Felix Liu

Felix Liu with UBS asked about the performance of TAL Education Group's offline Peiyou small class programs, specifically inquiring about the Learning Center network expansion in Q3, the management's perspective on future expansion pace, key drivers of year-over-year revenue growth, and the outlook for the upcoming winter season and overall growth.

Answer

Alex Peng, President and CFO, stated that Peiyou offline enrichment programs delivered year-over-year revenue growth aligned with Learning Center network expansion, maintaining a disciplined operational approach. He noted that growth was primarily driven by increased enrollments with stable ASP, reflecting market demand and internal capabilities in product design, service quality, and content development. Peng anticipates a gradual moderation in revenue growth pace in FY 2026 due to a higher comparison base.

Felix Liu asked about the performance of offline Peiyou Small Class, including updates on learning center network expansion, key drivers of year-over-year growth, and the outlook for the upcoming winter season and future growth.

Answer

Alex Peng, President and CFO, explained that Peiyou offline programs achieved year-over-year revenue growth, aligned with disciplined learning center network expansion. Growth was primarily driven by increased enrollments, with stable ASP, reflecting strong market demand and internal capabilities. He anticipates continued growth but a gradual moderation in pace for FY 2026 due to a higher comparison base.

Felix Liu from UBS Group AG questioned the year-over-year increase in sales and marketing expenses, asking if it was mainly for learning devices, and requested an update on the margin profile and outlook for the hardware business.

Answer

Jackson Ding, Deputy CFO, clarified that the rise in non-GAAP selling and marketing expenses was driven by online marketing investments for both the learning device business and xueersi.com to improve market penetration and brand visibility. He confirmed the learning device business recorded a non-GAAP operating loss in Q1, as it remains in an investment phase focused on long-term competitiveness, user engagement, and channel capabilities rather than near-term profitability.

Felix Liu asked about the near-term learning scenarios for AI implementation and the potential impact of integrating the DeepSeek model into TAL's Learning Services and Learning Devices.

Answer

President and CFO Alex Peng detailed a multi-dimensional AI impact across content creation, service enhancement, and R&D efficiency. He noted AI is increasingly becoming a 'learning companion' for students. Peng specified that DeepSeek is a foundational model for their MathGPT, which is fine-tuned with learning content and for pedagogical scenarios to make solutions more accessible. The core strategy is to lower the barrier to AI, improve the user interface, and ensure AI output serves a clear learning purpose.

On behalf of Felix Liu of UBS, an analyst asked for the reasons behind the strong sales performance of TAL's learning devices during the recent e-commerce season and requested updates on channel and product strategy. A clarifying question was asked about whether the expected Q4 revenue decline for the segment would be year-over-year or quarter-over-quarter.

Answer

Executive Zhuangzhuang Peng confirmed the expected Q4 revenue decline for learning devices is quarter-over-quarter, as Q3 is the peak e-commerce season. He attributed the strong Q3 growth to overall industry evolution, TAL's own product line expansion from one to four devices, and continuous innovation in hardware, software, and AI features. Peng also noted that TAL is optimizing its sales channels, including exploring offline opportunities to expand customer reach.

Felix Liu asked for more details on the growth momentum and operating efficiency of the learning services business, as well as its future outlook.

Answer

Executive Zhuangzhuang Peng noted increasing demand for enrichment learning as parents focus on well-rounded development. Executive Jackson Ding added that the Peiyou small class is the largest driver, with growth dependent on service quality and lecturer training. While growth is expected to continue, its rate may taper off due to a higher base. Ding confirmed that key efficiency metrics like retention rates are stable and the company will prudently manage its learning center network to balance growth and efficiency.

Felix Liu asked about the segment growth breakdown and the key drivers behind New Oriental's raised full-year guidance.

Answer

Stephen Yang, CFO, detailed Q2 revenue growth, noting K-12 business growth of 20%+ year-over-year expected in Q3, flattish overseas-related business, and 14-15% growth for the college business. He attributed the positive outlook to improved product and service quality, higher student retention, and effective cost control measures leading to anticipated margin expansion in the second half of the fiscal year.

Felix Liu followed up on margin expansion, specifically inquiring if the decrease in marketing expense ratio was related to the new cross-department customer service system and if this trend is expected to continue.

Answer

Executive President and CFO Stephen Yang confirmed the trend of a decreasing marketing expense ratio is expected to continue. He attributed this to a focus on product quality, the new customer service department leveraging internal customer resources, reduced marketing needs due to slower learning center expansion, and improved core competency attracting students from competitors.

