HANGZHOU, China, Aug. 14, 2025 /PRNewswire/ -- Youdao, Inc. ("Youdao" or the "Company") (NYSE: DAO), an AI-powered solutions provider specializing in artificial intelligence applications for the learning and advertising verticals, today announced its unaudited financial results for the second quarter ended June 30, 2025.

Second Quarter 2025 Financial Highlights

   -- Total net revenues were RMB1.4 billion (US$197.9 million), representing a 
      7.2% increase from the same period in 2024.- Net revenues from learning 
      services were RMB657.8 million (US$91.8 million), representing a 2.2% 
      increase from the same period in 2024.- Net revenues from smart devices 
      were RMB126.8 million (US$17.7 million), representing a 23.9% decrease 
      from the same period in 2024. - Net revenues from online marketing 
      services were RMB632.9 million (US$88.3 million), representing a 23.8% 
      increase from the same period in 2024. 
 
   -- Gross margin was 43.0%, compared with 48.2% for the same period in 2024. 
 
   -- Income from operations was RMB28.8 million (US$4.0 million), compared 
      with loss from operations of RMB72.6 million for the same period in 2024. 
 
   -- Basic and diluted net loss per American depositary share ("ADS") 
      attributable to ordinary shareholders were RMB0.15 (US$0.02), compared 
      with RMB0.85 for the same period of 2024. Non-GAAP basic and diluted net 
      income per ADS attributable to ordinary shareholders were RMB0.11 
      (US$0.02) and RMB0.10 (US$0.01), respectively, compared with non-GAAP 
      basic and diluted net loss per ADS attributable to ordinary shareholders 
      of RMB0.82 for the same period of 2024. 

"Strong execution of our AI Native Strategy drove robust financial results in the second quarter, highlighted by our first-ever profitable second quarter. We released our latest Large Language Model (LLM) Confucius 3 in the second quarter, and open-sourced our Confucius 3-Math. Product wise, we launched the AI Essay Grading function in Youdao Lingshi, leading to a historical high of the retention rate. We also released AI Ad Placement Optimizer enabling end-to-end AI decision-making for our online marketing services. In addition, we deepened the exploration of new AI application scenarios, driving total sales of AI-driven subscription services to approximately 30% year-over-year growth," said Dr. Feng Zhou, Chief Executive Officer and Director of Youdao.

"Looking ahead, we will continue advancing our AI Native Strategy through scenario-driven optimization of our LLMs and accelerated technological innovation and implementation across learning and advertising, aiming to further boost learners' productivity and elevate advertising return on investment. We remain committed to sustainably creating customer value while strengthening our financial metrics," Dr. Zhou concluded.

Second Quarter 2025 Financial Results

Net Revenues

Net revenues for the second quarter of 2025 were RMB1.4 billion (US$197.9 million), representing a 7.2% increase from RMB1.3 billion for the same period of 2024.

Net revenues from learning services were RMB657.8 million (US$91.8 million) for the second quarter of 2025, representing a 2.2% increase from RMB643.8 million for the same period of 2024.

Net revenues from smart devices were RMB126.8 million (US$17.7 million) for the second quarter of 2025, representing a 23.9% decrease from RMB166.7 million for the same period of 2024, primarily due to the declined demands of consumer electronics in the second quarter of 2025.

Net revenues from online marketing services were RMB632.9 million (US$88.3 million) for the second quarter of 2025, representing a 23.8% increase from RMB511.2 million for the same period of 2024. The year-over-year increase was mainly attributable to the increased demands from gaming industry and overseas markets, which was driven by our continued investments in AI technology.

Gross Profit and Gross Margin

Gross profit for the second quarter of 2025 was RMB609.4 million (US$85.1 million), representing a 4.3% decrease from RMB636.8 million for the same period of 2024. Gross margin was 43.0% for the second quarter of 2025, compared with 48.2% for the same period of 2024.

Gross margin for learning services was 59.8% for the second quarter of 2025, kept flat the same period of 2024.

Gross margin for smart devices increased to 41.5% for the second quarter of 2025 from 30.3% for the same period of 2024. The improvement was mainly attributable to the higher gross margin arising from the newly launched Youdao Dictionary Pen since the second half of 2024.

