Good day, and welcome to the Youdao 2022 second quarter earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Jeffrey Wang, Investor Relations Director of Youdao. Please go ahead.
Thank you, operator. Please note the discussion today will contain forward-looking statements relating to the future performance of the company, which I intend to qualify for the safe harbor from liability as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of the future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and this discussion.
A general discussion of the risk factors that could affect Youdao's business and financial results is included in certain filings of the company with the Securities and Exchange Commission. The company does not undertake any obligation to update this forward-looking information except as required by law.
During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For the definitions of non-GAAP financial measures and reconciliations of net GAAP to non-GAAP financial results, please see the 2022 second quarter financial results news release issued earlier today. As a reminder, this conference is being recorded. Besides, a webcast replay of this conference call will be available on Youdao's corporate website at ir.youdao.com.
Joining us today on the call from the Youdao senior management is Dr. Feng Zhou, our Chief Executive Officer, Mr. Lei Jin, our President, Mr. Peng Su, our VP of Strategy and Capital Markets, and Mr. Wayne Li, our VP of Finance. I will now turn the call over to Dr. Zhou to review some of our recent highlights and strategic direction.
Thank you, Jeffrey, and thank you all for participating in today's call. Before we begin, I would like to remind everyone that the financial information and non-GAAP financial information mentioned in this release is presented on a continuing operations basis, and all numbers are based on renminbi, unless otherwise specifically stated. As you may have noticed, in Q2, regional COVID-19 resurgence significantly disturbed the macroeconomy, especially in April and May. By June, the economy began to recover, and our business followed suit. Despite the challenges, Q2 net revenue was largely stable year-over-year at RMB 956 million. We narrowed our net loss to RMB 461 million in Q2, a 12.3% improvement year-over-year.
Besides, operating cash flow reached positive RMB 104 million in Q2, the highest we've achieved in any second quarter period since our IPO, mainly due to the strong sales performance of our new services and smart devices. One metric we tracked is digital content services, defined as sales of new digital non-hardware services released after the double reduction policy. Sales of digital content services reached over RMB 200 million in Q2, with gross margins exceeding 50%.
With persisting demand, we expect digital content services to keep growing for the next few quarters. Because of the quick ramp up of our new products and services in the first half of the year and relatively strong demand from consumers across our business lines, we believe our prospects for the second half of the year are strong.
With that overview, I would now like to share more color on our strategy and progress in the second quarter. Technology and innovation are the cornerstones of our business and directly deploy to our smart devices. Net revenues from smart devices reached RMB 239.9 million for the second quarter, up 16.3% year over year.
Despite the pandemic's impact on the delivery of smart devices in Q2, this demonstrates the resilience of our business and popularity of our newly launched products, particularly those that have hit the markets over the course of the last year. Youdao Dictionary Pen continues to lead its category. For the third consecutive year, it topped the charts on JD.com and Tmall during the June 18 shopping festival with the most sales volume and number of units sold, in its category.
Our Youdao Listening Pod, which was released last year, also grew quickly in Q2. During the festival, it led its category on JD.com with the highest sales volume and number of units sold. More recently, after Q2, we had two significant product launches. One is Youdao Dictionary Pen X5, an all-new dictionary pen that brings more possibilities to the dictionary pen category. With support for more than 100 languages, doubled the word database size, note-taking features, and a new design. It is again leading the market and helping even more language learners everywhere. We have a video about the new Youdao Dictionary Pen X5 on our IR website, and I encourage you to view. The other new product is Youdao Smart Learning Pad. This marks our entry into the learning tablet market.
The learning tablet market is interesting, because it is a growing market that is undergoing a fundamental technological change. The learning tablets are going from video content-based to AI adaptive learning technology-based. Of course, we are good at applying AI technologies to learning, which is exactly what has made Youdao dictionary pen and Youdao listening pods successful.
