TAL Education Group

NYSE:TAL

Earnings Call Analysis

Impressive Revenue Growth Reflects Strong Demand

In the second quarter of fiscal year 2025, TAL Education Group reported net revenues of USD 619.4 million, reflecting a remarkable year-over-year growth of 50.4% in U.S. dollar terms. The company attributed this surge largely to strong demand in their learning services segment, especially in the Peiyou small class offerings. This segment has remained the largest contributor to revenue, driven by an increase in enrollments alongside the expansion of operational capacities. The growth in revenue demonstrates TAL's ability to effectively cater to the evolving educational needs of a new generation of parents who prioritize holistic development for their children.

Improved Profitability, Yet Margins Under Pressure

Despite the substantial revenue growth, TAL faced challenges with its gross margin, which decreased to 56.3% from 58.9% the previous year. This decline was driven by increased costs of revenues, which rose significantly by 59.8% year-over-year to USD 270.6 million. The company's non-GAAP income from operations, while showing improvement at USD 46.5 million compared to USD 52.7 million previously, suggests ongoing efforts to balance growth with operational efficiencies. Investors should remain cognizant of the cost pressures that could affect future profitability.

Strategic Investments in Learning Devices and AI Technology

TAL is strategically investing in its learning devices business, which is relatively new but essential for expanding its market presence. The launch of the XBook—a lower-priced, advanced learning tablet—highlights the company's commitment to affordability and accessibility in education. Investments in AI technologies are also a focus, with the goal of enhancing the user learning experience through smarter functionalities. This could potentially create a competitive edge as TAL seeks to lead in a market increasingly populated with advanced educational technologies.

Future Outlook: Managing Seasonal Fluctuations

Looking ahead, TAL anticipates fluctuations in its business performance due to seasonal factors, particularly in the fiscal third quarter, which typically experiences lower demand for enrichment learning. However, the management remains optimistic about sustained growth through ongoing enhancements in learning services. TAL aims to refine its programs by leveraging technology and innovative content to maintain user engagement and strengthen its competitive position in the market.

Focus on Operational Efficiency Amid Expansion

In their strategic approach, TAL emphasizes not only the expansion of its educational services but also the importance of operational efficiency. The company's continued assessment of market demand and its own operational capabilities indicates a cautious yet proactive strategy to balance entrees into new markets with the maintenance of high service quality. The strong retention rates suggest that TAL is effectively engaging its user base, but the pursuit of ongoing efficiency remains key for long-term viability.

Share Repurchase Program Reflects Confidence in Future Earnings

TAL’s Board of Directors authorized an extension of its share repurchase program, allowing for around USD 503.8 million to be utilized for purchasing common shares. This move is a clear signal of the management’s confidence in future earnings and reflects a commitment to returning value to investors. As of the end of August 2024, the company had already repurchased approximately 500,000 shares, emphasizing a proactive approach toward investment in its own stock and providing a buffer against market volatility.

Earnings Call Transcript 2025-Q2

[Operator]

Ladies and gentlemen, good day, and thank you for standing by. Welcome to TAL Education Group's Fiscal 2025 Second Quarter Earnings Conference Call. [Operator Instructions] Please be informed that today's conference is being recorded. I'd now like to hand the conference over to Ms. [ Fong Liu ], Investor Relations Director. Thank you. Please go ahead.

[Unknown Executive]

Thank you all for joining us today for TAL Education Group's Second Quarter Fiscal Year 2025 Earnings Conference Call. The earnings release was distributed earlier today, and you may find a copy on the company's IR website or through the Newswire's. During this call, you will hear from Mr. Alex Peng, President and Chief Financial Officer; and Mr. Jackson Ding, Deputy Chief Financial Officer. Following the prepared remarks, Mr. Peng and Mr. Ding will be available to answer your questions.

Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC.

For more information about these risks and uncertainties, please refer to our filings with the SEC. Also, our earnings release and this call include discussions of certain non-GAAP financial measures. Please refer to our earnings release, which contains a reconciliation of the non-GAAP measures to the most directly comparable GAAP measures.

I would like to turn the call over to Mr. Alex Peng. Alex, please go ahead.

