Youdao (DAO) Q2 2025 earnings summary

Executive summary

• Achieved first-ever profitable second quarter, with operating income of RMB 28.8 million versus a loss of RMB 72.6 million a year ago, driven by AI-native strategy and new product launches.

• Net revenues grew 7.2% year-over-year to RMB 1.4 billion (US$197.9 million), with strong performance in learning services and online marketing.

• Net loss attributable to shareholders narrowed to RMB 17.8 million, while non-GAAP net income reached RMB 12.5 million, both showing marked improvement year-over-year.

• Operating cash inflow was RMB 185 million, down 26.1% year-over-year due to strategic scaling back of certain courses.

• AI-driven strategy accelerated growth across learning services, online marketing, and smart devices.

Financial highlights

• Q2 net revenue: RMB 1.4 billion, up 7.2% year-over-year; learning services up 2.2%, smart devices down 23.9%, online marketing services up 23.8%.

• Gross margin declined to 43.0% from 48.2% year-over-year, mainly due to lower margins in online marketing services.

• Operating expenses reduced to RMB 580.6 million from RMB 709.3 million a year ago.

• Net loss attributable to shareholders: RMB 17.8 million, improved from RMB 99.5 million loss last year; non-GAAP net income: RMB 12.5 million.

• Net cash from operating activities: RMB 185 million.

Outlook and guidance

• Plans to further advance AI Native Strategy, optimize LLMs, and accelerate AI innovation in learning and advertising to boost productivity and ROI.

• Confident in maintaining Youdao Lingshi's growth momentum, with continued investment in AI and product enhancements.

• Smart devices segment expected to improve with new product launches and focus on business health.

• Advertising segment to benefit from AI Ad Placement Optimizer and strong gaming/overseas demand; growth expected to accelerate in H2.

• Commitment to sustainable customer value creation and strengthening financial metrics.