With our experience in learning technology and device designing, our teams are bringing important innovations to this, product form factor and making a lot of learners learn more efficiently. Turning to the learning services segment, our strategy is to create unique and comprehensive experiences for curious minds by using our sharp technology edge, applying our course offerings across more scenarios, and creating more synergy between our proprietary courses and apps.
Net revenue from learning services was RMB 564 million, down 7%, year over year, mainly due to macro headwinds and different seasonality after double reduction. However, sales of learning services performed well in Q2, and total sales were up significantly year over year. Looking at the full year, we expect Q2 learning service revenue dip to be a one-time event. Moreover, we are making good progress on growing new learning services.
Net revenues generated from STEAM courses grew to over 20% of our total net revenue. Since double reduction, the compound quarterly growth of gross billings from STEAM courses surpassed 70%. This bodes well for our future growth process. We continue to leverage our strong capabilities in AI functions to enhance our courses.
By further integrating AI into Youdao Chess, for example, second quarter gross billings from the course rose over 60% quarter-over-quarter. Similarly, the compound monthly growth rates of daily active users from Youdao Board Game Academy app rose over 130%. Gross billings from graduate school entrance exam courses grew by triple digits year-over-year in Q2, led by upgrades to our one-stop service. The unit economics for these courses improved as well. Demand also soared for vocational education. Our data analysis course was a standout for the period, with gross billings up over 1,000% year-over-year in Q2. Demand for our English course also began to grow, particularly in June with the market's return, along with our upgrades to enact a more immersive first-person learning scenario.
Gross billings from our English courses rose by over 30% quarter-over-quarter despite the pandemic's impact. Our other business lines have progressed smoothly. Net revenue from online marketing services reached RMB 152.8 million, up 25.9% quarter-over-quarter. Despite headwinds from pandemic, we released a new campus sports education digital solution in Q2, and it had a good start. Q2 marks the completion of our product and service transformation since the introduction of the double reduction policy. Looking at the year-over-year trend, it is clear that our diversified and technology-driven business model has allowed us to weather the storm more resiliently. Our revenue structure change also reflects the effectiveness of our strategy.
Net revenues from the new services and devices initiated post the double reduction policy already accounted for over 40% of our total net revenue in Q2. Looking ahead, our focus will be on upgrading products and services with the support of technology and innovation. While we navigate the short-term macro challenges, we will continue to build up and strengthen our long-term competitiveness. We're confident in our prospects for the second half of the year, bolstered by the support of our new products and services. We're on the right track with the right technology and the right service offerings to advance technology-powered learning. With that, I will turn the call over to Peng Su to give you more details on our financial performance.
Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some financial highlights for the second quarter of 2022. We encourage you to read through our press release issued earlier today for further details. For the second quarter, total net revenue RMB 956.2 million, or $142.8 million. This represent a decrease of 2.4% from the second quarter of 2021. Net revenue for our learning services were RMB 563.6 million, or $84.1 million. Representing a 7.3% decrease from the same period in 2021. I would attribute this decrease to the decline in revenue from the adult courses resulting from the decrease in demand due to the resurgence of COVID-19.
Net revenue from our smart devices were RMB 239.9 million, or $35.8 million, up 16.3% from the same period in 2021, driven by the popularity of the newly launched products since last year. Net revenue from our online marketing services were RMB 152.8 million, or $22.8 million, representing an 8% decrease from the same period in 2021. The decrease was mainly attributable to the curtailed advertising budget of particular advertising customers. For the second quarter, our total gross profit was RMB 409.7 million, or $61.2 million, representing an 18.1% decrease from the second quarter of 2021.
Gross margin for learning services was 62.2% for the second quarter of 2022, compared with 58.8% for the same period in 2021. Gross margin for smart devices was 30.6% for the second quarter of 2022, compared with 43% for the same period in 2021. Gross margin for online marketing services was 27.7% for the second quarter of 2022, compared with 32.7% for the same period in 2021. For the second quarter, total operating expenses were RMB 864.9 million, or $129.1 million, compared with RMB 755.1 million for the same period of last year.
