Good day, welcome to the Youdao 2021 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 for Youdao. Please go ahead.
Thank you, operator. Please note the discussion today will contain forward-looking statements related to future performance of the company, which are intended 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 purpose only.
For the definitions of non-GAAP financial measures and reconciliations of GAAP to non-GAAP financial results, please see the 2021 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 Youdao senior management is Dr. Feng Zhou, our Chief Executive Officer, Mr. Lei Jin, VP of Operations, 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 directions.
Thank you, Jeffrey. Thank you all for participating in today's call. Before we begin, I would like to remind everyone that all numbers are based on revenue. Q2 was another solid quarter for us. Total net revenue were RMB 1.3 billion, representing a 107% increase from the same period in 2020. Revenue from our three segments, learning services, learning products, and online marketing services grew by 112%, 138%, and 60% year-over-year, respectively. Loss from operations for the second quarter of 2021 was RMB 544 million. That translates to margin of loss from operations improvement of 330 basis points from the same period in 2020. As you all know, significant regulatory changes regarding after-school tutoring were introduced recently in China after our fiscal Q2 concluded. Our remarks will be two parts. I will first talk about the Double Reduction Policy, its impact on us, and our plans.
We will go over our future results in more detail. Regarding the Double Reduction Policy, we saw four major points most relevant to us. First, publishing of AST advertising is banned on most media platforms. Second, access to capital markets is severely limited. For example, ASTs are not allowed to pursue IPOs. Third, tutoring timing limitations. For example, no school subject academic tutoring on weekends or holidays. Fourth, academic ASTs are required to register as nonprofit going forward. We have been exploring strategic and operational changes to our tutoring business and setting new priorities for the whole company since the regulation was published on July 24. First, as always, we are committed to embrace and fully comply with these laws and government policies.
We have already made changes to our business, like stopping academic classes during the summer holidays, we are actively communicating with regulators on further changes like the nonprofit requirements, as these have a major impact on our future operations. Therefore, we expect academic AST business will be severely limited in the coming quarters. That said, AST is not our sole business. The K-12 AST made up about 41.2% of our Q2 total revenue. We believe our other businesses, which contributes over half of our revenue, are not directly impacted by the regulation. We have several high-growth business lines in non-AST part of Youdao. While we step on the brakes on the AST side, we will be driving more growth on the non-AST side of our business.
Ultimately, we think our deep technology roots and large user base gives us options and diversity much needed in this kind of challenging scenario. Overall, when we add the two sides up, I expect this to be a speed bump in our journey. A headwind for a few quarters. Looking to the future, I see four pillars of growth in our non-AST business: learning service, learning devices, Adult education, STEAM courses, and education digitization solutions. We have talked a lot about the learning devices and Adult education opportunities in past calls, and our team will keep innovating in these areas. In Q2, both these businesses are doing well. We released Youdao Dictionary Pen 3, designed to be more friendly to elementary school and pre-K kids, more affordable, and supports learning of arithmetic, in addition to English and Chinese.
As for the third growth area, STEAM courses, it is an area that is made more attractive now that the students have more time. We believe we have a competitive advantage in online STEAM courses because we have been operating STEAM courses ever since 2018, and our teams are good at content creation, applying technology, and also monetization in this area. In Q2, Youdao Weiqi continued scaling up nicely. Net revenue of Youdao Weiqi increased by 180% quarter-over-quarter. We also launched advanced-level small class courses of Weiqi for students that play more competitively. As for our programming courses, the retention rates reached all-time high of nearly 90% in Q2. STEAM education is a great area, and we will continue to launch more courses in coming quarters. The last of the four growth areas is education digitization solutions.
By that, we mean any product or service delivered in a business-to-business fashion or business-to-government fashion that uses digitization to improve learning and education. The customer could be schools, universities, or enterprises. This is the first time we discuss education digitization solutions on our call. We think it has huge potential. It fits Youdao very well, and now is the right time to do it. According to Huatai Securities, the expected market size for education digitization is over RMB 650 billion in 2023. As for Youdao, with our expertise in AI, smart devices design and manufacturing, as well as a deep understanding of teaching and learning, we believe we are well-positioned to seize the opportunity in the rising education digitization market. Right now, we also have an innovative product in this area, Youdao Intelligent Learning Terminal.