Felix Liu asked about New Oriental's K-12 business, specifically regarding the expected acceleration in the upcoming quarter, the current competitive landscape, any strategic adjustments made, and the sustainable growth level for K-12 in the mid to long term.

Answer

Stephen Yang, Executive President and CFO, explained that K-12 revenue acceleration is driven by improved product quality and higher student retention rates post-summer, despite earlier low-price competition. He projected K-9 new business revenue growth around 20% year-over-year in Q2 and over 20% for the full year, with high school business returning to double-digit growth.

Felix Liu inquired about the K-12 business's expected acceleration, the current competitive landscape, particularly after summer, any strategic adjustments made, and the sustainable growth outlook for K-12 in the mid to long term.

Answer

Executive President and CFO Stephen Yang explained that K-12 revenue growth is accelerating since Q2 due to enhanced product quality, improved student retention, and positive word-of-mouth, despite summer competition from low-priced offerings. He projected K-9 new business revenue growth around 20% year-over-year in Q2 and over 20% for FY2026, with high school business returning to double-digit growth.

Felix Liu from UBS Group AG inquired about the specifics of New Oriental's Q1 and full-year fiscal 2026 guidance, seeking reasons for the Q1 slowdown and the expected drivers for growth recovery later in the year.

Answer

Stephen Zhihui Yang, Executive President & CFO, explained that the conservative Q1 guidance (2-5% growth) is due to a high comparison base, adverse economic conditions, and a revenue timing shift from an earlier Chinese New Year. He anticipates growth will accelerate from Q2, providing a breakdown: overseas business down 4-5%, K-9 business up ~20% for the full year, and high school business up 11-12%.

Felix Liu of UBS Group AG inquired about the specifics of New Oriental's Q1 and full-year FY26 guidance, asking for a breakdown of the factors causing the Q1 slowdown and the expected drivers for growth recovery in subsequent quarters.

Answer

Stephen Zhihui Yang, Executive President & CFO, explained that the conservative Q1 guidance reflects a high comparison base, adverse economic conditions, and a revenue recognition shift due to the timing of the Chinese New Year. He detailed that growth is expected to accelerate from Q2, projecting full-year growth of ~20% for the K-9 business and 11-12% for the high school segment, while the overseas business is expected to decline by 4-5%.

In a follow-up question, Felix Liu from UBS asked about New Oriental's strategy for its learning hardware business in light of competitors launching models at increasingly cheaper prices.

Answer

Executive Sisi Zhao expressed confidence in their model, which leverages educational content and an interactive system to create customer stickiness through subscriptions. She noted the business already achieves over a 22% operating margin and that AI integration will further enhance the user experience and profitability.

Felix Liu from UBS followed up on the macroeconomic impact, asking if there was a potential risk to the more mass-market new education businesses and what role the competitive landscape played in the forecasted growth deceleration.

Answer

Zhihui Yang, Executive President and CFO, reassured that the new business segment remains strong, with Q3 growth guided at about 40% in RMB terms. He acknowledged some heightened market competition but stated that New Oriental is performing well and gaining market share, attributing the deceleration primarily to a higher comparison base from the prior year.

Felix Liu of UBS Group AG questioned the disparity between New Oriental's Q1 capacity expansion of over 30% and its slower Q2 revenue growth guidance of 25-28%. He inquired about the outlook for the second half of the fiscal year and whether revenue growth is expected to align with capacity growth over time.

Answer

Zhihui Yang, Executive President and CFO, explained that Q2 is a seasonally slower period for the education business. He affirmed confidence in achieving approximately 30% revenue growth for the full fiscal year, implying an acceleration in Q3 and Q4. Mr. Yang noted that learning centers opened in the previous year are ramping up faster than anticipated, and the company is optimistic about filling this new capacity in the coming quarters.

Felix Liu asked about recent organizational changes and personnel turnover within NetEase's game department, inquiring whether these changes would impact short-term operations. He also sought management's perspective on the current organizational structure in the context of their game strategy and whether more adjustments are anticipated.

Answer

William Ding, CEO, NetEase, stated that personnel turnover is normal and conducted without impacting daily operations, aiming for a more focused and efficient organization to create enduring high-quality products. He explained that teams for evergreen titles are expected to continuously refine, while new titles with evergreen potential receive significant resources. Teams not keeping pace will be trimmed to ensure healthy core initiatives. Bill Pang, VP of Corporate Development, NetEase, reiterated NetEase's 28-year commitment to high-quality products, allocating more resources to evergreen titles and providing opportunities for creative teams.