With that, for the second quarter, our sales and marketing expense were RMB 596 million, compared with RMB 555.1 million in the second quarter of 2021. Research and development expense were RMB 203.4 million, compared with RMB 345.8 million in the second quarter of 2021. Our operating loss margin was 47.6% in the second quarter of 2022, compared with 26% for the same period of last year. For the second quarter of 2022, our net loss from continuing operation attributable to ordinary shareholder was RMB 453.9 million, or $67.8 million, compared with RMB 234.9 million for the same period of last year.
Non-GAAP net loss from our continuing operations attributable to ordinary shareholders for the second quarter was RMB 435.8 million, or $65.1 million, compared with RMB 215 million for the same period of last year. Basic and diluted net loss per ADS from continuing operations attributable to ordinary shareholders for the second quarter of 2022 was RMB 3.67, or $0.55. Non-GAAP basic and diluted net loss from continuing operations per ADS for the second quarter was RMB 3.52, or $0.53. Our net cash provided by continuing operations activities was RMB 104.2 million, or $15.6 million for the second quarter.
Looking at our balance sheet, as of June 30, 2022, our contract liability, which mainly consists of the deferred revenue generated from our learning services, were RMB 1.1 billion, or $168.1 million, compared with RMB 1.1 billion as of December 31, 2021. At the end of a period, our cash equivalents, restricted cash, time deposit, and short-term investment totaled RMB 1.3 billion, or $188.1 million. This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to your questions. Operator, please go ahead.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Once again, it is star and then one to ask a question. Our first question today will come from Elsie Wang of Morgan Stanley. Please go ahead with your question.
Thank you, management, and congratulations on the 2Q results. I have a question on your view of the second half. You mentioned that you have a strong view on the second half. Could you elaborate more on why we are confident on the outlook? Which areas do we particularly see the potential? Thank you.
Thank you, Elsie. This is Feng Zhou. There are a number of factors that give us confidence in the second half. Firstly, we have mostly completed our products and offerings transitions after the double reduction last year. Our revenue structure, you see, have changed very dramatically. Net revenue from new services and devices, as I just talked about, launched after double reduction, already accounted for over 40% of our total net revenue in Q2.
We basically went from 0% to 40+% in less than a year. The rest 60% are pretty stable businesses, including some devices that we launched before double reduction and also our online marketing business and everything else. This quick ramp-up of new business gave us confidence that we can actually continue to grow new revenue going forward. We see this trend extend to second half of the year. That's one. Secondly, sales of our smart devices continue to grow.
Q2 was actually a very challenging quarter for our device team because of COVID, because of the logistics difficulties, and the surprising factor of the pandemic situation in April and especially in April and May. Despite that, revenue for our smart devices was up 16% in the quarter to RMB 239 million. If you look at per month trends, April and May sales of devices were actually down multiple double digits percentage. A lot of challenge. However, June sales rebounded very quickly to achieve, for the overall, for the whole quarter, year-over-year growth. We may...
I think we may still see challenges from COVID down the road, but as local governments get better at handling these situations. The growing demand for our devices and our new device that we launched after Q2 and Q3. We think we've already shown that the demand for our learning devices is strong. If you look at the whole learning device market, Frost & Sullivan, they estimate that the smart learning devices market to be RMB 66 billion in last year, 2021, and expected to grow to RMB 145 billion in 2026.
We think we have a pretty long runway to grow here. Finally, our new digital content services are growing rapidly, and we expect to see continued fast growth in the second half of this year. As I said, the gross billings for digital content services reached over RMB 200 million in Q2, and gross margin was over 50%. We expect this sector, digital content service, that's basically new services and products, not including the hardware, to keep the momentum in the second half of this year. Yeah, I hope that helps. Thanks.