It is an appliance that automates paper-based homework processing and provides learning diagnosis through AI technology at schools. It works by integrating scanning, printing, and AI diagnosis in a single appliance. Youdao helped Binjiang District in Hangzhou to facilitate education digitization, and our intelligent learning terminal was praised for helping instructors analyze students' learning and knowledge points. It improved teaching quality and efficacy. We also continue investing in R&D to build up our learning technology. In Q2, we released the Youdao Intelligent Practice System, our first fully adaptive practice and learning system. This is already in production use in our junior high school math courses, and we plan to integrate it with our learning devices in the future. Going forward, here are our immediate action plans right now. First, we have been streamlining our workforce for K-12 AST business.
We have been following the guidance from the government regarding how we are supposed to operate this segment in the future. Second, for the online courses segment, we will focus on adult courses and STEAM courses that are in line with the policy direction. As I just talked about, K-12 students have more free time after Double Reduction. We believe demands for STEAM courses will significantly increase. Regarding adult education, we have seen a strong growing demand for professional certificate and interest-based courses, and we continue to offer competitive products to drive sustainable growth in this area. Thirdly, for learning products, we will continue leveraging our advantages in EdTech and innovation to further drive growth. We always hold the view that smart learning devices present a great opportunity for growth.
We already have achieved scale and profitability in our dictionary pen products. We will continue to launch more new products to strengthen our leadership in learning products. Fourthly, for education digitization solutions business, as I introduced just now, there is a huge demand. It is in line with the government's policy direction. We will leverage our advantages to meet the rising demand from public schools, universities, and et cetera. Looking ahead, we are very confident with our plans. As we have a strong team, we offer high-quality products. We have long-term support from our parent company, NetEase.
NetEase today announced that it has adopted a share purchase program of up to $50 million of Youdao's outstanding ADS for a period not to exceed 36 months, beginning on September 2nd, 2021. Under the terms of this program, entities may purchase Youdao's ADS in open market transactions on the New York Stock Exchange. The purchase program may be suspended or discontinued at any time. Along with continuing optimizing our business, we are also dedicated to fulfilling our social responsibilities as a corporate citizen. We always strive to help where we can, leveraging our strengths to help communities in need. For instance, facing the recent hefty rainstorm in Henan Province, Youdao joined hands with public welfare institutions to provide post-disaster reconstruction and structure support for 10-15 schools and kindergartens. These activities are expected to support at least 10,000 students in the affected areas.
We will continue making ongoing contributions to society in the future. With that overview, I will now turn the call over to Peng Su to review our operational and financial results in Q2. We will open to questions. Peng Su.
Thank you, Dr. Zhou, and hello, everyone. Today, I will be presenting some operational and financial highlights from our 2021 second quarter. We encourage you to read through our press release issued earlier today for further details. Dr. Zhou introduced the strategic and operational change to our tutoring business and our new priority just now. I will add more color on the operating side in Q2. First of all, in term of the adult segment of premium courses, the revenue account for the 21.5% of the total net revenue in Q2. The Extraordinary Memory course was the biggest one from the gross billing perspective in Q2. In the meantime, an upgraded version of the Practical English course has been launched recently. English for all enjoyment camp offer immersive teaching from the first-person view.
It optimize the education and the training model based on the learning characteristics and the learning habits of the adults. Furthermore, the upgraded course present language learning scenario by using AI technology and integrate learning, practice, and the test to improve the concentration of student. The intelligent assessment system tracks the student's learning condition to help them customize their learning process accurately from the five major dimensions. In short, enhancing service by AI technology has made education and training easier. As for China University MOOC, means Massive Open Online Course, the leading MOOC platform in China, and also the major online courses platform for Chinese university students. 137 courses has been certified as the national level premium online courses for vocational education by Ministry of Education. Looking at our Youdao Dictionary app, we add a new function named Hi Reading in Q2.
