Gaotu Techedu Inc
NYSE:GOTU
Earnings Call Analysis
Q4-2023 Analysis
Gaotu Techedu Inc
As Gaotu rounded off its fiscal 2023 with a robust earnings call, the overarching narrative reflects a company on the rise. Gaotu's commitment to high-quality educational offerings and an increased reliance on technology like artificial intelligence meant that the company not only met the increasing demand for education but also surpassed financial expectations with a net revenue surge of 20.9% year-over-year to RMB 761 million. Growth was not isolated to net revenues alone; gross billing also spiked by 28.1% to about RMB 1.3 billion, pointing towards an accelerating trend. With a focus on both education and learning services, they've boosted operational efficiency significantly, resulting in a robust net operating cash inflow 5.5 times that of the previous year, and they've amassed a cash balance exceeding RMB 4 billion, setting a solid foundation for future growth.
Gaotu has honed in on its corporate strategy, concentrating on delivering distinct educational products that cater to the evolving demands of learners. They have developed an integrated approach that combines online with offline services, offering a varied product range from academic tutoring to preparation for entrance exams and professional qualifications. By working closely with regulatory authorities to ensure compliance and expanding its reach through live streaming and other innovative channels, Gaotu has successfully kept customer acquisition costs low, leading to substantial gains in revenue from new enrollments, particularly in their overseas test prep and domestic exam prep businesses which have seen significant growth. Looking into the next fiscal year, they anticipate a bright outlook with triple-digit growth expected in their non-academic tutoring sector and an overall revenue growth guidance set at 28.4% to 31.2% for Q1 2024.
Education remains at the heart of Gaotu's growth strategy. By aligning their educational services to meet compliance standards and leveraging their founder's experience in offline business operations, they have adapted to the post-pandemic education landscape. Their efforts in attracting top-tier educators and expansion into offline operations, though a long-term investment, aim to complement the online success and meet the hybrid learning needs, which are increasingly sought after by students and parents. Gaotu places great emphasis on quality teaching and curriculum which is helping them keep a competitive edge in the industry.
Financially, Gaotu has maintained resilience. Despite incurring increased costs for maintaining a robust pool of educators ahead of peak season demand and diversifying its educational offering to meet user needs, they still managed to maintain a relatively stable gross profit margin. In anticipation of hiring more teachers and tutors, they've projected that both their GP margin and net margin will improve in the medium term. As the company looks to expand its market share and sustain growth, it's clear they are also scanning the horizon for margin improvements, which are expected to stabilize and resume growth shortly.
As the call came to an end, Gaotu's leadership expressed confidence and set forth a vision for 2024 that underscores their belief in the company's ability to keep the momentum. Their early initiatives and continued focus on key areas such as non-academic tutoring and college-level services have established a solid base for projected acceleration in growth. With high expectations for their gross billings and revenues, and by continuing to execute on strategies designed to meet and exceed customer demands, Gaotu aims to capitalize on the booming education market and navigate any future regulatory landscapes with agility.
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Good day, and welcome to the Gaotu Techedu Inc. Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Ms. Katherine Chen, Head of Investor Relations. Please go ahead.
Thank you, operator. Good evening, everyone. Thank you for joining Gaotu's Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. My name is Katherine, and I'll help host the earnings call today. Gaotu's earnings release for the quarter was distributed earlier, and is available on the company's IR website at ir.gaotu.cn as well as through PR Newswire services.
Joining the call with me tonight from Gaotu senior management is Mr. Larry Chen, Gaotu's Founder, Chairman and Executive Chief Officer; and Ms. Shannon Shen, Gaotu's Chief Financial Officer. Larry will first provide the business highlights for the quarter. And then afterwards, Shannon will discuss our financial performance in more detail. Following their prepared remarks, we will open the floor to questions from analysts.
Before we begin, I'd like to remind you that this conference call will contain forward-looking statements made under the Safe Harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management's current beliefs and expectations as well as the current market and operating conditions, and they involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control and may cause the company's actual results, performance or achievements to differ materially from those contained in any forward-looking statements.
Further information regarding this and other risks is included in the company's public filings with the U.S. SEC. The company does not undertake any obligation to update any forward-looking statements, except as required under applicable law.