[Zhuangzhuang Peng, executive]

Thank you, Fong. I'd also like to thank all of you for participating in today's conference call. In this call, we'll discuss our financial performance and business progress for the second quarter of fiscal year 2025. We will also review some key business results. Afterwards, I'll provide a brief update on our business strategy outlook. In the past fiscal quarter, we consistently refined our services and experiences for users, generating societal value through our dedication to customer experience.

At the same time, our business is experiencing sustained growth, not just by building our teams or opening new learning centers, but through a broader ongoing development that reflects our long-term vision. Our focus on innovation, user engagement and service excellence has resulted in sustained user value creation through our various products and services. In alignment with our strategic objectives, our core businesses have maintained their course of operations.

Next, let's talk about our performance for the second quarter of fiscal year 2025. Throughout this quarter, we continue to enhance our core businesses while actively exploring new growth opportunities. While exploring and investing in additional opportunities and long-term strategic capabilities, we also maintained a focus on operational efficiency and sustainability. We continuously adjust our resource allocation to ensure a balanced approach between growth and operational efficiency.

Our learning services continue to develop steadily empowering learners through our offline and online enrichment learning programs. This progress reflects our commitment to high-quality service and expansion of our operational capacity. We continue to take a dynamic approach in managing our learning center expansion plan, evaluating several factors such as market demand in each area, user acceptance of our products, our operating capability and efficiency. So in line with our strategic objectives, our online enrichment learning business remain on track.

We continue to innovate in response to the evolving landscape and changing user behaviors in the online learning sector. Over recent years, we have introduced a range of new offerings designed to provide an efficient and engaging digital learning experience for our customers. For learning devices, we expanded our product offerings to reach a broader audience, making it easier for more users to find learning solutions tailored to their individual needs.

Our goal is to motivate learners on their self-learning journeys at home by leveraging smart features and comprehensive resources integrated into our devices. So with that goal in mind, we further upgraded our hardware and software this quarter, enhancing the content library, upgrading the reading section and adding practical smart features to create a more immersive and engaging online learning experience. In August, we launched a lower ASP device that serves students' learning needs as well as practice needs.

We call it [ XBook ], which has begun to gain market acceptance. Efforts like these are driving our financial growth. Our net revenues were USD 619.4 million or RMB 4,473.9 million for the quarter, representing year-over-year increases of 50.4% and 50.8% in U.S. dollar and RMB terms, respectively. Our non-GAAP income from operations and non-GAAP net income attributable to TAL for the quarter were USD 64.5 million and USD 74.3 million, respectively.

So with that overview, I'll now hand the call over to Jackson, who will provide an update on the operational advancements we've made in our core business lines. He will also review our financial performance for the second fiscal quarter. Jackson, over to you.

[Jackson Ding, executive]

Thank you, Alex. I am pleased to share with you some details about the progress we made in the fiscal second quarter across our core business lines. Please note that all financial data for the quarter are unaudited. I'll start with our learning services and others business, which includes a broad range of learning programs for our customers. Learning services continued its development momentum in the second quarter of fiscal year 2025. Revenue increased year-over-year, propelled by advancements across multiple product lines.

The largest revenue contributor in this business line remains Peiyou small class offerings, which maintained their upward trajectory. Peiyou growth was primarily driven by enrollment growth, supported by the expansion of our operating capacity. We carefully assessed both user demand and our operational capacity. We struck a balance that allowed us to meet the growing demand during the summer vacation period while managing teaching quality, business sustainability and operational efficiency. Key efficiency indicators such as retention rate remained relatively stable quarter-over-quarter.

For our online enrichment learning business, we remain focused on adapting to evolving market landscape and user needs through consistent innovation. By introducing new products and interactive formats, we create value for our learners and deliver learning efficacy and experience. Based on user feedback and market insights, we continue to invest in strengthening our online product capabilities as well as operational and marketing strategies. This allows us to expand our current operations while building a solid foundation for long-term competitiveness.

Next, our Content Solutions business; its revenue continued to grow this quarter, thanks to our efforts to optimize products, enhance user experiences and strengthen our sales channels. We believe our learning devices are companions for at-home self-learning, which is why we closely monitor user feedback and experience. As a result, amid rising sales and an expanding user base, user engagement and time spent on our devices remained at healthy levels this quarter. In August, we launched XBook, further enriching our product lineup.