Yeah, it's very helpful. Thank you.
Our next question today will come from Brian Gong of Citigroup. Please go ahead.
Thanks management for taking my question. I noticed we just mentioned that we plan to introduce smart learning paths. Can management give some more elaboration on this product and, like, what's the reason we launched this product and, what's our expectation for this product over long run? Thank you.
Yeah. Thank you, Brian. The Youdao Smart Learning Pad was launched a couple of weeks ago. It's already launched. I think what's interesting here is that there's a clear generational transformation that is taking place in the learning tablet or education tablet market. That's going from kinda content-based or recorded video-based learning experience to a AI adaptive learning technology-centered experience. Of course, we all know that whenever there is this kind of a generational change either in technology or in a business model, yeah, there is opportunity for new players, for newcomers. That's basically what we are trying to leverage here.
The whole learning tablet segment is pretty popular product segment. Overall, we think it's a good opportunity for us. Talking about the product form factor a little bit. The AI adaptive learning technology can be very effective if it is done right. In the U.S. market, a lot of companies are offering adaptive learning products for school learning, including, I think, Google, Khan Academy, and Pearson, and other companies. In China, our view is that a home learning is actually the most promising market for the adaptive learning technology to have a great impact.
Because the sort of the tradition of actually parents buying home learning devices. With the Youdao Smart Learning Pad, the AI can diagnose a learner's weak points within either six minutes of quick quizzes or by actually mapping a picture of the learner's school test papers. This is very convenient. The learner's learning efficiency can be increased by learning in a more personalized way, with videos and exercises. This is a very attractive value proposition for learners. That's the key benefits of the new technology, and we are banking on that for the product to be successful.
We view learning tablets to be a very good vehicle for delivering the technology, because parents are already buying a lot of tablets. Again, for Frost & Sullivan data, they expect the Chinese education tablet market to be RMB 26 billion in 2026. It's a sizable market. We think learning tablets presents a significant opportunity for us, and we expect to launch more products in this line in coming quarters. I just wanna add that adaptive learning technology is hard. Take the scenario I just described. Take six minutes of quizzes or snap a picture of a school test paper to be able to diagnose a learner's weak points.
This was technically not feasible just 10 years ago. Now we can do it, but it still takes a lot of research and engineering. We basically leverage technologies and experience we accumulated over the last 10 years, including like the video-based text processing and everything else. I think very few companies in the market can actually do this well, and we believe we're one of them. We believe we can be very competitive in this space. Yeah. Thank you.
Thank you. That's very helpful.
The next question will come from Liping Zhao of CICC. Please go ahead.
Good evening, Dr. Zhou and Mr. Peng Su. Thanks for taking my questions. I noticed the STEAM courses gross billing achieved 70% compound quarterly growth rate post-double reduction policy. Could you please share the growth strategy for your STEAM course sector? What's Youdao's competitive advantage in this business segment? Thank you.
Thank you, Liping Zhao. This is Su Peng . I will take the question. The first is about we think we achieved faster and sustainable growth of our STEAM process. Of course, billings increased over 100% year-over-year in Q2. We think that's basically from the numbers you can see we just built up a very strong momentum for the business growth. I think as Dr. Feng Zhou discussed in the prepared remarks, we think we always try to build up the high-quality content and provide that kind of unique, also different experience to our customers always.
For example, if you see about our Chinese Go program, and that's almost right now it's about the biggest our program we are operating by us in the STEAM courses. It's almost two years ago, we just released that products to the market, and we are not the only one at that time offering that product. We are not even the first one to offering that services to the customers. If you go back to see the performance of this product right now, you can see we have maybe become at least one of the leading companies in these areas, and maybe the biggest one in this sector.