It is the first learning app that support real-time assessment of oral English and professional sound monitoring in China, making oral English learning more efficient. As for the Woo community, Wooquan, we launched in Q1. It grew fast with MAU of more than 10 million in Q2. The monthly active users of our learning apps in Q2 reached more than 130 million. Besides gross billing from new users contributed by organic traffic increased by 97.3% year-over-year. Gross billing from the total organic traffic account for the 28.4% of all gross billing in Q2. I will be presenting the financial highlights in Q2. Total gross billing from our online courses, which RMB 1.1 billion for the second quarter, up 99.7% year-over-year. The gross billing from our premium courses rose to RMB 1 billion, up 124.1% year-over-year.
Gross billing from our K-12 segment account for 76.7% of the total gross billing in second quarter. Paid student enrollments for premium courses were up by 129% year-over-year. Paid student enrollments from our K-12 and adult segments account for the 86.6% and 13.4% of the paid student enrollments for premium courses, respectively. For the second quarter, total net revenue reached a record RMB 1.3 billion or $200.3 million. This represent an increase of the 107.5% from the second quarter of the 2020. Looking at this growth by segment, net revenue from our learning services were RMB 921.1 million, or $142.7 million, up 112.4% from the same period in 2020. We attribute this growth to the increased revenue generated from our online courses, which were further driven by the increase in paid student enrollments for both K-12 and adult courses of Youdao premium courses.
Net revenue from our learning products were RMB 206.3 million, or $32 million, up 138.8% from the same period in 2020, driven by the substantial increase in Youdao Dictionary Pen sales volume. Net revenue from our online marketing services were RMB 166 million, or $25.7 million, representing a 60.8% increase from the same period in 2020. For the second quarter, our total gross profit reached RMB 676.7 million, or $104.8 million, up 140.4%, compared with the second quarter of 2020. The increase was driven by the improved economics of scale and the ongoing optimization of Youdao's faculty compensation structure. Gross margin for learning products increased to 43% for the second quarter, from the 32.4% for the same period in 2020.
The improvement was mainly attributable to the substantial rise in sales volume of Youdao Dictionary Pen Series 3, which carry a higher gross margin than other learning products. Gross margin for online marketing services was 32.7% for the second quarter of 2021, compared with 28.5% for the same period in 2020. The increase was mainly attributable to higher sales of performance-based advertisements through third-party internet properties, which had an improved gross margin profile over the last year. For the second quarter, the total operating expense were CNY 1.2 billion, or $189.1 million, compared with the CNY 564.6 million for the same period last year. With that, for the second quarter, our sales and marketing expense were CNY 973.2 million, compared with CNY 445.2 million in the second quarter of 2020. Research and development expense were CNY 180 million, compared with CNY 91.4 million in the second quarter of 2020.
Our operating loss margin was 42.1% in the second quarter of 2021, compared with 45.4% for the same period of last year. For the second quarter of 2021, our net loss attributable to ordinary shareholder was RMB 524.4 million, or $81.2 million, compared with RMB 257.8 million for the same period of last year. Non-GAAP net loss attributable to ordinary shareholder for the second quarter was RMB 500.5 million, or $77.5 million, compared with RMB 250.5 million for the same period last year. Basic and diluted net loss per ADS for the second quarter was RMB 4.29, or $0.66. Non-GAAP basic and diluted net loss per ADS for the second quarter was RMB 4.09, or $0.63. Our net cash used in operating activities for the second quarter was RMB 249.1 million, or $38.6 million.
Looking at our balance sheet as of the June 30, 2021, our contract liability, which mainly consists of the deferred revenue for our online courses, were RMB 1.4 billion, or $213.1 million, compared with RMB 1.4 billion as of the December 31, 2020. At the end of the period, our cash equivalents, restricted cash, term deposit, and short-term investments totaled RMB 1.9 billion, or $294.4 million. This concludes our prepared remarks. Thank you for your attention. We would now like to open the call to our questions. Operator, please go ahead.
Our first question comes from Sheng Zhong of Morgan Stanley. Please go ahead.