During today's call, management will also discuss certain non-GAAP measurements for comparison purpose only. For a definition of non-GAAP financial measures and reconciliation of GAAP to non-GAAP financial results, please refer to our fourth quarter and fiscal year 2023 earnings release published earlier today. As a reminder, this conference is being recorded. In addition, a live and archived webcast of this conference call will be available on Gaotu's IR website.
It is now my pleasure to introduce our Founder and Chairman and Chief Executive Officer, Larry. Larry, please?
Good evening, and good morning, everyone. Thank you for joining us on Gaotu's Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. I would like to take this opportunity to express my gratitude to all of you for your interest and support of Gaotu. Before I start, I would like to remind everyone that all financial figures discussed today are quoted in RMB, unless stated otherwise.
During the past quarter, we continued to bolster our core business strengths while simultaneously pushing the boundaries of new initiatives. We observed a notable uptick in demand for high-quality educational products and learning services and we remain focused on addressing this demand by enhancing our product offerings and channels across key business lines, including non-academic tutoring services, traditional learning services and educational services for college students and adults.
Investing in emerging technologies such as artificial intelligence allowed us to acquire a more profound and holistic insight into the fundamental needs of users and students, enabling us to provide precise and personalized offerings and services, thereby advancing user experiences and improving learning outcomes. Our deep industry insights, exceptional organizational capabilities and well-established teacher recruitment and training systems have provided a robust foundation for the sustainable development of our business.
Now I'm pleased to report our results for the fourth quarter of this year and share our expectations for future business endeavors. Our net revenue increased 20.9% year-over-year to RMB 761 million, exceeding our expectations. Our gross billing grew 28.1% year-over-year to approximately RMB 1.3 billion, indicating an accelerating growth trend compared to prior quarter, and we expect this growth momentum of our business to continue. In the fourth quarter, our cash flow from operating activities over RMB 491.5 million, and our net operating cash inflow in the full year to [indiscernible], increased by approximately 5.5x year-over-year, a strong testament to the ongoing improvement of our operating efficiency.
As of December 31, 2023, our deferred revenue reached over RMB 1.2 billion, laying solid ground work for our further growth into 2024. Our cash balance, which includes cash, cash equivalents, restricted cash, withdrawable cash balance on third-party payment platforms as well as short and long-term investments totaled over RMB 4 billion, ensuring lasting and stable support for our business development.
I will now discuss our business highlights from the fourth quarter across 4 aspects. First, we are diligently focused on both our educational products and services to boost learning efficiency and optimize the overall learning experience. Throughout this process, we remain laser focused on user needs and potentials and expanded our range of products and services as needed. We established an integrated online, offline offering by launching on the ground boot camps and learning centers. To give an access for our educational services for college students and adults, such as offline exam [ prior to ] boot camps, can better address students' needs in areas such as post-graduate entrance exams, civil service exams and overseas study preparation.
In addition, through collaboration with renowned publishing houses such as Foreign Language Teaching and Research Press, we developed a textbook series that have achieved major breakthroughs as comprehensive educational solutions covering instruction, learning, practice, assessment and evaluation. Several of these publications are currently used as textbooks by several major universities and high schools in China. For our traditional learning services, we saw a significant increase in retention rate during the 2023 fourth semester compared to the same period last year, thanks to our ongoing efforts to refine course content and improve delivery quality. At the same time, we proactively communicated with regulatory authorities at all levels, seeking guidance on relevant policies and compliance and integrated our educational products and learning services across the mix.
Second, we continued our efforts to explore diversified customer acquisition channels and enhance operational efficiency, leveraging our high-quality content and efficient operations, we have expanded into innovative channels, including live streaming and short-form video platforms as well as offline avenues, establishing our competitive edge in these channels. In the live streaming space, the substantial overlap is still faced between online teachers and livestream house gives us a competitive advantage in customer acquisition. We have grown to be a leading influencer on Douyin, particularly in certain educational categories for college students and adults, meanwhile, we actively expanded our offline channels to boost regional brand visibility.
The comprehensive channel mix not only ensures sustained business growth but also allowed us to engage with customers through diverse channels, gaining insight into their needs, fostering deep interactions and bringing down customer acquisition costs. As a result of the measures, our customer acquisition efficiency remained at a high level in the fourth quarter, demonstrating the success of our enhanced investment in customer acquisition. Third, we leveraged our organizational capabilities and talent pool to drive consistent business growth.