We think what we have achieved in this sector is because we are not following the routine way to build up that program and to create that services. We leverage our technology apps into the products. It's kind of the gaming part. We think we have experience and learn a lot from the group, and how can we help them to build up a fun and interesting and attractive program for the kids. We think the kids and our students and the customer can learn a lot from our products, and they can achieve the successful from the success from also in that program. I think that's the reason why we can achieve the successful in that product, in that areas.
Actually, as Dr. mentioned, and if you go back to see the Youdao Board Game Academy apps, which is the platform to provide the service, free services to our customers who play the Chinese Go game over the internet.
You can see that the daily active users and also Youdao Board Game product MAU that increase around 10% in Q2. It's mainly attributed to with the ongoing update, our features of the apps and the better synergy between the chess-related courses and the apps. We think in the long run and you know, the same process as there's a diversified program and diversified products, and it's not concentrate into some small area. I think there's a great opportunity potentially in this market in the business space that we can provide more high-quality products in the long run. There's also some we think very interesting and exciting program in our pipeline to offer to the market in the next few quarters. That's what we think about the same process growth strategy. I hope that answered your question. Thank you.
Thank you. Our next question today will come from Thomas Chong of Jefferies. Please go ahead.
Hi. Good evening. Thanks, management, for taking my questions. Can you share about the progress for our education digitization solutions? Thank you.
Oh, thank you, Thomas. This is Lei. For the education digitization solutions, the main product is Youdao Smart learning terminal. It targets homework scenario with AI functions. In this semester, over 30,000 students use it in the school, and it collected more than 2 million pages of homework. With the diagnostic report from the homework data, teacher could plan their targeted lessons more efficiently. With our personalized practice, students could also enhance learning efficiency. Homework digitization solutions have been awarded as typical cases of using information technology to strengthen homework management by the government in the following four areas. Haidian in Beijing, Binjiang in Hangzhou, and Suzhou and Haicang in Xiamen.
In addition, Youdao Smart Education was selected as one of the digital trade innovation and excellent application cases of Zhejiang Province in 2022, and was the only one outstanding case of the smart education segment. In Q2, we also introduced a new comprehensive sports education digitization product with our cutting-edge visual analytics technology. It automatically recorded, measures, and analyze the performance of the students in the playground without any wearable device.
As we know, sports is advocated by the policy, and it has surpassed English to become the third largest subject during the compulsory education stage, so the demand for the sports teacher has increased. In traditional way, the sports teacher have to cover the thousands of students and manually record their performance one by one. It also takes a lot of time to prepare the sports equipment.
With our product, sports teachers no longer need to record and measure repeatedly, but have more time to give students more scientific advice with the digital data and the diagnosis report derived from the students' exercise. As for students, they have more time to exercise freely by themselves without wearing any device. In addition, their parents can better understand their children's physical condition and their growing progress. On the whole, despite the budget control from the government due to the COVID-19, we are optimistic to achieve better financial performance for education digitization solutions in the second half of the year. Thank you.
Our next question today will come from Candis Chan of Daiwa. Please go ahead.
Good evening, management. Thank you for taking my question. I want to follow up on your earlier comments for the second half outlook, specifically for the vocational and adult courses. Given the current macro and also the COVID situation, how the demand recovery and also the growth outlook for the second half? Thank you.
Thank you, Candis. This is Su Peng. I will take this question. I think first of all, there's another diversity in those sectors, although they all call the vocational and adult courses, but in these sectors, there are diversified products and services in this area. Right now we are focusing on several different vertical sectors. First of all, I think graduate school entrance exam courses are likely to keep the momentum in the second half as well. We think that's the course is our top priority in adult courses this year.
I think if you see the numbers of the students who register for the graduate school entrance exam in 2022, it's reaching about over 4.5 million. Increase about almost 800,000 people compared with the same period of last year. We think about there's a lot of the growing demand from the market. We think that's the reason why we are focused on this area. Another thing that also can leverage some of our advantage in these sectors. The first is about definitely will be the users. We are operating the largest dictionary apps in China, and most of the, at least we think about roughly about half of the registrants is about 18. That means potentially will be the college students.