Hey, thank you for taking my question. My question is, actually, you mentioned that with current regulatory environment, you will focus more on the non-K-12 space. My question is, I'm wondering what this means for K-12 tutoring business. Will you keep it or gradually exit this market? If you have any operation adjustment plan, can you share with us? That will be great. Thank you.
Thanks, Sheng . Right now we are following guidance from government at a working level. For example, we stopped summer courses, we removed courses scheduled on weekends, and things like that. Going forward, we will see more changes like this and basically, the way we offer our service for K-12 will be different. In the process, we will follow guidance from the government. One thing is that we see that the national policy, Beijing policy, and other local policies regarding AST, they are actually quite consistent in their content. Our current thinking is we expect the measures in these policies, some are already implemented, some are not implemented yet, but we expect them to be executed, implemented, in the coming months. We're still in the process.
Some of the timing is not clear yet, and the government schedules could be moved around, but basically we will follow the government's instructions.
This is our current view. I think it's still early for a very clear inaudible adjustment plan from us. Again, as we said, we do expect the measures to have significant impact on our existing inaudible cost business. These impacts will come in the coming quarters. Let me take this opportunity to talk a bit more about where we are from a more macro perspective. First, I think the policies are designed for the long-term development of China's education. Let kids have more free time, let them develop more extracurricular interests and put more resources into schools. These are all designed for the long-term. Therefore, we fully embrace these changes, these policies, and we'll be compliant as our original intention to do education business is actually very consistent with the reform. There's actually a Chinese saying.
Teachers are those who teaches values, teaches skills, and dispels doubts. Yeah, I think it's a fitting one right now. Yeah. Yeah. Because it is our purpose to do these things, teaches values, teaches skills, and dispel doubts. We use technology to do that. The final purpose is to empower the kids, the children, to get brighter futures. Yeah. Yeah. This is why we fully embrace the policies. Second, regarding non-K-12, we also see that the government are embracing and actually driving digital transformation in many fields in the economy, including education. Digitization is a powerful force. It really increases productivity and transform a lot of the fields. The government understands that and will not stop doing it, including the education.
For example, in July, six ministries jointly released a guiding opinion on education, new infrastructure building, mainly to promote more deployments of digital technology in education. Education technology in China, in our view, is definitely moving forward. The online AST, of course, is part of education technology, but there's a lot more to EdTech than AST. As I've talked about in our prepared remarks, we will focus on the four streams, four pillars of growth, learning devices, STEAM courses, adult courses, and education digitization solutions. These are all in line with the overall government direction. It's not something that we come up after the policy reform. It's something that we've been working on for some time, and these four areas are all high growth areas for us. Yeah, if you actually look at the numbers.
That is clear for us right now. That's also what many of our teams are hard at work focusing on. Yeah, I hope that answers your question. Thanks again.
Thank you very much.
The next question comes from Brian Gong of Citi. Please go ahead.
Yeah. Thanks, management for taking my question. My question is about the competition of learning devices, adult education, and STEM education. Do you think the competition of those areas will become more intensified since, after the new regulation, new policy, other AST names, some of them are also looking to come into this area to find new growth drivers? Yeah, that's my question. Thank you.
Thank you, Brian. This is Peng Su . The first is we always believe that the intelligent learning devices will provide the huge opportunities for the EdTech companies. In China, there's nearly about 200 million K-12 students, as well as even more lifelong learners aspire to improve their learning efficacy. Parents right now are ready to invest in education. Indeed, with growing demand, probably many of the other companies have already entered the segment. What we think about the assets for the intelligent learning products, there are some really technical barrier to the entire process, including the development, production, and sales. We always think that Youdao has made a substantial improvement in the area for a long time and achieved exceptional results. If you go back to the two years ago and about we released our Youdao Dictionary Pen Series 2 in the August 2019.
We thought we had established a good market reputation and recognition.
We think we have pushed the impressive message in parents' minds. We think we are definitely will be the leading one. At least we are the leading one in the learning device sectors. We are thinking about, we are pretty confident to face all the competition in these sectors. The second thing is about the adult education products. Yeah. If you see about the numbers, the net revenue from our adult education business is up about over 100% year-over-year in Q2. Also we are successfully operating the two different SKU of the content or the products in our pipeline. First is about the, we call it Practical English. It's an English product. It's a language learning product. Second is called Extraordinary Memory. That can help people to train their memory capabilities.