We believe that education is a process of outstanding teachers positively influencing students, therefore, one of Gaotu's most crucial strategies is to enhance organizational capabilities to systematically nurture top-tier educators at scale and to high standards. By cultivating a team characterized by a passion for learning resilience and strong coherence, we ensure the effective and efficient operation of our organization. While the booming business has resulted in rapid organizational expansion, we continue to maintain a consistent standard of hiring the best-in-class instructors and tutors in the industry.
Taking our post-graduate entrance exam prep business, as an example, the percentage of our tutors with master's degree has increased to over 70%, positioning us at the forefront of the industry. Teachers with first-hand experience in post-graduate entrance exams can provide students with a [indiscernible], including professionally, psychologically and emotionally, therefore, enhancing the overall effectiveness of the test preparation. Fourth, we remain committed to fulfilling our social responsibilities and actively create social value. In the fourth quarter, we organized as a Gaotu Hope, project with rural primary school principals' online forum in partnership with the China Youth Development Foundation. Over 600 rural primary school principals and teachers from 11 provinces, attended the event engaging insightful discussions on rural education in the area of artificial intelligence. In addition, we donated RMB 10 million to the China Next Generation Education Foundation, aiming to improve family education and the mental well-being of young children and adolescents. We will remain steadfast in our commitment to our original educational aspirations, striving to enhance equity and access [indiscernible] education. We have more confidence in Gaotu's products for 2024. And for the further future, we are prepared to devote our full efforts to executing on our strategy with a robust talent pool, a highly cohesive organization and a strong cash flow, we believe that we can achieve promising top line growth, while enhancing profitability by consistently delivering top-notch educational products and learning services, thus generating long-term value for both our shareholders and the society. Thank you very much. This is the end of my prepared remarks. Now I will pass the call over to our CFO, Shannon, to walk you through the financial and operational details of the quarter.
Thank you, Larry, and thank you, everyone, for joining our call today. I will now walk you through our operating and financial performance for the fourth quarter and fiscal year 2023. During the quarter, our business entered a healthy phase of rapid and sustainable expansion. We witnessed accelerated growth in the gross billings of our core business lines. while our new initiatives also demonstrated promising growth potential. In the fourth quarter, net revenues increased by 20.9% year-over-year to RMB 761 million, topping the upper end of our guidance by 10.6 percentage points. The better-than-expected performance was driven by the surge in gross billings, which increased by 28.1% year-over-year to approximately RMB 1.3 billion. Benefiting from ongoing improvements in operational efficiency, our net operating cash inflow reached RMB 491.5 million. While, our cash, cash equivalents, restricted cash, withdrawable cash balance on third-party payment platforms as well as short- and long-term investments exceeded RMB 4 billion, laying solid groundwork for the long-term growth of our business. Next, I will walk you through the progress we have made during the quarter. Learning services contributed over 95% of net revenue. Breaking it down, more than 70% of total revenues came from non-academic tutoring services and other traditional learning services, representing over 35% year-over-year growth, and solidifying the segment's growth as a key driver of our business. Our new initiative centered around non-academic tutoring. Over the past few quarters, we have been diligently designing and developing educational products tailored to students' learning needs. By sparkling students' interest in learning, we aim to enhance their fundamental critical thinking skills and learning abilities while fostering healthy study habits and self-motivation. Our course offerings undergo constant iteration and refinement, and have shown to be popular and satisfied with our students. Underpinned by a combination of top-notch educational products and high-caliber learning services, gross billings of our non-academic tutoring services increased by triple digits year-over-year. While maintaining our competitive edge in these structures, we have also consistently enhanced our tutors' service capabilities. Additionally, by diversifying our educational products and learning service formats, we have established a comprehensive product metrics to meet users' varied and personalized learning needs. Our ongoing refinement of products and teaching capabilities has also contributed to further improvement in retention rates. In the meantime, we have closely monitored regulatory policy developments and engage proactively with authorities at different levels to seek compliance guidance for curriculum content and frameworks. This ensures that we can plan for long-term healthy business growth within regulatory boundaries. Our traditional learning services continue to maintain a leading edge in the online space. In terms of educational products, we have developed a more targeted and personalized curriculum by taking a tiered approach to design and developing holistic learning journeys. We have also carefully curated and cultivated the most