The latest generation tablet features a color ePaper display and offers three modes: learning, practicing and reading, catering to various learning scenarios. We developed a tiered practicing system, making practice easier and more efficient. Additionally, it comes with a comprehensive multilayered content ecosystem. Along with our proprietary content, we partnered with well-known educational publishers and youth content providers to offer a wide range of study aids and reading materials. During this fiscal quarter, we also upgraded our existing [indiscernible] learning devices.

The newly enhanced reading section includes over 3,000 e-books featuring essential reading materials, classic literature and children's publications. We also developed a leveled reading system that caters to children's various developmental periods. It aligns with the new curriculum standards and covers levels from primary school to high school. Moreover, our newly launched [ ICS 2.0 ] introduced in June offers a host of AI features, making it a more intelligent and practical learning companion. With that overview, I would now like to share our key financial results for the second fiscal quarter.

Our net revenues were USD 619.4 million or RMB 4,473.9 million, an increase of 50.4% and 50.8% year-over-year in U.S. dollar and RMB terms, respectively. Cost of revenue increased by 59.8% to USD 270.6 million from USD 169.4 million in the second quarter of fiscal year 2024. Non-GAAP cost of revenues, which excludes share-based compensation expenses, increased by 60.7% to USD 268.8 million from USD 167.3 million in the second quarter of fiscal year 2024. Gross profit increased in the second quarter of fiscal 2025, rising by 43.8% year-over-year to USD 348.7 million from USD 242.5 million for the same period last year.

Gross margin decreased to 56.3% from 58.9% for the same period last year. Selling and marketing expenses for the quarter were USD 181.9 million, representing an increase of 56.4% from USD 116.3 million for the same period last year. Non-GAAP selling and marketing expenses, which excludes share-based compensation expenses, increased by 61.6% to USD 177.9 million from USD 110.1 million for the same period last year. Selling and marketing expenses as a percentage of total net revenues increased from 28.2% to 29.4% year-over-year.

General and administrative expenses increased by 23.1% to USD 119.5 million from USD 97.1 million in the same period of last year. Non-GAAP general and administrative expenses, which excludes share-based compensation costs, increased by 28.3% year-over-year to USD 108.3 million from USD 84.4 million for the same period of last year. Non-GAAP general and administrative expenses as a percentage of total net revenues decreased from 20.5% to 17.5% year-over-year. Total share-based compensation expense allocated to related operating costs and expenses decreased by 19.1% to USD 16.9 million in the second quarter of fiscal year 2025 from USD 20.9 million in the same period of last year.

Income from operations was USD 47.6 million in the second quarter of fiscal year 2025 compared with an income from operations of USD 31.8 million in the same period of last year. Non-GAAP income from operations, which includes -- which excludes excuse me, share-based compensation expenses, was USD 46.5 million compared with a non-GAAP income from operations of USD 52.7 million in the same period last year. Net income attributable to TAL was USD 57.4 million in the second quarter of fiscal year 2025 compared to net income attributable to TAL of USD 37.9 million in the same period of last year.

Non-GAAP net income attributable to TAL, which excludes share-based compensation expenses, was $74.3 million compared to a non-GAAP net income attributable to TAL of USD 58.8 million in the same period of last year. Moving on to our balance sheet; as of August 31, 2024, we had USD 2,085.9 million in cash and cash equivalents, USD 1,368.4 million in short-term investments and USD 295.1 million in current and noncurrent restricted cash. Our deferred revenue balance was USD 517.6 million as of the end of second fiscal quarter.

Now turning to our cash flow statement; net cash used in operating activities for the second quarter of fiscal year 2025 was USD 0.6 million. In April 2024, the company's Board of Directors authorized to extend its share repurchase program launched in April 2021 by 12 months. Pursuant to the extended share repurchase program, the company may spend up to approximately USD 503.8 million to purchase its common shares through April 30, 2025. As of August 31, 2024, the company has purchased approximately 500,000 common shares at an aggregate consideration of approximately USD 13.1 million under the share repurchase program.

That concludes the financial section. I will now hand the call back to Alex to briefly update you on our business outlook. Alex, please go ahead.