They are two entirely different products with different core value to our users. We think about, we are capable to develop and operating the two entirely different SKU at same time with our adult education team. Secondly, for this part, because we are always try to leverage our organic traffic from our core asset, is Youdao Dictionary app. As we mentioned, we have launched about several new functions in the first half of this year. The Word Tuner is a new high reading program. We think about through that program, we can know more, learn a lot of the users' behavior through these two different functions. We expect we can know more their demands through their activity in our apps. We can just provide more products for their demands.
We think about, because we can always have this organic traffic product. We think about we will definitely have a leading position in this adult education sector. Yeah, that's why we think about the question. Thirdly is about, in addition, as the doctor mentioned, we find another very great opportunity in 2B services and 2B business. It's not only has huge demands, but it's also consists with the policy directions. We call this digitalization education business. We think it's providing a new opportunity to improve education in classroom, enhance the management of the education system. Also consider innovative model of the delivery. Our innovative Youdao Smart Learning Terminal boosts the digitalization for primary and high school across China. We adopt Youdao Intelligent Practice System to help the self-study and the personal teaching.
Thus, we think about it is improving the efficacy and the reduced burden for the both teachers and students. Yeah, we hope that answers your question. Thank you, Brian.
Brian, this is Feng Zhou. Let me add a few words. The question is about competition in these new areas. Of course we will see a lot of competition and we already see companies coming up with new products and services already. The way we think about it is that, we view ourselves as a product company. We think we have product-focused companies and service-focused companies in education. Both are good. Both models are good. I think for some products, for some things, this will lead to different ways of doing things and different competitiveness. For hardware, for devices, it's obviously products, because you actually hold the product. We think for devices, we absolutely have advantage here because we've been doing this for a couple of years, and we have very strong teams, very strong product teams.
Defining, refining and selling these products. Also for STEAM, we think we are stronger online. That's why we've always been focusing on the online side of tutoring education. For STEAM courses, we will also focus on online. It's a bit different from the academic courses in the sense that STEAM courses are at least they should be more attractive and more friendly to the students because it's extracurricular, right? We think we have good experience and good track record in creating really attractive STEAM courses like the Weiqi, the Go game courses. We think we will be able to create more of these really successful SKUs and. I hope that's helpful. Thank you.
Yes, thank you very much. That's very helpful.
The next question comes from Alex Zhou of Credit Suisse. Please go ahead.
Hi, management. Thank you for taking my questions. My first question is about your customer acquisition strategy and customer acquisition cost. I think you shift your business focus to the non-K-12 segments. How should we think about them in the future? My second question is about the profitability of your non-K-12 business lines. Would you please share with us some of your ideas about what kind of margins could your non-K-12 business achieve in your business plan? Thank you.
Thank you, Alex. This is Peng Su. I will take the first question. Before I go to your questions, it's about the Youdao is committed to fully complying with the Beijing after-school tutoring measurements matters and the similar matters to be adopted by the other local governments. If they need to implement the requirements of the central government opinions. For the customer acquisition strategy for the non K-12 after-school tutoring business, the first is for the STEAM and adult educations. We definitely will leverage existing users traffic and attach more importance to the conversions and contribute by our organic traffic to boost the conversion rate and expand our user base. As for the Word Community, we call it Wooquan, we launched in the Youdao Dictionary in Q1, grew fast with MAUs of more than 10 million in Q2.
I think that will show our capabilities to boost our organic traffic volumes in our dictionary apps. I think for the adult business, I think the first is about you have to create the high-quality content and products before you're spending the marketing dollar for the customer acquisitions. We think about before all the strategies for the customer acquisition, internally, we just always try to provide the high-quality courses and create the high-quality content to our customer first. Then before we release to the public, we always will take several round about internal tests for all the content, and we will just refine the content again and again to make sure we provide the high-quality content to our customers. We think that will be the strategy for us for ongoing adult educations.