influential and reputable instructors in the industry and established a highly-competitive team of tutors. For customer acquisition, we have developed channels driven by high-quality content and efficiently gathered user feedback to derive valuable insights for our business. By seamlessly integrating front-end and back-end processes, we have consistently enhanced our customer acquisition efficiency. In the fourth quarter, we achieved rapid growth in gross billings from new enrollments, while simultaneously reducing the unit acquisition cost. The other crucial component of our learning services is educational services for college students and adults, which accounted for around 25% of total revenues during the quarter, benefiting from a refined strategic focus and optimized educational products. Gross billings of this segment rebounded to grow by more than 10% year-over-year in the quarter, setting the stage for its contribution to our revenue growth in 2024 and beyond. Driven by robust market demand and improved operational efficiency, both our domestic exam prep business and overseas study-related business are charting a more promising growth trajectory. Particularly in the quarter, our overseas test prep business saw year-over-year growth of more than 200% in both revenue and gross billings. Thanks to our ongoing innovation and expansion efforts in the short video and live streaming space. Furthermore, our post-graduate entrance exam prep business generated positive cash flow for the second consecutive quarter. While our civil service exam prep business achieved quarterly profit. For the full year 2023, our net revenues grew by 18.5% year-over-year to approximately RMB 3 billion. While gross billings grew by 31.7% year-over-year to over RMB 3.3 billion. Gross margin was 73.3%, 1.4 percentage points higher than the same period of last year. Non-GAAP net income was RMB 51.1 million, and non-GAAP net income margin was 1.7%. These robust operational and financial results are attributable to our year-long efforts to diversify our customer acquisition channels, upgrade our teaching and service offerings and enhance organizational and execution capabilities. By strengthening our core competencies, we were able to swiftly deploy resources based on changes in the market environment and user demand, proactively meeting diverse customer needs while remaining compliant with regulatory requirements. Looking ahead to 2024, we will further unleash the untapped potential across our business lines and embrace emerging opportunities as they arise. Leveraging our diversified product metrics and service formats along with efficient customer acquisition and operational capabilities, we remain dedicated to providing students with exceptional learning experiences and excellent learning results. I will now present our financials in more detail. Our cost of revenues this quarter was RMB 227.7 million. Gross profit increased 13.4% year-over-year to RMB 533.3 million, and gross profit margin was 70.1%. Total operating expenses during the quarter increased 49.1% year-over-year to RMB 721.2 million. Breaking it down, selling expenses increased 60.7% year-over-year to RMB 465.7 million, accounting for 61.2% of net revenue. This was primarily attributable to our increased marketing investments to address the robust demand during the winter season, benefiting from our expanded operations in our diverse range of innovative customer acquisition channels, especially in the short video and live streaming space. Our selling expenses ROI in the quarter remained at a high level observed throughout the year. Moving on. Research and development expenses increased 22.1% year-over-year to RMB 136 million, accounting for 17.9% of net revenues. General and administrative expenses increased 45% year-over-year to RMB 119.5 million, accounting for 15.7% of net revenues. Loss from operations was RMB 187.9 million, and operating margin was negative 24.7%. Non-GAAP loss from operations was RMB 172.2 million, and non-GAAP operating margin was negative 22.6%. And loss was RMB 119.6 million, and net income margin was negative 15.7%. Non-GAAP net loss was RMB 104 million, and non-GAAP net income margin was negative 13.7%. Our net operating cash inflow was RMB 491.5 million. Turning to our balance sheet. As of December 31, 2023, we held RMB 741.7 million in cash, cash equivalents, restricted cash and withdrawable cash balance also third-party payment platform, along with around RMB 2.3 billion in short-term investments and around RMB 1 billion in long-term investments. This comes to a total of over RMB 4.2569 billion higher than at the same time point in the last year. As of December 31, 2023, our deferred revenue balance was around RMB 1.2 billion, which primarily consisted of tuition received in advance. As of December 31, 2023, we have repurchased an aggregate of approximately 4.9 million ADS on the open market for approximately USD 12.4 million. We will continue to execute stock buybacks in accordance with the guidance of the Board of Directors and create long-term value for our shareholders. Before I provide our business outlook for the next quarter, please allow me to remind everyone that this contains forward-looking statements, which involve risks and uncertainties which are beyond our control and could cause the actual results to differ materially from our predictions. Based on our current estimates, Total net revenue for the first quarter of 2024 are expected to be between RMB 908 million and RMB 928 million, representing an increase of 29.4% (sic) [ 28.4% ] to 31.2% on a year-over-year basis. This concludes my prepared remarks. Operator, we are now ready for the Q&A section. Thank you, everyone, for listening.