We think we can. That's the first part. On the other hand, we're also operating the largest Chinese university MOOCs product. In terms of the number of registrations for college students, almost over 40% of Chinese university students register for our products. We think that we have a great potential user base in our products. We think we can easily leverage our advantages to convert them to our product users in the long run. We think that will be the first advantage when we operate that business.
I think that we can just grow the business healthy and it will be a fast growth and with a healthy business model. In the last year, we restructure our teams and provide more services and merge with our tech features in our products. We think that's just like I mentioned in our STEAM products. We think that's also one of our advantage always in the long run. We think we can provide more specific services to the each individuals and to help them to analyze about what they need and what demand and how to help them to enhance their academic levels in the result services.
We think that will be the very important part for when the student is to choose the different products in these areas. Finally, we think in the last year, we start our adult business since about 2016. That, we have already accumulated about a lot of experience and to how to produce and how to operate that kind of adult business products. We think that will be the also another differentiations with our peers in this area. That's for the graduate school entrance exam products. Secondly is about the. I think vocational training is also another very interesting area starting from the last year.
We saw the very strong demands for these courses in this year and the last year. For example, for the course reading of the illustrations courses grew over 700% year-over-year in Q2. We think that we are willing to build up that kind of product. But on one hand, we are definitely focused on the quality and the content of our products.
We expect to provide that kind of high quality services for our users. On the other hand, we know about what their needs and through those services or through that program. We merge that internship experience, potential internship experience with that product.
For example, like the illustrations program, potentially we do have the internal internship opportunities for the users, but it still depends on the market change. We think that's the way we will work together with our students, help them to design their career path after they are taking our courses. That's what we think about that in the long run, how to help our students to learn more through our services.
Finally, we think the English courses are likely to further rebound with that in the second half, subject to the pandemic and other macroeconomic conditions. As I discussed in the prepared remarks, we saw the recovery in demand for the English courses. This course experienced a raise of over 30% quarter-over-quarter in the Q2.
We think that's partly contributes to attributable to the upgradation of our English courses with an immersive first-person scenarios has been welcomed by the users and it boosts the courses completion rate to about 50%. Finally, I think in this year, the interest-related courses are likely to continue to face challenges and uncertainty because of the current macro conditions. I think that's our general overviews and outlooks of the vocational and adult courses in the second half of 2022. Thank you, Candis Chan.
That's very helpful. Thank you, Peng Su .
Again, if you would like to ask a question, please press star and then one. Our next question will come from Linda Huang of Macquarie. Please go ahead.
Yeah. Hi, management. Thank you for your briefing. I have one question regarding the margin, because we saw the current tailwind for the second quarter. Looking into the longer term, how should we think about the normalized gross margin for the different business division? In terms of the operating profit margin, can you also give us an outlook on what is the normalized level for the longer term? Thank you very much.
Thank you, Linda Huang. This is Wayne Li. I will take your question. In respect to our gross margin, we saw a decline from 51% in last quarter to 43% in this quarter. This change was mainly from the seasonality fluctuation due to the seasonality of the recognized revenue of our learning services. On revenue side, new generation of Youdao Dictionary Pen X5. Both of which potentially improve our gross margin. On cost side, we will continue to explore different way to optimize our cost structure to improve our margin. Considering the factors mentioned above, we are very confident in our ability to improve our gross margin over the long term. Let's look at some details on the margin of our learning services and smart devices. For learning services, we expect a much higher revenue base in the second half of the year.
With the completion of our learning services transition, the economic field will start to be back to normal level, and we expect the annual gross margin for our learning services to be stable, even better than last year. As for smart devices, the lockdown policy caused a significant uncertainty on the production and the delivery of our smart devices. Following a relatively slowdown in April and May, we saw signs of recovery across this business in June. Finally, we achieved a 15% annual increase on the year-over-year basis. Despite the challenge we faced during the COVID resurgence and adverse macro environment, we actively adapt and remain focused on our long-term strategy by continue to strengthen our capabilities in creating value for our customers.
