Youdao (DAO) investor relations material

Executive summary

• Net revenues for Q2 2026 reached RMB 1.5 billion (US$216.2 million), up 3.5% year-over-year, with operating profit at a record RMB 111.5 million, nearly fourfold year-over-year.

• Eighth consecutive quarter of operating profitability, with net income turning positive at RMB 73.8 million, compared to a net loss in Q2 2025.

• AI-driven strategy and the Confucius large language model accelerated growth and innovation across learning, marketing, and smart device segments.

• First half 2026 net revenues totaled RMB 2.8 billion, up 3.6% year-over-year, and operating profits rose 27.3% to RMB 169 million.

• Non-GAAP net income attributable to ordinary shareholders was RMB 90.6 million, over sevenfold increase year-over-year.

Financial highlights

• Q2 2026 total net revenue: RMB 1.5 billion (US$216.2 million), up 3.5% year-over-year.

• Learning services revenue: RMB 795.6 million, up 20.9% year-over-year; smart devices revenue: RMB 86.8 million, down 31.5%; online marketing services revenue: RMB 584.4 million, down 7.7%.

• Gross margin improved to 48.9% in Q2 2026 from 43.0% in Q2 2025; learning services gross margin: 65.5%, smart devices: 32.8%, online marketing: 28.7%.

• Net income attributable to shareholders: RMB 73.8 million, compared to a net loss of RMB 17.8 million in Q2 2025; non-GAAP net income: RMB 90.6 million.

• Net cash from operating activities: RMB 334.2 million; cash and short-term investments: RMB 849.3 million as of June 30, 2026.

Outlook and guidance

• Continued focus on AI-native strategy and vertical LLMs to drive growth in learning and advertising.

• Gross margin expected to continue improving in Q3 2026, with smart devices margin anticipated to recover to over 40% in the second half.

• Prioritizing profitable and sustainable growth over rapid expansion in online marketing.

• Multiple new AI agent and model product launches planned for September 2026.

• Focus remains on sustainable growth, operational efficiency, and expanding AI applications.