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 digital learning, 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.

• Maintained profitability for five consecutive quarters, with operating income for the first nine months at RMB 161.1 million.

• Net income attributable to shareholders was near zero in Q3 2025, compared to RMB 86.3 million or RMB 88.9 million last year.

• AI-powered solutions and generative AI applications are central to business strategy across learning, marketing, and smart devices.

Financial highlights

• Online marketing services revenue grew 51.1% year-over-year to RMB 739.7 million, setting a new record.

• Learning services revenue declined 16.2% year-over-year to RMB 643.1 million, reflecting a strategic focus on high-ROI customer acquisition.

• Smart devices revenue fell 22.1% year-over-year to RMB 245.8 million.

• Gross margin was 42.2% in Q3 2025, down from 50.2% in Q3 2024, mainly due to lower margins in online marketing services.

• Operating cash outflow for Q3 was RMB 58.6 million, a 31.4% year-over-year improvement.

Outlook and guidance

• Management remains confident in achieving full-year targets, including robust year-over-year operating profit growth and annual operational cash flow break-even for the first time.

• Expect learning services segment to return to year-over-year growth in the near term, with continued investment in AI-driven products and customer acquisition.

• Online marketing services expected to maintain strong growth, leveraging AI and expanding global partnerships.

• Continued focus on executing the AI-Native Strategy and expanding applications of the Confucius large language model.