[Felix Liu, analyst]

Thanks, Jackson. I would like to share our outlook for the upcoming quarter. The fiscal third quarter is generally not a peak season for enrichment learning demand, and we may experience fluctuations in our business performance due to seasonal factors. Nevertheless, we remain dedicated to driving healthy and sustainable long-term growth across all our business lines. First of all, we'll continue refining our various learning programs to deliver high-quality learning services to a growing user base.

We are committed to ongoing investments in learning services to ensure that our users receive quality learning experiences, both online and in-person. Next, we'll remain focused on technological innovation, consistently launching high-quality smart devices that enhance personalized learning experiences. We target to iterate the functionality of our learning devices by harnessing AI technologies. We will keep introducing an updated content and smart tools. Together, these efforts will provide a more intelligent and practical learning companion for our users' self-directed learning at home.

Meanwhile, we'll also remain focused on managing our sales channels and optimizing our marketing strategies. As a company dedicated to learning, we will continue operating and managing our core business lines while exploring new initiatives and seizing new opportunities. To keep up with our customers' ever-evolving needs, we'll explore and design differentiated products and services. Our business model combined with our brand strength and operational efficiency positions us to seize market opportunities and deliver enduring value for our customers and shareholders.

So that concludes my prepared remarks. Operator, I think we're now ready to open the call for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Felix Liu from UBS.

[Felix Liu, analyst]

Can you hear me okay? Congratulations on the strong results. My question is on your learning service business. Could you share more color on the growth momentum and the operating leverage -- sorry, operating efficiency of the business? And what is your outlook for learning service from here?

[Zhuangzhuang Peng, executive]

Thanks, Felix. This is Alex. Let me take on that question first, and I may call on Jackson to add some additional insight. Really, when we look at the last few quarters, we've seen continued growth momentum for our enrichment learning business. We've been seeing increasing demand for enrichment learning as this new generation of parents start to develop their own parental and educational philosophies. I think in earlier calls, we had called out that this is something that we were envisioning. And now I think we're seeing more and more of confirmation.

This new generation of parents have developed more focus on their kids well-rounded whole person development in addition to academic performance. Although we still -- and I think this data is not easy to come by in terms of the -- how fast the enrichment learning market overall is growing. We've really observed more activities and user inquiries for enrichment learning on the ground, which I think really is indicating growing customer interest.

So in tandem with the market growth of enrichment learning, our learning services business has been experiencing continued progress. We've been aiming to help our learners with their holistic development experience by providing interactive, engaging learning experience. We have observed that learners in these type of enrichment programs, they really exhibit continued growth in terms of their interest. They stay engaged and they also learn very effectively. I think Jackson can talk more specifically about the growth momentum and the operating efficiency that you had asked.

[Jackson Ding, executive]

Thank you, Alex, and thank you, Felix. Let's maybe limit the conversation to Peiyou small class enrichment learning first, which, as you may know, is our largest business within our learning services. There are some other businesses within our learning services category, but some of them are at a different stage of their life cycle and exhibit slightly different trends. And to the extent you have more questions on other business lines, feel free to follow up.

So like Alex said, we have seen growth in Peiyou enrichment in parallel with user interest growth. The overall market development has been an important contributing factor of our business growth. And if we shift lenses a bit to look away from the market and just look at ourselves, we believe the key growth drivers, amongst others, are: one, the quality of our services; and two, our capability to recruit and train lecturers. For service quality, we have been focused on and we'll continue to focus on standardized lecturing approach while providing an interactive and student-centric learning experience.

For lecture recruiting and training, we pride ourselves in training most of our lecturers in-house to ensure consistent service quality. Now as long as these growth drivers continue to prevail, including what we talked about earlier, market demand, our service quality and our capability to recruit and train lecturers, we expect growth in this business line to continue. However, in the next few years, we do expect Peiyou enrichment's long-term growth rate to gradually taper off as we are coming off higher base numbers than a couple of years ago.

Felix, I think you also asked about operating efficiency. We always aim to maintain a consistent level of efficiency through balancing our operating capacity with the market demand we observe. We measure several efficiency indicators such as utilization rate, refund rate and retention rate. Currently, our operating metrics are at a level that we believe would sustain our viable business model, and we aspire to maintain our current level of efficiency. In the future, we will prudently manage our learning center network. We will balance growth and efficiency as we think about how to manage our learning center network. I hope that answers your question, Felix.