[Operator Instructions] The first question comes from Timothy Zhao with Goldman Sachs.
Congratulations on the very strong results. I have 2 questions. One is about the student acquisition history for the upcoming or the ongoing winter vacation, could management share some color on the customer acquisition progress and also the related customer acquisition costs. And secondly, I think in your prepared remarks, you mentioned the comprehensive channels to acquire customers, including the short-form videos, live streaming and off-line avenues. I think specifically on off-line, could you share some color on your plans for 2024, in terms of the number of learning centers? Or any color on your projected revenue or profit contribution, that would be very helpful.
Sure. Thanks, Timothy, for your question. First, we are very happy to share the most recent updates for our winter vacation performance. And in terms of the customer acquisition cost, let's revisit the winter vacation performance from both supply and demand perspective. So starting with the supply side. The current operating environment imposes relatively high requirements on institutions' capability of -- deliver high-quality products including the ability of continually refining the curriculums like [ statutory ] reserves and like the cash position and also a very important to meet all compliance standards. Therefore, the supply of high-quality courses in the winter actually is very limited. So then -- but like on the demand side, we have perceived a strong demand from the students. So the scarcity of supply coupled with strong demand presents an excellent growth opportunity. And also, we were fully prepared for the winter peak season. And therefore, our winter vacation gross billings has maintained quite a high year-over-year growth rate. If we exclude the cash collection from retentions in the same period of last year, we do an apple-to-apple comparison, we foresee a high end of high double-digit year-over-year growth of our traditional learning services and non-academic tutoring services. Actually, that's quite impressive. And behind all these fast growth is our high efficiency of our customer acquisitions. So we deployed certain new channels, especially for the short video live streaming platforms as well as our new explorations to some off-line channels, both these channels has really high requirement on the operations, especially for the collaboration between the front end and the back end. We need to have the abilities to target the process -- to precisely targeting our customers and fulfill their needs in a very short time. Then also that needs our back-end team, which means our tutors, to further facilitate these parents and students timely and meet their learning demands. So based on our observation, we do observed a meaningful customer acquisition cost decline in the winter vacation. And also, you asked about our off-line channels and our off-line operations, actually light -- basically in light of 2 different businesses. First, to facilitate our online business, we also have some off-line channels to support our online business to grow. And in the other hand, we do start to deploy our operations for our off-line learning centers, and we are very happy to share with you some perspectives and insights into our off-line operations. So the reason why we start to enter into the off-line space is because in the post-pandemic era, we've keenly observed a diversification in students' learning needs. Well, many have adopted well on learning online, there is a growing desire among students to return to off-line classrooms for more connections, interactions and engagements with the teachers and their classmates. Currently, numbers of parents opt for a hybrid approach, with some courses taken online and others off-line, aiming to enhance learning efficiency and cater to diverse learning needs. So as an educational institution, one of our most important mission is to continually meet customer demands. So when such demand arise, we naturally extend our operation to off-line and adapt the education products accordingly. And on the other hand, we delicately evaluate our management team's background and capabilities. Our founder, Larry, brings years of experience in off-line business operations, very profound industry insights and considerable personal influence, which can all contribute to attract all those top talents in the space, especially after the [indiscernible], when customer demands align with our organizational capabilities, we embark on the exploring and expanding our off-line operations. So that's the reason why we started to enter the off-line space. So then in -- when we operate or in the selection -- in selecting locations process or when we started to plan for expansion of our off-line operations, we employ a more of a dynamic approach. We're continuously optimizing and adjusting where we need to consider a few factors like market demand and also Gaotu's brand influence and penetration in certain areas, and also the acceptance of teaching products by the students and teachers in that specific area. And most importantly, our ability to recruit and nurture outstanding principals and teaching faculties locally. So to development of off-line operations also entails a long cycle, requiring sustained investment from user cultivation to word-of-mouth referrals, which is the reputation for the local off-line learning centers. So we will be extremely patient and await for sprouting and growth of our off-line business, ultimately, no matter it's online or it's off-line, students always care most about the suitable teachers and fitting curriculum and the outstanding services. So we will continue to strive tirelessly to meet those expectations. And in the past quarter and also in the full year of 2023, off-line business showed a very limited impact on our financials. So we will update you every milestone of our off-line operations in the future. I hope that address your questions, Timothy.
