This article first appeared on GuruFocus .
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Net Revenue:RMB1.3 billion, up 3.8% year-over-year.
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Operating Profit:RMB57.5 million, with a 4.3% operating margin.
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Net Operating Cash Outflow:RMB93.1 million, narrowed by 63.6% year-over-year.
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Learning Services Revenue:RMB627.5 million, up 4.2% year-over-year.
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Online Marketing Services Revenue:RMB611.1 million, up 20.9% year-over-year.
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Smart Devices Revenue:RMB109.4 million, down 42.6% year-over-year.
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Gross Profit:RMB602.3 million.
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Gross Margin for Learning Services:60.2%.
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Gross Margin for Smart Devices:39.9%.
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Gross Margin for Online Marketing Services:29.6%.
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Total Operating Expenses:RMB544.8 million.
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Net Income Attributable to Shareholders:RMB38.6 million.
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Non-GAAP Net Income Attributable to Shareholders:RMB44.9 million.
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Basic and Diluted Net Income per ADS:RMB0.33 and RMB0.32, respectively.
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Non-GAAP Basic and Diluted Net Income per ADS:RMB0.38 and RMB0.37, respectively.
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Contract Liability:RMB667 million as of March 31, 2026.
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Cash Equivalents and Short-term Investments:RMB515.2 million.
Release Date: May 21, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Youdao Inc ( NYSE:DAO ) reported a 3.8% year-over-year increase in net revenues, reaching RMB1.3 billion.
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The company achieved its seventh consecutive quarter of operating profitability with an operating profit of RMB57.5 million.
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Successful AI product launches, including Confucius 4 and EmotiVoice 2, are driving business growth and enhancing learning experiences.
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Online marketing services saw a significant 20.9% year-over-year revenue increase, driven by performance-based advertising and AI technology investments.
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AI-driven subscription services experienced robust growth, with total sales exceeding RMB100 million, representing over 70% year-over-year growth.
Negative Points
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Year-over-year operating profit declined by 44.7%, primarily due to proactive investments in strategic initiatives and a high comparison base from the previous year.
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Net revenue from smart devices decreased by 42.6% year-over-year, reflecting a decline in demand.
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Gross margin for smart devices dropped to 39.9% from 52.3% in the same period of the previous year.
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Operating income margin decreased to 4.3% from 8% in the same period last year.
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Net income attributable to ordinary shareholders fell to RMB38.6 million from RMB76.7 million in the same period last year.
Q & A Highlights
Q: Could the management share the strategy regarding your AI applications, specifically LobsterAI and Youdao Baoku? A: Feng Zhou, CEO, explained that Youdao is focusing on AI applications in education, productivity, and advertising. The strategy involves developing specialized models and algorithms, such as the Confucius 4 for education and Confucius Translation for real-time voice translation. LobsterAI and Youdao Baoku are designed to handle complex tasks and have significant long-term potential. The company is also making Youdao AI-native internally to improve productivity and efficiency.
Q: Can you provide insights on the retention performance and recent updates? A: Peng Su, Senior VP, highlighted that Youdao's retention rate exceeded 75%, showing strong user recognition of their AI interactive learning formats. The company is leveraging its Confucius large language model to expand AI applications across the learning lifecycle, aiming to bridge technology and accessibility for users nationwide.
Q: What is the outlook for the advertising business in Q2? A: An unidentified participant mentioned that the advertising business is driven by AI evolution, with AI agents like MagicBox enhancing ad creative efficiency. The company expects continued growth in advertising, focusing on gaming, AI applications, globalizing Chinese brands, and social apps and finance. Advertising remains a primary contributor to operating profit.
Q: Could management elaborate on the seasonality of operating profit? A: Peng Su explained that Youdao's financial metrics exhibit seasonality, with stronger revenue in the second half of the year. Operating profit is typically higher in H2 due to increased revenue levels. The company expects profit cadence to return to historical norms in 2026, with H2 outperforming H1.
Q: How is Youdao addressing the demand for AI-driven learning services? A: Feng Zhou stated that Youdao is expanding its AI applications across the learning lifecycle, including diagnostics, assessments, and personalized learning paths. The company aims to enhance AI-driven learning efficiency and accessibility, leveraging its Confucius large language model to deepen its footprint in AI interactive learning formats.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
