Youdao (DAO) Q1 2025 earnings summary

Executive summary

• Achieved record Q1 operating income of RMB 104.0 million, up 247.7% year-over-year, despite a 6.7% decline in net revenues to RMB 1.3 billion due to lower learning services revenue.

• Net income attributable to ordinary shareholders was RMB 76.7 million, over six times higher than the same period last year.

• Focused on AI-driven growth and product innovation across learning services, online marketing, and smart devices, with new launches and international expansion.

• Operating cash outflow narrowed by 34.7% to RMB 255.5 million, reflecting improved financial efficiency.

• AI-driven product upgrades and digital content subscriptions contributed to improved profitability and margins.

Financial highlights

• Gross margin was 47.3% in Q1 2025, down from 49.0% year-over-year; learning services margin at 59.8%, smart devices at 52.3%, and online marketing at 30.5%.

• Total operating expenses reduced to RMB 510.2 million from RMB 651.6 million year-over-year.

• Non-GAAP net income attributable to shareholders was RMB 81.7 million, quadrupling year-over-year.

• Basic and diluted net income per ADS were RMB 0.65 and RMB 0.64, respectively.

• Cash, cash equivalents, and short-term investments totaled RMB 424.5 million as of March 31, 2025.

Outlook and guidance

• Management targets accelerated profit growth and operating cash flow break-even for full year 2025, leveraging AI-native strategies and the Confucius large language model.

• Learning services segment restructuring expected to complete in H2 2025, with revenue stabilization and growth in flagship services projected.

• Online marketing services revenue anticipated to show stronger growth in H2 2025, driven by overseas expansion, new AI-powered solutions, and deeper NetEase collaboration.

• Q2 operational losses expected to be significantly reduced year-over-year, with full-year profitability as a goal.

• Continued investment in proprietary AI technology and digital human applications.