Gross margin for online marketing services was 25.8% for the second quarter of 2025, compared with 39.1% for the same period of 2024. The decrease was mainly attributable to our strategic expansion of our client base for advertising services. As the collaboration with new clients remains in its nascent stage, the gross margin for these clients holds potential for future improvement.

Operating Expenses

Total operating expenses for the second quarter of 2025 were RMB580.6 million (US$81.0 million), compared with RMB709.3 million for the same period of last year.

Sales and marketing expenses for the second quarter of 2025 were RMB401.8 million (US$56.1 million), representing a decrease of 22.1% from RMB515.7 million for the same period of 2024. This decrease was attributable to the reduced marketing expenditures in learning services in the second quarter of 2025.

Research and development expenses for the second quarter of 2025 were RMB128.3 million (US$17.9 million), representing a decrease of 16.1% from RMB153.0 million for the same period of 2024. The decrease was primarily due to the decreased headcount for research and development employees, leading to payroll savings in the second quarter of 2025.

General and administrative expenses for the second quarter of 2025 were RMB50.4 million (US$7.0 million), representing an increase of 24.1% from RMB40.6 million for the same period of 2024. The increase was mainly attributable to an increase in employee related expenses and expected credit losses on our accounts receivables in the second quarter of 2025.

Income/(Loss) from Operations

As a result of the foregoing, income from operations for the second quarter of 2025 was RMB28.8 million (US$4.0 million), compared with loss from operations of RMB72.6 million for the same period in 2024. The margin of income from operations was 2.0%, compared with margin of loss from operations of 5.5% for the same period of last year.

Others, Net

Others, net for the second quarter of 2025 were RMB29.1 million (US$4.1 million) net loss, compared with RMB0.9 million net loss for the same period of 2024. Others, net for the second quarter of 2025 mainly included RMB25.7 million (US$3.6 million) impairment loss arising from certain long-term investments.

Net (Loss)/Income Attributable to Youdao's Ordinary Shareholders

Net loss attributable to Youdao's ordinary shareholders for the second quarter of 2025 was RMB17.8 million (US$2.5 million), compared with RMB99.5 million for the same period of last year. Non-GAAP net income attributable to Youdao's ordinary shareholders for the second quarter of 2025 was RMB12.5 million (US$1.7 million), compared with non-GAAP net loss attributable to Youdao's ordinary shareholders of RMB96.0 million for the same period of last year.

Basic and diluted net loss per ADS attributable to ordinary shareholders for the second quarter of 2025 was RMB0.15 (US$0.02), compared with RMB0.85 for the same period of 2024. Non-GAAP basic and diluted net income per ADS attributable to ordinary shareholders was RMB0.11 (US$0.02) and RMB0.10 (US$0.01), respectively, compared with non-GAAP basic and diluted net loss per ADS attributable to ordinary shareholders of RMB0.82 for the same period of 2024.

Other Information

As of June 30, 2025, Youdao's cash, cash equivalents, current and non-current restricted cash, and short-term investments totaled RMB617.0 million (US$86.1 million), compared with RMB662.6 million as of December 31, 2024. For the second quarter of 2025, net cash provided by operating activities was RMB185.0 million (US$25.8 million). Youdao's ability to continue as a going concern is dependent on management's ability to implement an effective business plan amid a changing regulatory environment, generate operating cash flows, and secure external financing for future development. To support Youdao's future business, NetEase Group has agreed to provide financial support for ongoing operations in the next thirty-six months starting from May 2024. As of June 30, 2025, Youdao has received various forms of financial support from the NetEase Group, including, among others, RMB878.0 million in short-term loan, and US$130.7 million in long-term loans maturing on March 31, 2027 drawn from the US$300.0 million revolving loan facility.

As of June 30, 2025, the Company's contract liabilities, which mainly consisted of deferred revenues generated from Youdao's learning services, were RMB856.7 million (US$119.6 million), compared with RMB961.0 million as of December 31, 2024.

Share Repurchase Program

On November 17, 2022, the Company announced that its board of directors had authorized the Company to adopt a share repurchase program in accordance with applicable laws and regulations for up to US$20 million of its Class A ordinary shares (including in the form of ADSs) during a period of up to 36 months. This amount was subsequently increased to US$40.0 million in August 2023. As of June 30, 2025, the Company had repurchased a total of approximately 7.5 million ADSs for a total consideration of approximately US$33.8 million in the open market under the share repurchase program.

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