For the STEAM products, definitely we will also build up several different new content in our pipeline and to create more cross-selling scenario for the kids over six years old. We think right now we are operating successful product like Weiqi, like kids programming, and we expect the other STEAM courses will be available for the kids over six years old in this autumn, fourth semester. We hope we can create the most scenario for them to do the cross-sell between our existing customer. I hope that answers your question. Thank you, Alex . The second question about profitability of C2. We think about, it's just like we always emphasize, we always care about the healthy business model and the healthy unit economics, at least, to operate our business. Before it became a successful business model, definitely that will be the healthy business first.
If you go to the different sectors, you will see our learning devices, and that will be the great example. We just improve our gross profit margins year-over-year, and we see the tremendous uptick about our gross margins compared with the last year in this year in the learning devices. Also you can see about we improve almost all of our operating metrics year-over-year since we were become a public company. We think about we will always keep that trending, and we expect every single segment in our businesses have a very bright futures and have a potential. It's a great opportunity for us to develop our business. We think about we just keep that on track and keep moving forward and keep improve our operating metrics. That will be the profitable business in the long run.
I hope that will be helpful for you. Thank you.
Got it. Thank you very much.
The next question comes from Thomas Shen of Nomura. Please go ahead.
Thank you, management, for taking my question. I have one question about how should we forecast the impact from the recent regulations for After-School Tutoring? Any colors on the top line or margins will be very helpful. Thank you.
Hi, Thomas. This is Lei Jin. Firstly, Youdao is committed today to fully complying with the Beijing AST matters and the similar matters adopted by other local governments, if any, to implement the requirements of the central government opinion. In compliance with the Beijing AST matters, we are stop offering the academic AST classes over weekend, national holidays, and the current school breaking period in Beijing.
Such measures are expected to have a material impact on our existing K-12 academic course business. In the first quarter of this year, the revenue from K-12 academic AST classes account for less than 50% of our total revenues. Youdao is an intelligent learning company, not just a tutoring company. We view Double Reduction as an external process. This does not change our long-term vision, and we are totally optimistic about the long-term development. In the medium term, I think this is maybe a 12-month speed bump, but we will execute a few quarters for transition. The whole K-12 AST makes up about 41% of our Q2 total revenue. Compulsory education, grade one to nine, subject make up about 24% of Q2 total revenue. At the same time, we run a diversified business with other significant segments that are not impacted by the regulation.
Our non-AST business is already quite big at over 50% of our revenue and growing about 100%. We think we are in a good shape. We will manage the process carefully and prudently. We, Youdao management team, has a long-term vision and commitment, and we are confident to navigate the challenges and have a better position in the market. In addition, NetEase has supporting us in the long run. Hope this is helpful.
Thank you.
What?
Thank you. Very helpful.
The next question comes from Thomas Chong of Jefferies. Please go ahead.
Hi. Good evening. Thanks management for taking my questions. May I ask about the outlook in terms of the operating expenses like R&D, sales and marketing, and G&A in the next couple of quarters? In particular, about the sales and marketing side, should we expect it will materially slowing down in the next couple of quarters? On the headcount, any color about what we should expect the headcount by the end of this year? Thank you.
Hi, Thomas. Thank you for your question. This is Wayne. As just mentioned by Dr. Zhou, we are stepping on the brakes on the AST side. At the same time, we are driving more growth on the non-AST side, our businesses such as smart devices, education, digitalization solutions. I think it is not easy to have a clear direction for the change of the operating expense at the whole financials level. As just mentioned, Youdao is an EdTech company, and we have multiple business. The K-12 AST is not our sole business. The non-K-12 business revenue for second quarter this year is about 60%, which there is no direct negative impact from the Double Reduction Policy. I am willing to share two points on the change of operating expenses for our K-12 AST, which represents part of our financial outlook.