[Operator]

Our next question comes from the line of D. S. Kim from J.P. Morgan.

[D. S. Kim, analyst]

Congrats on such a strong [ bit ]. Thank you for great [ print ]. I think it should be great for the stock as well. I have a question on learning devices, if okay. Our channel checks indicate that device sales had really strong momentum over the summer, which I think might be the reason why J.P. Morgan contracted a bit this quarter.

But anyway, my question is, can I ask, A, is the learning device segment profitable on cash or even accounting basis? That's the first question. And B, what's our strategy to enhance profitability here, say, have we thought about monetizing additional revenue streams like value-added services and whatnot to utilize, I think, already quite fast and a big installed base and user base. And I may have a follow-up after this.

[Zhuangzhuang Peng, executive]

Hey D. S. This is Alex. Thanks a lot for that thoughtful question. Look, AI learning devices, they're really relatively new, a new business for us, right? If you recall, I think our first learning tablet came to market in February 2023, which is really just a little bit over 1.5 years ago. But while new, we're really excited about the opportunity to provide further accessibility to high-quality learning content and experiences for a wider range of customers through these learning devices. We track where our devices have been sold to.

And we really see that some of our devices have been sold into areas where we never built learning centers before. So these AI-powered devices really present us an opportunity to serve customers without the limitation of our physical footprint and I think really to expand the availability of these high-quality content and learning experiences to a much wider segment to many more students out there. So with that goal in mind, we recently launched a new device in the lower ASP territory. We talked a little bit about this earlier. It's called XBook.

So in addition to high-quality learning content, this product also has more daily practice functions. So they serve a learner's learning needs as well as practice needs, which are really important that they go in tandem. And we've been receiving positive feedback on this new product. So our learning device business is currently loss-making. The major cost items are primarily product research and development, selling expenses and bill of materials. We are really investing strongly into R&D to create quality product experiences for our users.

And I'd like to add that research and development here is not limited to R&D on hardware and software or AI functions, but also in the content space. As Jackson mentioned earlier, we continue to make investment into our own proprietary content development as well as curating content from leading content publishers, which further enhances user experience. And also this development is ongoing. As Jackson mentioned earlier, we have new curriculum standards rolling into different grades, and we obviously upgrade our content in accordance to these new curriculum standards.

So we really intend to continue to invest into this business to elevate the user experience to serve more customers and really to create greater societal value. I think that our aim here is really to help users with their self-learning journey at home by leveraging the intelligent features and abundant resources, which are all integrated into our learning devices. We hope we can empower more children to engage in this kind of self-directed learning and enabling their personal development.

As for value-added services, look, really, we think the foundation of any value-added service is an active and highly engaged installed base. As a result of our product capabilities, we really witnessed a steady level of high user engagement for our learning devices on an ever-expanding user base. I'll give you an example. So we have an active user base with weekly active rate at around 80%, even as the user base kept on growing.

And actually, the majority of our weekly active users are actually averaging five or more days per week of usage. So we're always interested in exploring new revenue opportunities, but this needs to come not at the expense of user experience. I've nothing tangible at this point to share in terms of value-added services, but we'll continue to stay focused on product quality and user experience. D. S., I hope that answers your question?

[Operator]

Our next question comes from the line of Timothy Zhao from Goldman Sachs.

[Timothy Zhao, analyst]

Congrats on the very strong quarterly results. My question is regarding your sales and marketing expenses, which I noticed that year-on-year growth for this quarter is around 60%. I would say I think a big portion within the sales and marketing expenses could be related to your learning devices or content solutions business. Just wondering how do you think about the competitive landscape for these devices for this year? And has the sales and marketing expenses per device increased this year? And how do you think about the trend going forward?

[Zhuangzhuang Peng, executive]

Thanks, Tim. This is Alex again. Let me take this on. So I'd like to unpack this at a few different levels. First, I think we are confident in our learning devices products. We continue to innovate in response to the evolving competitive landscape and changing user demands in the sector. Our goal is really to motivate learners on their self-learning journeys by leveraging the smart features and all the resources integrated into our devices.

