Risk FactorRisks Related to Our Corporate StructureThere are substantial uncertainties regarding the interpretation and application of current and future PRC laws, regulations,
and rules relating to the agreements that establish the VIE structure for our operations in China, including potential future actions by the PRC government, which could affect the enforceability of our contractual arrangements with the VIEs and,
consequently, significantly affect the financial condition and results of operations performance of Youdao. If the PRC government finds our contractual arrangements non-compliant with relevant PRC
laws, regulations, and rules, or if these laws, regulations, and rules or the interpretation thereof change in the future, we could be subject to severe penalties or be forced to relinquish our interests in the VIEs, in our annual report on
Form 20-F for the year ended December 31, 2021, which is incorporated by reference in this prospectus for detailed discussion.
As used in this prospectus, we, us, our company, our, or Youdao refers to Youdao,
Inc. and its subsidiaries, and, in the context of describing our consolidated financial information, business operations and operating data, the VIEs and their subsidiaries. We refer to NetEase Youdao Information Technology (Beijing) Co., Ltd.
(Youdao Information), NetEase Youdao (Hangzhou) Smart Technology Co., Ltd. (Youdao Smart Technology) and NetEase Youdao Information Technology (Hangzhou) Co., Ltd. (Youdao Hangzhou) as the PRC
subsidiaries in the context of describing of their activities. We refer to Beijing NetEase Youdao Computer System Co., Ltd. (Youdao Computer) and Hangzhou NetEase Linjiedian Education Technology Co., Ltd. (Linjiedian
Education) as the VIEs in the context of describing their activities and contractual arrangements with us. The VIEs primarily conduct operations in China, and such VIEs are consolidated for accounting purposes but is not entities in which
we own equity, and our company does not conduct operations by ourselves.
We face various legal and operational risks and uncertainties as
a company based in and primarily operating in China. The PRC government has significant authority to exert influence on the ability of a China-based company, like us, to conduct its business, accept foreign investments or maintain our status as a
company listed on a U.S. stock exchange. For example, we face risks associated with regulatory approvals of offshore offerings, anti-monopoly regulatory actions, cybersecurity and data privacy, regulations on the use of variable interest entities,
as well as the lack of inspection from the U.S. Public Company Accounting Oversight Board, or PCAOB, on our auditors. The PRC government may also intervene with or influence our operations as the government deems appropriate to further regulatory,
political and societal goals. The PRC government has recently published new policies that significantly affected our industry and we cannot rule out the possibility that it will in the future further release regulations or policies regarding our
industry that could adversely affect our business, financial condition and results of operations. Any such action could cause the value of such securities to significantly decline or in extreme cases, become worthless.
Under relevant PRC laws and regulations, we are permitted to remit funds to the VIEs through loans rather than capital contributions. As a
result, Youdao, Inc. made capital contributions to our PRC subsidiaries through intermediate holding company, and were accounted as long-term investments of Youdao, Inc. In 2019, 2020 and 2021, Youdao, Inc. did not make any loans to the VIEs.
Youdao, Inc. extended loans to Youdao Information in 2020 and 2021, which were accounted as loans to subsidiary. These funds have been used by our PRC subsidiaries for their operations. The VIEs fund their operations primarily using cash generated
from operating and financing activities. Our PRC subsidiaries are permitted to pay dividends to their shareholders, and eventually to Youdao, Inc., only out of their retained earnings, if any, as determined in accordance with PRC accounting
standards and regulations. Such payment of dividends by entities registered in China is subject to limitations, which could result in limitations on the availability of cash to fund dividends or make distributions to shareholders of our securities.
For example, our PRC subsidiaries and the VIEs are required to make appropriations to certain statutory reserve funds or may make appropriations to certain discretionary funds, which are not distributable as cash dividends except in the event of a
solvent liquidation of the companies. Youdao, Inc. has not previously declared or paid any cash dividend or dividend in kind, and has no plan to declare or pay any dividends in the near future on our shares or the ADSs representing our ordinary
shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business. As of the date of this prospectus, we do not have cash management policies in place that dictate how funds are
transferred between Youdao, Inc., our subsidiaries, the VIEs and the investors. Rather, the funds can be transferred in accordance with the applicable PRC laws and regulations. For more information, see Item 4. Information on the
Company4.A. History and Development of the CompanyTransfer of Funds and Other