First, pursuant to the government policy, publishing AST advertising on most media platform is banned. We stopped AST advertising for K-12, such as feed ad and the branding activity for our courses, which resulted in a sharp decrease in marketing expenses we expect. Second, we will downsize the K-12 AST business scale. As you mentioned, the headcount, considering the limited tutoring time, the salesperson and the tutoring courses on K-12 will be reduced accordingly. For the R&D investment, I think we are an AI technology company. We will continue to invest a lot in our other business. The chances will be continued to increase for R&D. Finally, I'd like to emphasize that diversification is one of our advantages. We will try to take any chance to grow our business, but the precondition is to fully embrace and comply with the law and the government policy. Thank you.
Thank you.
The next question comes from Liping Zhao of CICC. Please go ahead.
Okay. Good evening, management. Thanks for taking my questions. I have two questions here. First, since the recent policy encourage- students to study at home or at school. Will this stimulate the demand for our educational smart devices? Any plan for the new product launch of our smart devices? Second question related to the share purchase program. We noticed that NetEase announced the share purchase program of $50 million of Youdao's ADR. Could management elaborate a little bit more on the reason behind it? Thank you.
Thanks, Liping. Regarding the first question about learning devices. You asked about any plans for new products in this area. We actually do have new products, very recent time. Tomorrow. You guys will be the first to know. Tomorrow we will launch a new version of the dictionary pen, in collaboration with People's Education Press. Renmin Jiaoyu Chubanshe. Tomorrow, September the 1st, we will launch this new dictionary pen that has features that work directly with the students' textbooks. This is one of the most asked about feature that the parents and students need. We have finally been able to work out all the details and it launches tomorrow. We are very looking forward to it. We hope you guys will like it.
I think a couple of days after that, we will have another product that's related to language learning. Also language learning, but another side of language learning. Not the reading part. You can guess what it's about. How do you learn a language, right? You read or you do what? We also like that product very much. We think we will know how the students react to it. As we talked about, September is start of school. So it's a very important period for any product related to learning. We think that the two new products, along with the existing dictionary pens that are selling very well. We think we have a very good product lineup for this school year. Thanks.
The next question comes from Candis Chan of Daiwa. Please go ahead.
Yeah. Sorry, operator. I think we have a second question, right? Yeah. This question regarding the shared purchase program from NetEase. I introduced in my prepared remarks that NetEase today announced that there's a share purchase program approved for up to $50 million of Youdao's shares. It starts two days from now, lasting at most three years. NetEase will purchase Youdao's shares on the open market. NetEase announced a share purchase program. I think on one hand it demonstrates the strong support for Youdao's business, for our long-term development. As you all know, NetEase has supported us on multiple occasions. For example, providing us with a credit line a couple of quarters back. This shows again their support. I think that's very important in this market scenario.
On the other hand, I think NetEase certainly would hope Youdao has a good performance in the capital market in the long run. I think that's for the share purchase program. We will provide you with more updates if we have more in the future. Thank you.
The next question will now come from Candis Chan of Daiwa. Please go ahead.
Hi, Management. Thank you for taking my question. I just want to quickly follow up on your comments about the downsizing of the K-12 business. Can you just quantify the restructuring cost for this K-12 AST business, and how would that impact your cash flow position? Thank you.
Hi, Candis. Thank you for your question. For K-12 restructuring cost, we believe each player will incur additional costs such as compensation cost for dismissed staff, cancellation cost for the rental office, and certain impairment loss from prepaid courses and materials. I think different player might face different situations. As just mentioned by Dr. Zhou, Youdao already has a good business for non-K-12 business. In the future, we expect to be driving more growth on the non-AST side of our business. Part of K-12 talent will join the non-K-12 business such as STEAM courses and adult education. They will continue to create valuation for us. Let's say, compare with other tutoring company, we have relatively low additional cost on the compensation side, and we will offer more opportunity to our talent.
Second, as an online company, there are fewer fixed costs such as rental fee to be considered during the restructuring. Finally, we believe the restructuring cost is closely linked to the final policy of non-profit organization for K-12. Currently, we are actively communicating with the regulators on the details policy and for non-profit organization. The policy is still underway, so we will fully comply with the government policy, and we still need to wait for the final policy. Wish it is helpful for your question.
Yes, thank you very much.
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 is now concluded. Thank you for attending today's presentation, and you may now disconnect.