Next question comes from the line of Alice Cai with Citibank.
Firstly, congratulations on the company's strong performance in 4Q. And I have 2 questions regarding the guidance provided. And the first one, regarding the guidance for Q1, which seems slightly conservative, could the management share your perspective on this? Do you consider the guidance to be on the cautious side? And second, could you please share with us about a general idea of the guidance for the full year 2024?
Sure. Alice, thanks for your question. Let me take your second question first, so we can give the audience a whole picture of our clients for the full year of 2024. So looking into 2024, the growth in education space typically initiate from expansion of gross billings. And if we look at our Q4 results in the fourth quarter of 2023, our gross billings reached approximately RMB 1.3 billion, making the highest single quarter level in the past 3 years. This metric indicates that our business is only healthy and rising trajectory of growth. And furthermore, we have been able to effectively extend the trend of accelerating growth into the first quarter of 2024. And let's dive into each part of our learning services. We observed that revenue growth, especially in non-academic tutoring, continues to accelerate, given a sound unit economic model. The demand for non-academic tutoring is substantial, with clear compliance and governance guidance in place, our business growth initiates with new enrollments, and subsequently generate incremental revenue through retentions and course expansions. So we have confidence in our operational capabilities and the reputation we have established among students and parents. Therefore, we anticipate triple-digit year-over-year growth in our non-academic tutoring section. While for our traditional learning services, which is basically high school business, continue to maintain a leading edge in the online space. We will leverage our existing competitive advantages to further deepen this mode. We anticipate that the growth rate of our traditional business will far exceed that of 2023. And regarding learning services we provide for college students and adults, we are glad to see it rebound in Q4 2023. We always prioritize margin improvements over revenue expansion in this sector and ascertain the profitability at unit economics level and then focus on achieving effective growth as our primary strategy. So based on all those considerations, we are willing to elevate our targets and goals for both gross billings and revenue growth in 2024, and have confidence in overall growth prospects for the whole year. And secondly, in terms of growth efficiency, our exploration of diverse customer acquisition channels have effectively lowered customer acquisition costs from high-quality content generating our short radio, live streaming platforms and to expanding into off-line customer acquisition path, our unwavering commitment to creating customer value serves as drivers for our sustainable growth. And in terms of the guidance for the first quarter, so in the first quarter, we are still in the phase of adjusting the revenue structure. And we have the confidence that in the more near future, like in the second quarter of 2024, we will see an accelerated growth rate for both of our gross billings and revenues. And yes, that basically address your questions. Thank you, Alice.
The next question comes from Crystal Li with CMS.
Congratulations on the strong results. I just noticed that your gross profit margin narrowed flat in this quarter compared to last quarter and last year. Could you please share the reason behind this? And could you give us more color on your margin outlook going forward?
Yes. Thanks a lot. Yes, it's a very good observation. So we observed a 4.7 percentage points decrease in GP margin on a year-over-year basis. This year-over-year decrease in GP margin was due to a few reasons. Firstly, in terms of our revenue contributor, to meet diverse user needs, actually, we have constructed a product metrics, which primarily focused on online, large live classes complemented by one-on-one classes, smart textbooks and off-line small classes. So among these, online large live classes boosted the highest level of GP margin. As our business expands, the proportion of revenue generated from our one-on-one classes, smart books and off-line small classes is gradually increasing, also in the revenue mix and substantially impacting the GP margin level. And secondly, in preparation for the peak season during the winter vacation, we have proactively reserved a proportion of teachers and tutors. These teachers and tutors have not yet reached their full capacity levels in the fourth quarter. Thus affecting profit margin -- gross profit margins as well. But as always, we always need a time period for our new teachers and tutors to gradually adopt our learning methodologies and provide a sufficient training period for our teachers and tutors. So they can better serve our students. So we do see these investments as valuable. So looking forward, in the medium term as our teacher competitor increases, the GP margin and net margin are expected to improve. And also in the long run, our gross profit margin will depend on the future revenue structure. I hope that addressed your question.
Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Ms. Katherine Chen for any closing remarks.
Thank you, operator, and thank you, everyone, for joining the call today. If you have any further questions, please don't hesitate to contact our Investor Relations department or our management via e-mail at ir@gaotu.cn directly. You are also welcome to subscribe to our news alert on the company's IR website. Thank you very much again for your time. Have a great night.
Thank you.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect. .