Felix Liu from Morgan Stanley asked for details on the R&D development and expected launch timing for the new game, Sea of Remnant. He also inquired about its commercial strategy, direct peers or competitors, and NetEase's differentiation strategy for the title.

Answer

William Ding, CEO of NetEase, described Sea of Remnant as a very important product with a team experienced in development and operation. He noted the game is built on a self-developed engine supporting PC, mobile, and console, and will offer a fresh, multi-character cultivation experience with unique ocean sailing and character/class combinations. Ding expressed confidence that it would bring an unexperienced ocean experience to gamers.

Felix Liu of UBS Group asked about the recent recovery of evergreen titles like 'Eggy Party' and 'Fantasy Westward Journey Online', and how management allocates resources between existing IPs and new games. He also inquired about the development status and launch timeline for 'Anata' and its competitive positioning.

Answer

Bill Pang, VP of Corporate Development, noted that 'Fantasy Westward Journey Online' hit a new peak concurrent user record after optimizations. He said 'Eggy Party' has mastered its UGC operating model and will receive continued investment. For 'Anata', he stated it is in mass production with a focus on superior quality, and that more news would be revealed around the Tokyo Game Show.

Felix Liu of UBS inquired about NetEase's latest strategy for overseas markets, considering the strong performance of domestically developed games like 'Marvel Rivals' and 'FragPunk' alongside recent shutdowns of some overseas studios.

Answer

CEO William Ding, via interpreter Bill Pang, emphasized NetEase's long-standing focus on overseas markets. He clarified that recent studio closures were based purely on future product positioning and quality considerations. Mr. Ding noted that the success of new domestic games in global markets aligns with their strategy, and he expressed confidence that NetEase will produce more games suitable for a global audience.

Felix Liu from UBS asked for the reasoning behind recent organizational changes at both domestic and overseas studios, and how these changes affect the company's mid-to-long-term investment plan for new games.

Answer

Executive Bill Pang, translating for CEO William Ding, explained that resource allocation is a dynamic process based on rigorous evaluation of a project's quality, its potential to meet future player demands, and its production efficiency. He stated that the company will firmly stop projects that are unlikely to succeed and double down on high-potential ones. This disciplined approach to resource management is a normal and long-standing part of their game development process.

Felix Liu from UBS requested more details on NetEase's game pipeline, including genres and launch times for key titles. He specifically asked for the latest status and expected launch for 'Project Moment' and 'Project Mugen'. He also had a follow-up on the operating and cash flow trends for 'Fantasy Westward Journey PC'.

Answer

Executive Bill Pang stated that 'Project Moment' will undergo testing in December, with the official launch date contingent on the results. He described 'Project Mugen' as a highly anticipated title that embodies NetEase's vision for the future of ACG games, with an offline test planned for this year. For 'Fantasy Westward Journey PC', Pang confirmed that performance metrics are very stable, with August being the highest revenue month of the year, and a new expansion pack is scheduled for release by year-end to maintain operational stability.

Felix Liu asked about the growth potential of Bilibili's advertising business, seeking insights into improvements from recommendation algorithms and AI. He also inquired about advertising demand during the recent Double 11 shopping festival and the overall outlook for Q4.

Answer

Vice Chairwoman and COO Carly Lee, through Executive Director of Investor Relations Juliet Yang, highlighted the 23% year-over-year ad revenue growth in Q3, emphasizing Bilibili's ability to deeply influence user purchasing decisions for both short-term conversion and long-term brand building. She outlined strategies including enhancing service for super key accounts, replicating successful models in new verticals (FMCG), and expanding ad penetration across various community scenarios. Ms. Lee also detailed AI's tangible benefits, such as AIGC creatives accounting for 55% of performance-based ads and a 10% lift in distribution efficiency from generative recommendation algorithms. For Double 11, ad revenue grew 30% year-over-year, with a 55% average new customer rate, and management remains upbeat for Q4 and next year.

Felix Liu asked about the future growth potential of Bilibili's advertising business, the expected improvements from recommendation algorithms and AI applications in advertising, and the observed trends in advertising demand during the Double 11 shopping festival and for Q4 overall.

Answer

Carly Lee, Vice Chairwoman of the Board and COO of Bilibili, and Juliet Yang, Executive Director of Investor Relations, explained that Bilibili's ad advantage lies in deeply influencing user purchasing decisions, leading to non-one-off value and higher repeat purchases. They outlined strategies including enhancing service for Super Key Accounts (SKAs), replicating successful models in new verticals like FMCG, and expanding ad penetration across diverse community scenarios. They noted AI's positive impact on AIGC creatives (55% of volume) and smart delivery (45% of spend), and reported strong Double 11 results with 30% ad revenue growth and over 100% increase in advertisers.

