banners, text links, videos, logos, buttons, and rich media.
