Youdao (DAO) Q3 2025 earnings summary

Executive summary

• Net revenues for Q3 2025 reached RMB 1,628.5 million, up 3.6% year-over-year, driven by strong growth in online marketing services and strategic investments in AI and customer acquisition, despite declines in learning services and smart devices.

• Operating profit for Q3 was RMB 28.3 million, down 73.7% year-over-year due to increased investments and a high comparison base from last year's one-off STEAM course impact.

• Net income attributable to shareholders was RMB 0.1 million, with non-GAAP net income per ADS at RMB 0.08; net income reached RMB 4.0 million, reversing a loss in the previous quarter.

• For the first nine months, operating profit was RMB 161.1 million, up 149.2% year-over-year, marking five consecutive quarters of profitability.

• AI-powered solutions and generative AI applications are central to business strategy across learning, marketing, and smart devices, with AI-driven subscription sales up over 40% year-over-year.

Financial highlights

• Q3 net revenue: RMB 1,628.5 million (+3.6% YoY); learning services: RMB 643.1 million (-16.2% YoY); smart devices: RMB 245.8 million (-22.1% YoY); online marketing services: RMB 739.7 million (+51.1% YoY).

• Q3 gross profit: RMB 687.9 million (-12.9% YoY); gross margin: 42.2% (down from 50.2% YoY); learning services 58.5%, smart devices 50.3%, online marketing services 25.4%.

• Q3 operating expense: RMB 659.6 million (down from RMB 789.5 million YoY); operating income margin: 1.7% (vs. 6.8% YoY).

• Q3 net income attributable to shareholders: RMB 0.1 million (vs. RMB 86.3 million YoY); non-GAAP net income per ADS: RMB 0.08.

• Operating cash outflow for Q3: RMB 58.6 million, a 31.4% YoY improvement; contract liabilities at quarter-end: RMB 751.1 million.

Outlook and guidance

• Confident in achieving full-year targets: robust YoY operating profit growth and annual operational cash flow break-even for the first time.

• Expectation for learning services segment to return to YoY growth in the near term, with continued investments in AI and customer acquisition.

• Q4 expected to generate strong operating cash inflow, supported by seasonality and high retention in Ling Shi.

• Focus on leveraging generative AI to accelerate growth in operating income across all business segments and expand applications of the Confucius large language model.