And I think our user value really has been reflected in our positive user feedback and healthy user engagement metrics. But at the same time, obviously, we've witnessed full stack players either entering this market or investing more into this market. So what do I mean by full stack? I mean players who have experience and assets in hardware, software and AI, in content and in learning solutions. With the entrance of these full stack players, this will likely result in creating enhanced user experience in this industry, which I think is really a good thing for the customers.

This might also lead to broader customer awareness of this product category and its inherent value in the learning journey, which we believe could benefit the entire industry and also the customers. So really to net it out, learning device is one of our strategic priorities. We're excited about its business prospect and we'll make our effort to keep up with and in some instances, really to lead the industry's innovations. I think in our industry, competition really exists on multiple levels. There's going to be competition on the product level, competing for talent and competing for customers.

As a company that takes pride in our product and service quality, we really invest heavily in product research and development. And as for competition for talent, we aim to attract multidisciplinary talent by leveraging our expertise in the learning industry and our technology know-how. As for the competition for customers, I think really, as we discussed earlier, ultimately, it's beneficial both to the users and to the development of the industry.

I do admit, I think it does impact sales and marketing in some occasions. So we believe the key is to lead in product competency while exploring efficient ways to communicate with our customers, especially given that this is an emerging category, right? We'll focus on building sales and marketing capabilities, both within existing channels and building new channels.

In some of the channels, we've witnessed, and I think this is not hard to anticipate that sales and marketing increased. But while they also could stable and they do stable, they do stay stable in other channels. So this has to do with market mechanisms with specific channels. We closely monitor the efficiency across the sales channels as we build out our go-to-market capabilities. So Tim, I hope that answers your question.

[Operator]

Our next question comes from the line of Alice Cai from Citi.

[Alice Cai, analyst]

Congrats on the robust results. Could you share your upcoming investment plans in AI, particularly in the learning device sector? I would love to hear more about your AI product road map and the AI scale needed -- investment scale needed.

[Zhuangzhuang Peng, executive]

Thanks, Alice. This is Alex again. So before we go into product road map and investment plan, maybe let me share with you how we look at the market landscape for AI in vertical domains and more specifically AI in our industry. By the way, I spent a week in the U.S. in Silicon Valley talking to AI players and AI players in education. And I think what a trend that many people across the world in this industry is observing is that the capability of the foundation models have continued to improve, and they improve at a pace that might have surprised many of us.

So this presents exciting opportunities actually for vertical players like us. We think that lighting this tailwind, vertical players, including us, will focus on, if not already focusing on probably two things primarily. The first is leveraging the wealth of data that's particular to an industry to train vertical models. And I think, by the way, the recent trend toward reinforcement learning is really interesting in this regard, right? So that's the first one, the data. And the second is developing applications that leverage the powerful capabilities of foundation models as well as vertical models.

One of the keys to success to us as a vertical player in the AI space is really to possess a breadth of structured and unstructured data suitable and relevant to the AI era. Some of our historical investments into prior generations of AI technologies have really benefited us with a great treasure trove of data that we sit on today. As for developing AI-powered applications, I think we have an abundance of experience in developing learning applications powered by technology and we understand the complexity of such endeavors.

And really, this complexity is coming from years of experience. We believe we are really well-positioned to take a crack at some of learning's hardest problems through AI. So having said that preface, next, I'd like to share with you more about specific product road map and the investment plan. So our product road map really entails a combination of AI-powered functions embedded in our existing products and newly rolled out AI native products. As you can probably imagine, unlike many other verticals, we've been making visible progress on AI-powered functions through our existing products.

And they keep coming out. And they're coming out as new features, but also as upgrades on existing features. I think on the last few calls, we had talked about some of these functionalities such as [ SD ] correction and natural language-based assistant we call [indiscernible] learning tablet, but it doesn't stop there. In our newly launched XBook, for example, we can now provide correction and feedback, math, mathematics, English and Chinese questions with users' handwritten answers. What makes this possible is really our efforts on MathGPT and other AI capabilities?