Felix Liu of UBS inquired about the performance of the game 'Sanmu' during its first-anniversary event and its outlook for the second half and beyond, as well as key titles in the upcoming game pipeline.

Answer

Management, via translator Juliet Yang, reported that 'Sanmu's' anniversary event set a new DAU record for 2025, reinforcing their confidence in it becoming a long-lasting title with a five-year-plus lifecycle. Future strategy involves enhancing each game season, focusing on retaining and reactivating old users, and international expansion starting with Hong Kong, Macau, and Taiwan. The pipeline includes four to five games awaiting approval, with a casual game based on the 'Nongfanggu' IP expected for near-term release.

Felix Liu from UBS asked about the margin trends for the remainder of the year and the company's mid-term targets for gross and net profit margins.

Answer

Sam Fan, CFO, explained that the record 36.3% gross margin in Q1 was driven by a higher revenue mix of high-margin games and advertising, alongside stable fixed costs. He expressed confidence in continued gradual margin improvement throughout 2025. Fan reiterated the mid-to-long-term target for gross profit margin is 40-45%, and the long-term operating margin target remains at 15-20%, as operating expenses as a percentage of revenue are expected to continue declining.

Felix Liu of UBS asked for details on the drivers behind the strong advertising growth in 2024 and the outlook for 2025, including advertiser sentiment and key areas of focus.

Answer

CEO Rui Chen, interpreted by Juliet Yang, attributed the 28% YoY ad revenue growth to Bilibili's high-quality young user base (average age 25) and its strong association with premium content. He noted that performance-based ads grew over 40% YoY, driven by improved ad infrastructure and deeper penetration into key verticals like games, e-commerce, and home appliances. For 2025, Chen expressed confidence in maintaining above-industry growth by further strengthening the ad platform's efficiency and leveraging AI for better conversion rates.

Felix Liu asked for the outlook on gross profit and profit margins following the company's turn to profitability, and inquired about the shareholder return strategy in light of the new share repurchase program.

Answer

CFO Sam Fan stated that the Q3 results demonstrate the business model's potential, with gross margin rising to nearly 35% due to a higher mix of game and advertising revenue. He sees further room for long-term margin improvement. Fan noted that strong operating cash flow (RMB 2.2B in Q3) supported the decision to launch a $200M share repurchase program. For Q4, he expects continued strong growth in gaming and advertising, leading to further improvement in gross profit margin and non-GAAP operating income.

Felix Liu from UBS Group AG inquired about Weibo's product strategy and commercialization timeline for its Smart Search feature. He also asked for an update on how AI is enhancing overall platform monetization.

Answer

Weibo's management detailed that its AI-powered Intelligent Search surpassed 50 million MAUs in June, with user queries growing 60% and DAUs more than doubling. The focus remains on user base expansion, with potential commercialization tests in Q4. On the advertising front, management explained that their AI ad creative platform, Lingchuang, now generates over 10% of ad assets, contributing to a single-digit eCPM increase for feed ads. While AI-driven ads show promise for brand clients by doubling interaction rates in tests, broad adoption is hindered by complex client approval workflows.

Felix Liu from UBS asked for the 2025 advertising outlook, seeking management's view on macro trends, ad performance by industry, and strategies to enhance competitiveness.

Answer

Executive Gaofei Wang explained that government subsidies are positively impacting the automotive, handset, and e-commerce sectors, but discretionary categories like beauty and luxury remain under pressure. He expressed confidence in continued growth from auto and handsets due to Weibo's strong content ecosystem for new product launches. Wang identified the online gaming sector as the most uncertain vertical for 2025 due to a lack of major game releases. The company's strategy is to invest in AI to improve monetization efficiency and focus on vertical content to attract high-value traffic.

Felix Liu of UBS inquired about the outlook for Weibo's advertising business in the second quarter and second half of 2024, asking about current advertiser sentiment and the company's overarching advertising strategy.

Answer

CEO Gaofei Wang stated that while the company remains cautious, Q1 sentiment was more optimistic than expected, excluding the cosmetics and beauty sector. He anticipates a stronger recovery in the second half, driven by major events like the Olympic Games, with growth expected from footwear, gaming, and food & beverage. Wang noted that the strategy is to focus on Weibo's core strength in hot-topic marketing around IPs, festivals, and new product launches. He also mentioned that while the cosmetics sector is still under pressure from declining international brand budgets, domestic brands are growing, and the company is working to stabilize performance-based advertising with better algorithms.