The release of our new product series, such as X5 and the Learning Pad, make it possible to achieve higher sales and better profitability in our smart devices category. As for our operating margin, while we dedicated resources to improving sales and marketing efficiency, as well as our stock costs, we are simultaneously strengthening our technical and R&D investment to maintain our advantages in technology. As you can see, in this quarter, our net loss narrowed by 12% to RMB 460 million. We have been working on the long-term solution to improve our operating margin. Hope this is helpful. Thank you, Linda.
Yes, very clear. Thank you very much.
Our next question today will come from Li Anduan of Huatai Securities. Please go ahead.
Okay, thanks, madam, for taking my question. My question is about could you please update the proportion of sales channel of online and offline for smart devices? We understand that there could be some impact on Q2 of the lockdown. How do you see the momentum of sales of different extremely new products in second half year? Thanks.
Sure. Regarding the different sales channels. Yeah, right now over 50% of our device sales are through online channels. Yeah, so, of course, the major e-commerce services are the key online channels. Also we have the live channels, the live streaming channels for sales of these devices, also online. The offline channels are also very important to us, because we have been working with these partners for a long time. We have several thousand sales endpoints across the country. These are actually very important for kind of middle-income areas.
Not the tier one cities, but the mid-income areas, mid-income cities. A lot of customers there, they like to buy hardware devices from the offline shops. The Q2 impact from COVID. It's actually several factors. Yeah, let me explain a little bit. One is actually the delivery process, and the impact that it
The key reason is that when people go online, they wanna order our device. When they see that the device kind of takes several weeks or even sometimes longer to arrive, it impacts their willingness to place the order. That impacts our overall sales process and efficiency. That's one of the key reasons. Of course, kind of in Shanghai where the delivery cannot happen at all. Of course, there is basically no sales. For other areas, there's still impact because of the logistics kind of difficulties.
The other impact is for storage and for the storage of the devices. That we have some warehouses that's within the impacted area, so that's also another factor. Looking ahead, as I said, I think the local governments are getting increasingly better at handling the COVID events without actually incurring a lot of logistics troubles. We see that as a factor that'll help down the line. We have also kinda rearranged our warehouses so that it's more diversified in terms of locations. We think that should help too.
Overall, we see promising trends for the device sales in the coming quarters. The new dictionary pen X5 is a great product, we think. Yeah, check out the video on our IR website, and I think you will like it. Of course, we are looking at this from a very long perspective. We think our teams have a lot of experience in designing good devices. The learning tablets, learning pads are a very important category for us, so we will look at this category very carefully, and we will have new devices down the line. Yeah, we'll keep you posted.
Yeah, just one more point we can add here is just for the online/offline channels questions. We think about is if you go to the different tier of city, that will be a little different following Dr. Zhou's comments. You will see in the tier one, tier two cities, that they sell more devices through the online channel and e-commerce platforms as in that area. But in the three tiers, before, we used to sell more through the offline channel in the tier three and below cities.
Right now, because of the penetration of that short videos platform like Douyin, like the other platforms, and we, as Dr. mentioned, we host that kind of the best sales channels in that platform, and we expect in the long run that will be changed, probably will be changed another percentage of the online and offline channels in the Tier 3 and below cities. That's what we think about that probably will be the trend in the long run. I think that's my additional comments. Hope that answers your question. Thank you.
That's very clear. Thank you.
That concludes the question and answer session. I would like to turn the conference back over to management for any additional or closing comments.
Thank you once again for joining us today. If you have any further questions, please feel free to contact us at Youdao directly or reach out to TPG Investor Relations in China or the U.S. Have a great day.
The conference has now concluded. We do thank you for attending today's presentation.