And with the model built on industry-specific data, we can now get the accuracy of these to be significantly higher than without them. So this function is just an example of where we really bridge cutting-edge technology to solving customers' pain points. And in doing so, we provide learners with enhanced learning efficiency. We've also been making progress on AI-native applications. In the last few months, we rolled out an AI question-and-answer application. So compared to traditional solutions in the market, our application engages with learner real-time during their problem-solving journey.

The application guides a learner step-by-step, pausing when the learner is stuck, explaining the relevant concepts and making sure the learner follows the process. And I'd like to say to people, look, one effort -- one kind of effort is to help the model solve more of the mathematics questions correctly. But really, it's a whole different level to help the model to explain the solution to guide the user on the learning journey better.

So that's where really thanks to our accumulated industry experience, know-how and vertical data and all the practices we've accumulated over the past two decades, we're able to launch such intelligent tools to enhance our users' learning experience. So now coming to your question about investment into AI; look, we have invested into compute infrastructure, talent and data. I think we've been adequately served by the infrastructure investments we already made as cost per token is coming down dramatically across the world.

And we are -- I think we are comfortable with our current level of infrastructure investment. Looking forward, our investment in AI will focus more on the application layer. The applications we shared above are just examples of what we currently have. We intend to roll out new applications as well as upgrading our current applications as we progress. I hope that answers your question.

[Operator]

Our next question comes from the line of Liping Zhao from CICC.

[Liping Zhao, analyst]

So my question is about your xueersi.com business. Could you please elaborate the [indiscernible] of xueersi.com? And how should we think about long-term growth outlook of that business?

[Jackson Ding, executive]

Liping, thanks for the question. This is Jackson. Let me take this one. First, I would like to share with you some of our thoughts on xueersi.com and the online learning industry in general. If we look back at a few years ago, the online learning industry went through a phase where some industry participants were heavily focused on customer acquisition. We do not think that's a sustainable approach. In the online learning space, the market is evolving, and we're seeing user needs changing.

For example, we see more and more demand for enrichment learning programs and for student-centric learning, particularly demand for science and technology emerging. There is also transformation on the supply side in terms of what industry participants are providing. We observed varied product formats catering different user needs. Now in the market there's more than just large class one-way lecturing offerings. The market is also supplemented with prerecorded classes, experimental toolkits and etcetera. We're really excited about this opportunity to provide science and technology immersion to a broad range of audience.

For example, our science and experiment program guides learners to master complex science concepts through observing various scientific phenomena in daily life, conducting hands-on experiments and connecting experiment results with science concepts for a deeper understanding. This program is designed to develop learners' scientific curiosity, innovative mindset and problem-solving capabilities. We have observed that learners' enrolled in this program exhibit continued interest. They stay engaged and they also learn effectively.

Liping, you asked about growth outlook and growth drivers. In this market, we believe our current main growth driver is our product quality. We continued to innovate in response to the evolving landscape and changing user behaviors in the online learning sectors. Over the recent years, we have introduced a range of new offerings designed to provide an efficient and engaging digital learning experience for our customers. These programs are designed not only to align with online learning habits, but also to fully leverage online learning's unique advantages, bringing scarce and high-quality educational resources to a broader audience.

We're observing sufficient demand for online enrichment products. We're currently exploring various formats of products to fulfill the demand. So it's about the mix of old SKUs and new SKUs. We think this is an exciting market. Looking ahead, we'll continue to innovate and iterate our enrichment learning programs and services to meet new user demand for digital learning experiences. So based on these market observations and based on our confidence in our product quality, xueersi.com is one of our strategic priorities.

We have been consistently investing into this business. We focus on investing in strengthening our online enrichment product capabilities as well as operational and marketing strategies. This allows us to expand our current operations while building a solid foundation for long-term competitiveness. We do not think currently xueersi.com has a mature unit economics model just yet. The unit economics model and operating model of xueersi.com are continually being explored. We will try to balance growth and profitability during this exploration phase. I hope that answers your question, Liping.

[Operator]

We have now reached the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn the conference back to the management team for closing comments.

[Zhuangzhuang Peng, executive]

So thanks again for joining us today, and we look forward to talking to you next quarter. Bye-bye.

[Operator]

Thank you very much for your participation in today's conference. This does conclude the program. You may now disconnect.